HB Counsel Client Alert: “Keeping Up With the Times: DOL Proposes New Rule for Employee Retirement Plan Online Disclosures”
On October 23, 2019, the Department of Labor (“DOL”) published a much needed proposed rule outlining a new safe harbor for the electronic distribution of certain required notices under the Employee Retirement Income Security Act of 1974 (“ERISA”). If adopted, the proposed regulations would allow plan administrators that satisfy certain conditions, to provide participants and beneficiaries with select disclosures online.
While this is welcome news, unfortunately the new safe harbor is applicable only to retirement plan disclosures; therefore, plan administrators of employee health and welfare plans must continue to operate under the current ERISA disclosure requirements.
Background and Review of ERISA Disclosure Requirements
ERISA generally requires that certain plan information be disclosed to employee benefit plan participants and beneficiaries (e.g., summary plan descriptions, summary of material modifications (“SMM”), summary annual report, etc.). ERISA further provides standards for delivery of all notices and disclosures to participants and beneficiaries of employee benefit plans. The overarching theme of the notice and delivery requirements in the regulations is to ensure that plan administrators use a method of delivery that is reasonably calculated to ensure actual receipt of the required information (i.e., hand delivery or first class mail).
The DOL last amended the ERISA disclosure requirements in 2002 (“the 2002 safe harbor”). This amendment provided the initial safe harbor for distribution of ERISA required disclosures by electronic media, such as sending via email or posting on the Intranet. However, the 2002 safe harbor contained very specific and burdensome conditions to satisfy for electronic distribution.
The 2002 safe harbor is only available if certain conditions are met:
- The plan administrator takes appropriate and necessary measures reasonably calculated to ensure that the system for furnishing documents results in actual receipt of transmitted information and protects the confidentiality of personal information relating to the individual’s accounts and benefits;
- The electronically delivered documents are prepared and furnished in a manner that is consistent with the style, format, and content requirements applicable to the particular document;
- Notice is provided to each participant, beneficiary, or other individual, in electronic or non-electronic form, at the time a document is furnished electronically, that apprises the individual of the significance of the document when it is not otherwise reasonably evident as transmitted and of the right to request and obtain a paper version of such document; and
- Upon request, the participant, beneficiary or other individual is furnished a paper version of the electronically furnished documents.
In addition, the 2002 safe harbor only applies to two categories of recipients:
- Participants who have the ability to effectively access documents furnished in electronic form at any location where the participant is reasonably expected to perform his or her duties as an employee and with respect to whom access to the employer’s or plan sponsor’s electronic information system is an integral part of those duties; and
- Participants, beneficiaries, and other persons who are entitled to documents who do not fit into the first category, but who affirmatively consent to receive documents electronically.
Although this amendment was implemented in an effort to keep up with developing technology, over time, this limited safe harbor has proven to hinder the broader use of delivering required plan documents by electronic means. Many have requested that the DOL issue guidance to provide a more efficient means for plan administrators to satisfy distribution requirements electronically.
|Employer Pointer. Many employee health and welfare plans are going through a renewal and beginning a new plan year during this time of year.|
It is important for plan administrators to refresh themselves on what disclosures must be made to plan participants and beneficiaries and determine whether or not these disclosures may be distributed electronically.
An Alternative Method for Disclosure through Electronic Media – Notice and Access
The proposed rule released by the DOL in October 2019 seeks to expand upon the 2002 safe harbor. This addition, if adopted, would provide another method for compliance with ERISA’s general standard for delivery of employee benefit plan notices and disclosures. The proposed new rule does not replace the current 2002 safe harbor. Thus, employers may continue to rely on the 2002 safe harbor rule if and when the proposed rule becomes final.
There are several very important concepts employers need to understand regarding the proposed rule.
|Retirement Plans Only. The proposed rule applies only to retirement plans; it does not cover welfare benefit plans. Plan administrators of employee health and welfare benefit plans are not impacted by the proposed rule and must continue to rely upon the 2002 safe harbor for purposes of electronic disclosure.|
Applies to “Covered” Only. The proposed rule is only applicable to “covered individuals” and “covered documents.”
A covered individual, for purposes of the rule, is defined as a participant, beneficiary or other individual entitled to covered documents and who, as a condition of employment, at commencement of plan participation, or otherwise, provides the employer, plan sponsor, or administrator an email address or phone number.
Note: If an email address or phone number is assigned by an employer to an employee for this purpose, the employee is treated as if he or she provided the employer with an email address or phone number.
A covered document is defined as any document that the plan administrator is required to furnish to participants and beneficiaries under Title I of ERISA. This does not include any document that must be furnished upon request. Covered documents include documents that must be furnished solely because of the passage of time (e.g., summary plan description, pension benefit statements and summary annual reports) as well as documents that must be furnished due to a specific triggering event other than the passage of time (e.g., SMM or blackout notice).
Notice is Required. A plan participant or beneficiary must be provided proper notice to know an important employee benefit plan disclosure is available on a particular website. Therefore, the plan administrator is required to furnish a “notice of internet availability” at the time the covered document is made available on a website.
For example, if a particular notice is due to plan participants and beneficiaries on January 1, 2020, the plan administrator would be deemed to have satisfied that requirement by providing a notice of internet availability on or before January 1, 2020.
