DOL Proposes New Electronic Disclosure Rules for Retirement Plans
On October 22, 2019, the Department of Labor (“DOL”) released proposed regulations updating the electronic disclosure rules for ERISA notices. In light of the significant developments in technology over the last decade, employers may finally receive some long-awaited relief from the current outdated safe harbor rules for electronic disclosures, at least with respect to their retirement plans.
Currently under ERISA, plan administrators must use delivery methods “reasonably calculated to ensure actual receipt of information by participants, beneficiaries, and other individuals.” For example, in-hand delivery to an employee at his or her workplace is acceptable, as is material sent by first class mail. While the DOL has issued guidance broadening the general standards for delivery of required disclosures to permit delivery via electronic media, the new safe harbor is expected to further promote efficiency, increase participant awareness, and result in cost savings for employers. In particular, the DOL estimates the new safe harbor could result in up to $2.4 billion net savings over the next 10 years for retirement plans by eliminating printing, material, and mailing costs associated with furnishing printed disclosures.
In its proposed regulations, the DOL adopts a “notice and access” safe harbor for providing electronic disclosures to participants, beneficiaries, and other individuals. Some key features of the proposed rule include the following:
- New Safe Harbor. The proposed rule would not replace or modify existing rules for electronic disclosures (or existing rules regarding paper disclosures). Rather, the proposed rule would add a new safe harbor for plan administrators to comply with the disclosure requirements of ERISA. The new safe harbor would be completely voluntary, though we expect a large percentage of employers to adopt the safe harbor if finalized by the DOL.
- Retirement Plans Only. One downside to the proposed rule is that it only applies to retirement plans. The DOL has reserved application of the proposed rule to health and welfare benefit plans until after it has had time to analyze the impacts of the proposed rule on retirement plans. We suspect employers may be disappointed in this limitation considering the fact that health and welfare benefit plan disclosures can be more voluminous than retirement plan disclosures.
- “Notice-and-Access” Safe Harbor. The new safe harbor would permit retirement plan administrators to satisfy their obligation to furnish ERISA-required disclosures by making the information accessible online and by furnishing participants and beneficiaries a notice of such availability of the disclosures online. The notice of availability may be sent to e-mail addresses of participants and must include a brief description of the online-posted document, a website address to where the document is posted, and instructions for requesting a free paper copy or for electing paper delivery in the future.
- Affirmative Opt-Outs. Participants who prefer paper disclosures or who lack internet access may opt out of electronic disclosure of the ERISA-required information. Under the proposed rules, a plan administrator may not default a participant into electronic delivery unless the participant provides the employer with an e-mail address (or unless the participant has an employer-provided e-mail address). Moreover, a plan administrator must first notify participants by paper that some or all retirement documents will be furnished electronically unless the participant affirmatively elects-out of such electronic disclosure.
- Covered Documents. The new safe harbor may be applied to furnish any document that the plan administrator is required to furnish under ERISA for retirement plans, including, for example, summary plan descriptions, summaries of material modifications, safe harbor notices, fee disclosures, and summary annual reports. However, documents that must be furnished only upon request, such as the plan document or trust agreement, may not be furnished electronically using the new safe harbor rules.
The proposed new safe harbor may not be relied on by employers yet, but we expect many employers and administrators will be tracking the development of the proposed rule considering the significant impact it could have on administrative costs. The DOL is currently accepting comments on the proposed regulations.