Does One Small Step for the DOL = One Giant Leap for Plan Administrators? DOL Issues Final Rule on Retirement Plan Electronic Disclosures

On May 27, 2020, the Department of Labor (DOL) finally entered the 21^st century by issuing its final rule permitting plan sponsors to provide certain retirement plan disclosures to participants electronically.  The final rule updates the DOL’s October 22, 2019 proposed rule with minimal changes.

The final rule provides a safe harbor for retirement plan administrators to provide certain required documents to participants electronically by posting them on a website under a “notice-and-access” framework or by sending an email.  Consistent with the proposed rule, the new safe harbor applies only to retirement plans and not to health and welfare plans.  The final rules will become effective on July 27, 2020, but plan administrators may rely on the new rules effective immediately.

Impact of the Final Rule on the 2002 Safe Harbor and Other Guidance

The new safe harbor expands the availability of electronic disclosures beyond what was permitted under the DOL’s “wired at work” safe harbor issued in 2002.  The 2002 safe harbor generally allows electronic disclosures to participants who are “wired at work” or who have opted into receiving electronic disclosures.  Plan administrators may still rely on the 2002 safe harbor, which many plan administrators may find preferable and less complicated.

However, the final rule states that certain delivery methods that the DOL had previously approved for specific ERISA disclosures are no longer available, having been superseded by the new safe harbor.  Specifically, plan administrators will no longer be able to provide pension benefit statements or participant-level fee disclosures using a “continuous access website,” as permitted under Field Administrative Bulletin 2006-03 issued in 2006.

The new safe harbor also arrives as the DOL recently provided temporary relief for many notice and disclosure obligations required under ERISA and DOL regulations during the COVID-19 pandemic.  Under Notice 2020-01, employers who have lost their ability to mass mail compliance notices during the COVID-19 pandemic can temporarily delay distribution, or distribute notices electronically, in many cases.  See our previous client alert here.

Who May be Given Electronic Disclosures?

Under the new safe harbor, electronic disclosures may be provided to “covered individuals”.  “Covered individuals” are participants, beneficiaries, and any other person who affirmatively provides the employer, plan sponsor, or plan administrator with an electronic address, such as an email address or smartphone number.  An employer-assigned email address meets this requirement if it is used for at least one purpose other than for the employer to send electronic disclosures to the individual.

What Documents May be Disclosed Electronically?

“Covered documents” may be disclosed electronically.  “Covered documents” are documents that retirement plan administrators are required to furnish to participants and beneficiaries under Title I of ERISA, such as summary plan descriptions, summaries of material modifications, summary annual reports, fee disclosures, and annual funding notices.

“Covered documents” do not include documents that are required to be furnished only on request, such as the plan document, the trust agreement, or the plan’s latest annual report (Form 5500).  In addition, “covered documents” do not include documents within the jurisdiction of the IRS, such as 401(k) plan safe harbor notices, notices to interested parties in connection with IRS determination letter filings, and special tax notices relating to plan distributions. However, many participant notices required by the IRS may be distributed electronically if existing IRS electronic disclosure rules are satisfied.

Initial Notice and Right to Opt-out

Covered individuals must be furnished with an initial notification, on paper, that the way they currently receive retirement plan disclosures (e.g., paper delivery in the U.S. mail) is changing. The notice must inform the covered individuals of the new electronic delivery method, the electronic address that will be used, and the right to opt out if paper disclosures are preferred. The notice must be given before the plan may use the new safe harbor.

Website Posting – The “Notice-and-Access” Framework

Notice of Internet Availability.  Under the “notice-and-access” framework, a written notice of internet availability (“NOIA”) must be furnished to an individual for each covered document made available on a website.  The NOIA must be furnished at the time a document is made available, unless an administrator is furnishing a combined NOIA for multiple covered documents.  For example, a combined NOIA can be used for summary plan descriptions and annual disclosures.  However, a combined NOIA will not be effective for covered documents required to be furnished upon the occurrence of a specific event, such as a blackout notice, or covered documents requiring action by a covered individual by a particular deadline.  If a combined NOIA was furnished in the previous plan year, then the next plan year’s combined NOIA must be furnished no more than 14 months later.

The system for furnishing a NOIA must alert a plan administrator of invalid or inoperable electronic addresses.  The plan administrator must promptly take reasonable steps to fix the problem (e.g., by requesting a secondary, valid email address from the recipient).  If the problem cannot be fixed, the plan administrator must send a paper copy of the covered document to the covered individual.  Plan administrators must take similar steps upon an individual’s termination of employment to ensure that they have an up-to-date electronic address.

Content of Notice of Availability.  The final rule provides that the NOIA must contain certain information, including:

1. A prominent statement that reads: “Disclosure About Your Retirement Plan.”
2. A statement that reads: “Important information about your retirement plan is now available. Please review this information.”
3. The name and a brief description of the available covered document.
4. The web address, or a hyperlink to the web address, where the covered document is available.
5. A statement of the right to request a paper copy of the covered document, free of charge, and an explanation of how to exercise this right.
6. A statement of the right to opt out of electronic delivery of the covered document, free of charge, and an explanation of how to exercise this right.
7. A warning that the covered document is not required to be available on the website for more than one year or, if later, after it is superseded by a newer version of the document.
8. A contact telephone number for the plan administrator or designated representative of the plan.

Standards for Internet Website.  The final rule also provides requirements for the website and content posted to it.  Specifically, the plan administrator must ensure each covered document posted to the website is:

1. Available by the ERISA deadline for furnishing the document.
2. Available for at least one year (or, if later, after it is superseded by a revised version). Surprisingly, it appears that a superseded document must remain on the website for at least one year from the date that it was originally posted.
3. Presented in a manner that an average plan participant will understand.
4. Searchable electronically by numbers, letters, or words so participants can quickly find information about specific issues.
5. Available in a widely used format that allows the document to be permanently retained electronically.

Email Delivery

The final rule allows for the direct delivery of required disclosures to individuals by email, with the documents either in the body of the email or as an attachment.  The actual email with disclosures attached has to include a specific subject line, identification or brief description of the documents and mandatory statement of rights to paper documents or to opt out. Similar to failed NOIA deliveries, the plan administrator must follow up on failed email deliveries.

Conclusion

The DOL has taken a significant digital step forward with the issuance of this final rule.  Employers and plan sponsors who want to take advantage of electronic delivery of retirement plan documents should consult with their recordkeepers and third-party administrators as soon as possible to determine whether and when their systems can implement the new safe harbor.

If you have any questions about the final rule, please contact the author or another member of the Miller Johnson employee benefits practice.