The proposed rule requires that certain content be included in the notice of internet availability. The notice must include the following information:
- A prominent statement (such as a title or subject line) that reads: “Disclosure About Your Retirement Plan”;
- A statement that important information about the plan is now available at the website address provided;
- A brief description of the covered document;
- The internet website address where the covered document is available;
- A statement that the covered individual has the right to request and obtain a paper version of the covered document free of charge;
- An explanation of how to exercise the right to request and obtain a paper version of the covered document free of charge;
- A statement of the right to opt-out of receiving covered documents electronically;
- An explanation of how to exercise the right to opt-out of receiving covered documents electronically; and
- A telephone number to contact the plan administrator or other designated representative of the plan.
In addition, the notice of internet availability must be drafted in a form and manner to clearly convey the importance of the disclosure being described. The notice must:
- Be furnished electronically to the email address provided by the participant;
- Contain only the content specified above, except for pictures or logos that the plan administrator may wish to include, so long as they are not misleading;
- Be furnished separately from any other documents or disclosures furnished to the covered individuals; and
- Be written in a manner calculated to be understood by the average plan participant.
If a plan administrator meets these notice requirements, then a participant has been properly notified to go to a particular website to access pertinent employee benefit plan disclosures, or to opt-out and receive their paper copy.
Website Must be Established and Maintained. The plan administrator is held responsible for ensuring that the internet website used to host the disclosures is established and maintained. That way, covered documents remain easily accessible to covered individuals at all times.
Right to Opt-Out of Electronic Delivery. In order to respect the wishes of those who prefer to receive documents in paper form, the DOL has provided two safeguards for these covered individuals:
- First, upon request, a plan administrator must furnish a paper copy of the covered document at no charge to the covered individual as soon as is reasonably practicable.
Note: Only one paper copy of any one covered document is required to be provided free of charge.
- Second, plan administrators must offer covered individuals a broad opt-out right in case they wish to receive a paper copy of all covered documents. If a covered individual chooses the global opt-out, the plan administrator must promptly comply with the election and all future covered documents must be provided in paper form.
Covered individuals must also have the right to “opt back in” at any time.
In addition, the proposed rule requires that the system for furnishing the notice of internet availability must be designed to alert the plan administrator of an invalid or inoperable email address. Upon such notification, the plan administrator is to treat the covered individual as if he or she had elected to opt-out, and provide them a paper copy.
Initial Notification of Default Electronic Delivery and Right to Opt-Out. The DOL believes it is important for all covered individuals that are accustomed to the current ERISA delivery rules to be notified that the plan administrator is adopting a new method of electronic delivery, on paper.
Before a participant or beneficiary is to begin receiving disclosures online, they must be provided with a paper notice stating that going forward they will receive some or all future retirement plan information electronically.
This notice, similar to the notice of internet availability, must state the following:
A notice will be furnished to an email address, that the individual has the right to request paper copies or to opt-out of electronic delivery, and how to exercise that right.
This means that all new employees who are to be covered by the new safe harbor will need to receive this notice as well.
Termination of Employment. There is a special rule regarding severance of employment, which states that the plan administrator must take steps to ensure that terminated employees retain access to certain ERISA disclosures. This may mean that the employer will have to obtain a new email address from the individual following their termination.
Consolidation of Certain Notices. While the proposed rule generally requires that a notice of internet availability go out for each covered document, there is a special rule allowing a plan administrator to furnish one notice that combines the aforementioned content requirements, for one or more of the most recurring covered documents. The covered documents allowed to be consolidated include: (1) a summary plan description; (2) a SMM; (3) a summary annual report; (4) an annual funding notice; (5) an investment-related disclosure under 29 CFR 2550.404a-5(d); (6) a qualified default investment alternative notice; and (7) a pension benefit statement.
Technical Difficulties. If a plan administrator implements reasonable compliance procedures and takes prompt action to ensure that covered documents become available as soon as practicable following an unforeseeable technical event, then the plan administrator will be deemed to have satisfied the safe harbor for ERISA disclosure obligations.
What Happens Next?
Request for Comments and Information
The DOL is accepting comments on the proposed rule for thirty (30) days after its release on October 23, 2019. In addition, there is a request for information (“RFI”), which would allow interested individuals to dive into whether any additional changes to ERISA’s general disclosure framework could be made to make it even more effective.
If adopted, the new safe harbor would be effective sixty (60) days following the publication of the final rule in the Federal Register. Plan administrators would be free to take advantage of the safe harbor at any time on or after its applicability date. Therefore, the DOL has proposed that the new safe harbor apply to employee benefit plans on the first day of the first calendar year following the publication of the final rule.
Other ERISA Plans Remain in Waiting
As previously noted, the proposed rule, if adopted, would only be applicable to pension benefit plans subject to ERISA. The safe harbor does not apply to employee health welfare benefit plans. Thus, such plans must continue to wait for the DOL to issue similar guidance.
While the requirements of the safe harbor seem extensive, if passed, the proposed rule will provide pension plan administrators an alternative manner to electronically distribute ERISA required disclosures with great administrative and monetary relief.
We will continue to monitor this issue and provide an update when the DOL issues similar guidance applicable to health and welfare benefit plans.
The content herein is provided for educational and informational purposes only and does not contain legal or tax advice. Please contact our office if you have any questions about ERISA disclosure requirements and electronic distribution for your employee health and welfare benefit plan.
Dated: November 21, 2019