Following up on their proposed regulations from October 2019, the Department of Labor (“DOL”) on May 21, 2020 issued final regulations regarding the electronic disclosure of required information to participants in employee retirement plans under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). The new final regulations are effective July 26, 2020, but employers and plan administrators may start implementing them sooner. The final regulations do not apply to required disclosures for employee welfare benefit plans.
The final regulations provide a “safe harbor” method for employers to deliver required disclosures under ERISA by means of email, mobile application or website. Compliance with the DOL final regulations is optional and employers are not required to adopt the new regulatory safe harbor; they even may elect to do so with respect to some but not all of their plan participants. However, because the safe harbor provides a clearly delineated method to ensure compliance with ERISA’s disclosure requirements, most plan sponsors will likely find it beneficial to begin using these delivery procedures as soon as possible.
Initial Paper Notice of Default Electronic Delivery and Right to Opt Out.
Before utilizing the new regulatory safe harbor, retirement plan administrators must notify each covered individual on paper that covered documents (i) will be provided electronically to an electronic address; (ii) identify the electronic address that will be used for the covered individual; (iii) provide any instructions necessary to access the covered documents; and (iv) include a cautionary statement regarding the time period the covered document is required to be available on the website (i.e., one year or until superseded, whichever occurs first). The notice must also include a statement of the covered individual’s right, free of charge, to request and obtain a paper version of a covered document or opt out of electronic delivery, and an explanation of how to exercise these rights.
“Covered Individuals” under the Regulatory Safe Harbor
The final regulations apply only to “covered individuals,” defined as participants, beneficiaries or other individuals entitled to covered documents and who provide the employer, plan sponsor, or administrator with an email address or internet-connected mobile computing device (a smart phone number capable of receiving text messages). Employers may satisfy this requirement by providing retirement plan participants with an email address in connection with their employment, but employers and plan administrators cannot assign work email addresses for non-employee spouses or beneficiaries. When an employee for whom the employer provides an electronic address terminates employment, the plan administrator must take reasonable measures to obtain a new electronic address or allow continued access to work email to continue to receive required documents.
“Covered Documents” under the Regulatory Safe Harbor
For purposes of the final regulations, “covered documents” include any document that the plan administrator is required to furnish to participants and beneficiaries of a retirement plan (the only exception being the documents that must be furnished at the request of a covered individual, such as a plan document). This includes documents such as a plan’s summary plan description, summary annual report, and investment-related disclosures.
The final regulations require retirement plan administrators to provide and maintain a website or mobile application for covered individuals to access the required documents. The regulations do not specify any specific technologies or software that must be used for the website, but require that the plan administrator take measures reasonably calculated to protect the security and privacy of covered individuals’ information. They can use hyperlinks that take covered individuals directly to the website.
Notice of Internet Availability
Retirement plan administrators must furnish a notice of internet availability (“NOIA”) at the time the covered document is made available on the website.
The NOIA must include a legend, title or subject line that reads “Disclosure About your Retirement Plan” and the following statement “Important information about your retirement plan is now available. Please review this information.” The NOIA must also identify the covered document by name and include a brief description if the name of the covered document does not adequately describe the covered document. For example, “quarterly benefit statement” would not require a brief description, but a “blackout notice” would. Covered documents must remain on the website until they are superseded by a new version, but in no event less than one year from the date they are first posted. The NOIA must include the internet website address, or a hyperlink to the address where the document is available. The NOIA must advise covered individuals of their right, free of charge, to request paper copies or opt out of electronic delivery and must include a cautionary statement regarding the time period the covered document is required to be available on the website. And finally, the NOIA must provide a telephone number to contact the plan administrator or other designated representative of the plan.
The NOIA must be furnished electronically to the covered individual’s electronic address and be written so that the average plan participant can understand what is being conveyed. The system must alert the plan administrator of an individual’s invalid or inoperable electronic address, and the plan administrator must take reasonable steps to correct the address or treat the individual as having opted out of electronic delivery.
Right to Paper Copies or to Opt Out of Electronic Delivery
The final regulations contain two safeguards for ensuring that covered individuals may receive covered documents on paper, mailed or delivered to them. The first safeguard requires that upon request from a covered individual, the retirement plan administrator must promptly furnish to that individual at no charge a paper copy of a covered document. Only one copy of the covered document must be provided free of charge (plan administrators may charge for additional copies of the same covered document).
The second safeguard allows covered individuals to “globally” opt out of electronic delivery and receive all covered documents in paper form. Plan administrators may offer additional opt-out election options, such as a document-by-document opt-out or one based on categories or classifications of covered documents.
This new safe harbor presents a welcome change from the DOL’s prior (and substantially outdated) electronic disclosure rules, which applied only to a limited group of plan participants. Plan sponsors and administrators should update their disclosure procedures as soon as possible to ensure compliance with this new safe harbor.
For additional information, including assistance with updating your administrative procedures to comply with this new safe harbor, please contact Shad Fagerland ([email protected]), Scott Rain ([email protected]) or your regular SD Retirement Solutions contact person.
You’ve heard our thoughts… We’d like to hear yours
The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at [email protected].
Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.