by Robert L. Gauss et al.
Ice Miller LLP is an IMA Member
The Department of Labor (“DOL”) has proposed expanding the electronic distribution options available to the administrators of employee pension benefit plans subject to the Employee Retirement Income Security Act of 1974 (“ERISA”). The DOL’s Proposed Rule (“Proposed Rule”), issued October 23, 2019 and available here, responds to President Trump’s 2018 executive order, available here, to reduce the cost of furnishing notices and disclosures required by ERISA and the Internal Revenue Code.
The Proposed Rule offers a safe harbor for administrators to satisfy ERISA’s distribution standards by making required disclosures available online and providing notice of their availability via email and/or smartphone addresses.
For non-ERISA, public sector plans (i.e. governmental retirement plans), the DOL Rules are not binding but serve as useful guidance on electronic disclosure. Thus, the DOL’s Proposed Rule should be considered.
CURRENT GUIDANCE
ERISA and its regulations impose standards for the delivery of information required to be provided to participants, beneficiaries, and others under Title I of ERISA.
2002 Safe Harbor. Regulations issued in 2002 provided the first safe harbor for electronic disclosure. However, the safe harbor is currently available for disclosures to only two types of individuals:
- participants who are able to access electronic documents anywhere they are expected to perform their job duties, and for whom access to an electronic information system is an integral part of those duties; and
- participants, beneficiaries, and others who affirmatively consent to electronic distribution after adequate notice.
Subsequent Guidance. Subsequent DOL guidance, including Field Assistance Bulletin 2006-03, Field Assistance Bulletin 2008-03, and Technical Release 2011-03R, provided opportunities for employers and administrators to deliver additional types of information electronically, including, for example, pension benefit statements and notices for qualified default investment alternatives.
PROPOSED RULE
The DOL’s Proposed Rule would greatly expand the safe harbor for providing required retirement plan information electronically. The safe harbor encompasses any documents required under Title I and any individual entitled to the document. In general, the safe harbor allows administrators to satisfy ERISA’s distribution standards by making each document available online and providing electronic notice of its availability, as long as the recipient either:
- provides an electronic address (such as an email or smartphone number); or
- is an employee assigned an electronic address by the employer for the purpose of electronic distribution.
In order to qualify for the proposed safe harbor, administrators must provide an initial paper notice to the individual stating a required document will be available online and the ability to opt out of the electronic notice. Then, the administrators must provide an electronic notice that the document is available online. The administrator also must ensure there is a website available for accessing these documents.
Notice of Internet Availability. The bulk of the Proposed Rule addresses standards for the required electronic notice and the website providing access to the documents. The notice itself must be:
- Delivered at the time the required document is made available on the website, unless delivered annually as part of a “combined” notice;
- Delivered to the electronic address provided or assigned;
- Delivered separately from other disclosures, unless delivered as a “combined” notice;
- Written in a manner calculated to be understood by the average plan participant; and
- Written in accordance with basic content standards.
Website Requirements. The website must offer access to the required document, in a manner calculated to be understood by average participants, no later than the date on which the administrator is required to provide the document. In addition, the document must remain available online until superseded, be presented in a widely available format, and be searchable electronically. The administrator must take measures reasonably calculated to ensure the website protects the confidentiality of personal information. The administrator also must monitor, and promptly work to resolve, invalid electronic addresses.
Combined Notice. The Proposed Rule allows for a single, “combined” notice of online availability for one or more of the following documents:
- Summary plan descriptions;
- Summary of material modifications;
- Summary annual reports;
- Annual funding notices;
- Investment-related disclosures;
- Qualified default investment alternative notices; and
- Pension benefit statements.
Severance from Employment. The Proposed Rule anticipates the need to continue to furnish information following an employee’s severance from employment. Administrators must take steps to ensure the continued accuracy of the employee’s contact information.
Right to Opt Out. Of course, even if an administrator distributes documents electronically, individuals have a right to opt out and receive only paper versions of some or all of the required documents.
Welfare Plans. The Proposed Rule reserves the right to extend the safe harbor to health and welfare plans in the future.
WHAT HAPPENS NEXT?
The DOL has requested comments regarding the Proposed Rule. Comments are due on or before November 22, 2019.
Employers cannot yet rely on the Proposed Rule, but they should consider discussing with their retirement plan administrator the potential benefits of the proposed electronic distribution standards. Keep in mind that the Proposed Rule is intended to provide an alternative for electronic disclosures, not to replace existing disclosure rules. In addition, the DOL has indicated that, if employers are so inclined, employers may continue to rely on the current safe harbor rules even after the Proposed Rule is finalized.
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