DOL Finalizes Electronic Disclosure Rules for Retirement Plans
The Department of Labor adopted long-awaited final regulations establishing a new default safe harbor for the electronic disclosure of retirement plan information under ERISA. These final regulations do not drastically differ from the DOL’s proposed regulations which were issued in October 2019. (For more information on the proposed regulations, click here.)
The original disclosure rule under ERISA was that plan administrators must use a delivery method reasonably calculated to ensure actual receipt of the information by participants and beneficiaries (e.g., hand-delivery at work, first-class mail, etc.). This original rule was amended in 2002 with the establishment of a safe harbor for the use of electronic media for two groups of individuals: (1) participants whose job duties require electronic access, and (2) participants who affirmatively consent to receiving electronic disclosures.
The new default rule does not impact the 2002 safe harbor rule but instead adds a new option for making ERISA disclosures electronically using a “notice and access” approach. This approach no longer requires plan administrators to analyze whether an individual’s job duties require electronic access, nor does it impose the requirement that a participant affirmatively consent to receiving disclosures electronically.
The new safe harbor rule for electronic disclosures applies to “covered individuals”: individuals entitled to ERISA disclosures and who provide the employer with an electronic address (e.g., an e-mail address or smartphone number) upon employment or participation in the plan. For covered individuals, the plan administrator may furnish ERISA-required disclosures electronically using either of the following new options:
- Website Posting. Plan administrators may post covered documents on a website if appropriate notification of internet availability (discussed below) is furnished to the covered individuals.
- Direct Electronic Address. Plan administrators may send covered documents directly to the electronic address of a covered individual in the body of the email or as an attachment. If plan administrators send covered documents directly via e-mail, the subject line must read “Disclosure about Your Retirement Plan,” and the body of the email must include identification and a brief description of the covered document.
The final rule includes a number of requirements, including the following:
- Right to Paper. Individuals must be given the right to request paper copies of each specific disclosure. Additionally, individuals must be given the right to globally opt-out of electronic delivery of documents, at any time and free of charge.
- Initial Notification. Covered individuals must be furnished an initial notification, on paper, that the way they currently receive retirement plan disclosures (i.e., in person or first-class mail) is changing. This notice must include (i) a description of the new e-delivery method, (ii) the electronic address that will be used for the participant, (iii) the right to opt out, and (iv) the procedure to opt out. This notice must be given before the plan may begin relying on the new safe harbor and applies both to existing participants and any employees that become eligible after the plan begins using the rule. Note that this initial notice must be distributed via paper regardless of whether the plan is currently relying on the DOL’s 2002 electronic disclosure safe harbor rule.
- Ongoing Notifications of Internet Availability. Covered individuals must be furnished a notice of internet availability (NOIA) each time a new covered document is made available for review electronically. Alternatively, the DOL permits plan administrators to furnish one annual NOIA, including information about the covered documents expected to be furnished electronically that year, to avoid “notice overload.” Note that quarterly benefit statements and summaries of material modifications (SMMs) cannot be included in an annual NOIA – rather, an individual NOIA must be furnished each time these documents are furnished electronically.
- Retention. The electronically-available documents must remain electronically available until superseded by a new version, but in no event for less than one year.
- Validity of Electronic Addresses. Plan administrators must ensure that the electronic delivery system is designed to alert them if a participant’s electronic address is invalid or inoperable. Furthermore, for participants using an employer-provided e-mail address as their primary electronic address, the plan administrator must take steps to seek an alternative electronic address for such individual upon termination of employment.
Note that the final rule only applies to retirement plan disclosures and does not yet apply to health and welfare plans.
The rule goes into effect beginning July 27, 2020, but employers may begin relying on the rule immediately. The DOL expects the final rule will enhance the effectiveness of ERISA disclosures and significantly reduce the costs and burdens associated with furnishing many of the recurring and most costly disclosures. And while this rule is not directly adopted as a result of the COVID-19 pandemic, the DOL acknowledged the rule should assist employers with costs in light of the economic downturn caused by the virus, as well as the logistical complications due to social distancing restrictions.