On May 27, 2020, the United States Department of Labor (DOL) published its highly-anticipated Default Electronic Disclosures by Employee Pension Benefit Plans Under ERISA Final Rule (the E-Disclosure Final Rule), which establishes a new, voluntary safe harbor allowing plan administrators to notify covered individuals that retirement plan disclosures will be made available on a website or mobile app. The new safe harbor also allows plan administrators to deliver those disclosures via email to covered individuals. For those who prefer hard copy disclosures, they may affirmatively opt out of electronic delivery and will be able to elect to receive paper disclosures instead.
Background: Original Delivery Standards for ERISA Disclosures
The DOL established a safe harbor under its 2002 E-Disclosure Rule for use of electronic media to furnish employee benefit plan disclosures to two types of employees: (1) “wired at work” employees, meaning those with access to the employer’s electronic information system, and (2) individuals who may not have access to the employer’s network but who nonetheless consent to receive documents electronically. The 2002 E-Disclosure Rule also set forth requirements regarding consent to and rejection of electronic disclosure.
Since the 2002 E-Disclosure Rule, the DOL has issued guidance on occasion allowing for different electronic delivery methods in certain circumstances. In 2018, the President issued Executive Order 13847, “Strengthening Retirement Security in America” (the 2018 Order), which instructed the DOL, in consultation with the Treasury Department, to review ways to enhance the effectiveness of required plan disclosures, while reducing the costs and regulatory burden associated with distributing such notices. The joint effort of the Treasury Department and the DOL is apparent in the E-Disclosure Final Rule.
The new safe harbor is designed to be an alternative to, rather than a replacement of, the DOL’s 2002 safe harbor. Plan administrators may continue to rely on the prior safe harbor for electronic delivery or may furnish paper documents by hand-delivery or by mail.
Scope of New E-Disclosure Rule and Safe Harbor
Plan administrators may rely on the new E-Disclosure Final Rule for the following individuals: any covered individual (participant, beneficiary or other individual) who provides the employer, plan sponsor or administrator with an electronic address, such as an email address or smartphone number, for purposes of receiving covered documents. Alternatively, if an employer assigns an electronic address to an employee for employment-related purposes that include but are not limited to the delivery of covered documents, the employee will be viewed as having provided the electronic address, and thus will be treated as a covered individual.
The E-Disclosure Final Rule applies to any document that plan administrators are required to furnish to covered individuals under Title I of ERISA, such as summary plan descriptions, summaries of material modifications, pension benefit statements, summary annual reports, fee disclosures, annual funding notices, safe harbor notices, ERISA 404(c) disclosures (i.e., investment information for participant-directed accounts), QDIA notices and blackout notices.
However, the Rule does not apply to documents that are required to be furnished only on request (e.g., the retirement plan document, the trust agreement or the plan’s latest Form 5500 annual report) or that are within the jurisdiction of the Internal Revenue Service (“IRS”), such as 401(k) plan safe harbor notices, ERISA 204(h) notices, special tax notices relating to plan distributions and notices to interested parties required in connection with IRS determination letter filings.
Whether covered documents are furnished via email or posted on a website or through a mobile app, they must be in:
- a manner calculated to be understood by the average plan participant;
- a format that can be searched electronically by numbers, letters or words; and
- a widely available format or formats suitable to be both read online and printed clearly on paper and that allows the document to be permanently retained in such a format.
Covered documents and information must be available at the same time as they are otherwise required to be furnished to covered individuals under ERISA. The new E-Disclosure Final Rule does not change these requirements.
Initial Notification of Default Electronic Delivery and Right to Opt-Out
Before a plan administrator may use the new safe harbor, the administrator must provide covered individuals with an initial paper notice informing them that the way they currently receive retirement plan disclosures (e.g., paper delivery via US mail) is changing and that electronic delivery will be used going forward.
The notice must inform covered individuals of the electronic address that will be used, describe how to access documents, and caution that documents may only be available for a limited period of time. The notice must also inform the covered individual of his/her right to opt-out of electronic delivery entirely, and to instead request a paper copy of any document free of charge. Plan administrators are free to customize the notice to better communicate the plan’s transition to electronic delivery under the safe harbor, but the notice must be written in a manner calculated to be understood by the average plan participant.
