DOL Proposes Electronic Disclosures for Retirement Plans
In response to President Trump’s 2018 Executive Order on Strengthening Retirement Security, the Department of Labor (DOL) has been considering actions that would make retirement plan disclosures more understandable and useful for participants and beneficiaries, and how to make broader use of electronic delivery. To that end, on October 23, 2019, the DOL published proposed regulations that would add a new safe harbor for the use of electronic disclosures by retirement plans subject to the Employee Retirement Income Security Act of 1974 (ERISA). The proposal, if adopted, would allow retirement plan administrators to post most required communications under ERISA online.
Before delving into the details of the proposed regulation, there are a few items to note:
- It only applies to those notices that are within the jurisdiction of the DOL. Internal Revenue Service (IRS) regulations will continue to apply to retirement plan notices within IRS jurisdiction.
- It only applies to retirement plan disclosures, with possible extension to health and welfare plans in the future.
- It does not apply in circumstances where a document must be furnished at the specific request of a participant or beneficiary.
- It will supersede the good faith compliance standards of Field Assistance Bulletin 2006-03.
The proposed regulation utilizes a “notice and access” approach, whereby the plan administrator could send a notice of internet availability to a participant or beneficiary, explaining that a document is available for viewing on a website (i.e., they would not have to send an electronic version of the document itself). The participant or beneficiary would then go to the website to view the document. However, the regulation only applies to “covered documents” and “covered individuals.” Covered documents are disclosures that a plan administrator is required to furnish to participants and beneficiaries under Title I of ERISA, except for documents that must be provided upon request. They include summary plan descriptions, summaries of material modifications, summary annual reports, pension benefit statements and blackout notices. Covered individuals are individuals entitled to the covered documents who, as a condition of employment, plan participation, or otherwise, provide the employer, plan sponsor or plan administrator with an email address or a smartphone number. Employees who receive employer-provided email addresses or who receive an employer-issued smartphone with a data plan, will automatically satisfy this requirement.
To use the new safe harbor, the plan administrator must first provide an initial written notice on paper explaining that: (1) some or all covered documents will be furnished electronically, along with a statement of the right to request and obtain a paper version of the covered document, free of charge; (2) a statement of the right to opt out of receiving covered documents electronically; and (3) an explanation of how to exercise those rights.
After giving the initial notice, covered documents may then be furnished using the notice and access approach. This means that when a document is to be furnished, the participant must be sent a “notice of internet availability” (which must conform to specific form and content requirements) to the electronic address that was assigned to or furnished by the individual. The regulation also describes instances in which certain documents can be combined in one notice and how the actual document(s) should be made available on the website (e.g., timing, format, accessibility, etc.).
The proposed regulation emphasizes that covered individuals must have the right to opt out of electronic delivery and receive only paper versions of some or all covered documents, and that the plan administrator must establish and maintain reasonable procedures governing these requests.
If the plan administrator becomes aware that a covered individual’s electronic address is invalid (e.g., if an email is returned as undeliverable), the plan administrator must immediately take “reasonable steps to cure the problem” or treat the covered individual as if he/she elected to opt out of electronic delivery and receive only paper copies. Examples of “reasonable steps to cure the problem” include sending the notice to a secondary email address or obtaining a new valid address. If a covered individual terminates employment, the plan administrator must take steps to ensure that the individual’s current email address remains valid, or obtain a new email address following the individual’s severance from employment.
The DOL asked for comments on the proposed regulations and also issued a Request for Information (RFI) (the questions in the RFI generally focus on how the DOL can improve the design and content of ERISA disclosures). Comments on both the proposed regulations and responses to the RFI were due by November 22, 2019. The new guidance is proposed to take effect 60 days after publication as final regulations in the Federal Register. Once published, the regulations will become applicable on the first day of the next calendar year.
For more information about McKonly & Asbury’s Employee Benefit Plan services, or for questions regarding this article, please contact Stephanie Kramer, Supervisor with McKonly & Asbury, at skramer@macpas.com.