Given that the notice requirement applies to new hires, existing employees and former employees, there are special considerations for each group that plan administrators, possibly in coordination with employers, should analyze.
For newly hired employees, it may make sense for employers to distribute this notice during the employee intake/onboarding process and include it in new employee paperwork and standard enrollment materials. For existing employees, because some may already receive electronic disclosures under the 2002 E-Disclosure Rule, plan administrators should consider whether it would pose administrative complexities to continue to use the 2002 E-Disclosure Rule for some employees and the new E-Disclosure Final Rule for others. When an employee terminates, the plan administrator must take measures reasonably calculated to ensure the continued accuracy and operability of a former employee’s electronic address (described in more detail below) or must obtain a new electronic address that enables receipt of future covered documents. Thus, it may make sense for employers to request that terminating and retiring employees provide a new email address or phone number that can be used to electronically provide covered documents as a part of their exit process, especially in cases where the email address or smartphone number in use is assigned by the employer.
Document and Information Delivery Methods
Under the new E-Disclosure Rule, covered documents and information may be provided electronically in two ways:
- Electronic Address. Plan administrators may send retirement plan disclosures directly to the electronic addresses (e.g., email or other internet-connected mobile-computing device such as a smartphone number) of the covered individual. If email, the document may either be contained in the body of the email or may be an attachment to the email.
- Website Posting/Mobile App. Alternatively, plan administrators may post retirement plan disclosures on an internet website or through a mobile app, provided the appropriate notice of internet availability (described in more detail below) is furnished to covered individuals. Retirement plan disclosures must remain on the website or app until superseded by a subsequent version, but in no event for less than one year.
Standards for Electronic Addresses
The new E-Disclosure Final Rule allows plan administrators to send retirement plan disclosures directly to covered individuals’ electronic addresses, including email or smartphone number.
If the plan administrator chooses to send the disclosures via email, then the covered individual’s email address must either be (i) provided by the employer (but not by the plan administrator or record keeper or otherwise specifically assigned for plan use) or (ii) provided by the covered individual.
The email must be written in a manner calculated to be understood by the average plan partcipant and must include:
- A subject line that reads “Disclosure About Your Retirement Plan.”
- If the document is an attachment, an identification of the covered document by name or a brief description of the covered document if identification by name would not reasonably convey the nature of the covered document.
- A statement of the right to request and receive a paper version of the covered document free of charge, and an explanation of how to exercise this right.
- A statement of the right to opt out of electronic delivery and receive only paper versions of covered documents, and an explanation of how to exercise this right.
- A telephone number to contact the plan administrator or other designated plan representative.
Plan administrators must ensure that the electronic delivery system alerts them if an electronic address is invalid or inoperable. In that case, the administrator must attempt to promptly cure the problem, or treat the covered individual as opting out of electronic delivery and furnish a paper copy of the undelivered document(s) as soon as reasonably practicable.
Standards for Websites and Mobile Apps
Plan administrators are required to ensure that the website or mobile app exists and that it is functional so that covered individuals can use it to access retirement plan disclosures.
Given the variety of technologies, software, and data used in the retirement plan marketplace, and that specific technical standards, requirements, and certifications may quickly become obsolete, the E-Disclosure Final Rule adopts a principles-based standard. Under this standard, plan administrators, possibly in coordination with plan service providers, are required to take steps reasonably calculated to ensure the privacy and security of personal information relating to any covered individual on a website or app.
A covered document must be available on the website or app no later than the date on which ERISA requires it to be furnished and must remain on the website or app for at least one year or, if later, after it is superseded by a subsequent version.
Even if covered documents are temporarily unavailable for a reasonable period due to maintenance or unforeseeable events or circumstances beyond the plan administrator’s control, these requirements will be satisfied as long as the administrator has reasonable procedures in place to ensure that the documents are available in the manner required by the E-Disclosure Final Rule, and takes prompt action to ensure that the documents become available as soon as practicable after the administrator knows or reasonably should know that such documents are temporarily unavailable.
Notice of Internet Availability (NOIA) for Websites and Mobile Apps
If covered documents are made available on a website or through an app, plan administrators must provide covered individuals with a “notice of internet availability” or NOIA. The NOIA must be written in a manner calculated to be understood by the average plan participant.
The NOIA must include:
- A prominent statement – for example, a title, legend or subject line – that reads “Disclosure About Your Retirement Plan.”
- A statement that reads “Important information about your retirement plan is now available. Please review this information.”
- The name of the document (for example, a statement that reads “Your Quarterly Benefit Statement is now available”) or a brief description of the document if identification by name would not reasonably convey the nature of the document.
- The internet website address where the document is available, or a hyperlink to the address. The document must either be directly available at that address or, if the address requires the covered individual to login first, the link must be prominently displayed directly after login.
- A statement of the right to request and receive a paper version of the document free of charge, and an explanation of how to exercise this right.
- A statement of the right to opt out of electronic delivery and receive only paper versions of documents, and an explanation of how to exercise this right.
- A cautionary statement 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 subsequent version of the covered document.
- A telephone number to contact the plan administrator or other designated plan representative.
The NOIA cannot include anything that is not explicitly required or permitted, but may also include the following (so long as it is not inaccurate or misleading):
- A statement about whether action by the covered individual is invited or required in response to a plan document and how to take such action, or that no action is required.
- Pictures, logos or similar design elements.
Timing of NOIAs, Annual Consolidated NOIA
Generally, plan administrators must furnish a NOIA each time a new covered document is made available for review/access by covered individuals on the internet website or app. However, to avoid notice overload, the E-Disclosure Final Rule allows plan administrators to furnish a consolidated NOIA for four categories of documents and information: (1) a summary plan description; (2) any document or information that must be furnished annually, rather than upon the occurrence of a particular event and does not require action by a participant by a particular deadline; (3) any other document or notice not in the first and second categories, if authorized by the DOL; and (4) any notice required by the Internal Revenue Code, if authorized by the Treasury Department. If used, a consolidated NOIA must be furnished at least once each plan year and no later than 14 months after the most recent NOIA was furnished. Lastly, a consolidated NOIA may not include information about more than one plan, thus the requirements for a consolidated NOIA must be satisfied with respect to each plan, even if sponsored by the same employer.
Effective Date, Immediate Availability and DOL Non-Enforcement Policy
The new E-Disclosure Final Rule is effective 60 days after its publication in the Federal Register, or on July 27, 2020. Plan administrators, however, may take immediate advantage of the new safe harbor to provide covered documents to covered individuals as the DOL has announced that it will not take enforcement action against a plan administrator that relies on the new safe harbor before the 60-day period has expired. This non-enforcement policy should provide flexibility and reduce administrative burdens on plan administrators and plan service providers during the COVID-19 pandemic.
The DOL’s new E-Disclosure Final Rule is welcome news to plan administrators, service providers and other retirement industry stakeholders. The E-Disclosure Final Rule will allow plan administrators to significantly reduce paper usage and related-costs, allow them to modernize their practices with respect to retirement plan disclosures, and make such disclosures more readily accessible for covered individuals.
Due to the new changes, plan administrators and their benefits counsel should carefully review the guidance and take note of several key things. First, because the new E-Disclosure Final Rule does not replace the 2002 E-Disclosure Rule, there is a possibility that different segments of an employer’s workforce may fall under one or the other safe harbor. As a result, plan administrators should consider how the requirements for document e-delivery would differ for the two groups and if that would pose administrative complexities. Second, the new safe harbor does not apply to welfare plan disclosures (e.g., COBRA notices and notices of adverse benefit determinations for group health and disability plans), although the DOL signaled that new disclosure rules for welfare plans may be coming. Third, the new E-Disclosure Final Rule does not apply to documents within the jurisdiction of the IRS such as 401(k) plan safe harbor notices, ERISA 204(h) notices, special tax notices relating to plan distributions and notices to interested parties required in connection with IRS determination letter filings. The IRS has indicated that it intends to issue additional guidance regarding the electronic delivery of participant notices required under the Internal Revenue Code, thus plan sponsors should keep an eye out for this new guidance.
Ballard Spahr’s Employee Benefits and Executive Compensation Group is ready to assist employers and plan administrators in understanding the complex nuances of the new E-Disclosure Rule, developing an e-disclosure regime consistent with the Rule’s technical requirements, and efficiently coordinating the timing and e-delivery of retirement plan disclosures and notices.
Copyright © 2020 by Ballard Spahr LLP.
(No claim to original U.S. government material.)
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, including electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of the author and publisher.
This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.