On October 23, 2019, the Department of Labor (the “DOL”) introduced, via proposed regulations, an alternative safe harbor method (“Alternative Safe Harbor”) for the electronic disclosure of plan information required to be furnished to participants, beneficiaries and other individuals (together referred to as “participants” for purposes of this Update) under the Employee Retirement Income Security Act of 1974 (“ERISA”). The Alternative Safe Harbor is designed to be an alternative to the existing electronic disclosure safe harbor first established by the DOL in 2002 (the “2002 Safe Harbor”). See 29 CFR § 2520.104b-1.
Required disclosures under ERISA must be furnished to participants using a delivery method that is reasonably calculated to ensure actual receipt by the participants. For decades, in-hand delivery to an employee at his or her worksite and delivery by first-class mail have been used to satisfy ERISA’s disclosure requirements (and continue to satisfy ERISA’s delivery requirements). However, by the early 2000’s, it was clear that the DOL needed to address the ERISA delivery requirements in light of the growing use of email, the internet and other electronic media to send and receive communications and information by both employers and employees. This led to the DOL’s adoption of the 2002 Safe Harbor.
The 2002 Safe Harbor permits electronic disclosures for two categories of employees: (1) employees who use computers as an integral part of their job duties, referred to as “wired at work” employees; and (2) employees and others who do not fall under the first category and who affirmatively consent to receive plan documents electronically.
The requirement that participants affirmatively consent — or opt-in — to receive electronic disclosures has proven to be administratively cumbersome for ERISA plans. As a result, many administrators have not used the 2002 Safe Harbor. The opt-in requirement made sense, however, at a time when many participants did not have, or had limited access, to the internet at home or at work. Access to the internet at home and work and through portable electronic devices, such as “smart phones,” has dramatically increased since 2002, along with the use of text messaging and social media by employees and employers. In the preamble to the proposed Alternative Safe Harbor’s regulations, the DOL references a 2015 study indicating that 99% of retirement plan participants had internet access at home or work. Moreover, 88% of respondents reported daily use of the internet.
Advantage of the Alternative Safe Harbor
The primary advantage of the Alternative Safe Harbor is that it forgoes the affirmative opt in requirement of the 2002 Safe Harbor. As proposed, the Alternative Safe Harbor will allow plan administrators to assume consent with respect to participants who have been assigned an electronic address by their employer or that have otherwise provided their employer, plan sponsor, plan administrator or an appropriate designee thereof with an electronic address, provided certain disclosure requirements are met. Participants that wish to continue to receive disclosures in paper form would be required to affirmatively opt-out of receiving electronic disclosures.
As indicated above, the Alternative Safe Harbor will not replace the 2002 Safe Harbor, but is intended to be another safe harbor for electronic disclosure. Thus, plan administrators may continue to use the 2002 Safe Harbor (or continue to furnish paper documents by hand-delivery or by mail). In addition, the two safe harbor methods are not mutually exclusive. In other words, a plan administrator may use the 2002 Safe Harbor for its “wired at work” employees and the Alternative Safe Harbor for all other employees.
Proposed Alternative Safe Harbor
As proposed, to use the Alternative Safe Harbor a plan administrator must provide “covered documents” to “covered individuals” via electronic disclosure after providing the participants with an “initial notice of default electronic delivery” as well as a “notice of internet availability” each time a covered document is made available online.
Covered Documents and Covered Individuals.
“Covered documents” relate to certain documents relating to pension benefit plans (i.e., 401(k), defined contribution and defined benefit plans) that are required to be furnished to participants under ERISA . These documents include summary plan descriptions, summary of materials modifications, pension benefit statements, summary annual reports, and blackout notices. For now, the Alternative Safe Harbor is not available for welfare benefit plans.
“Covered individuals” relate to participants (1) who are entitled to receive covered documents and (2) who have either (a) provided their employer, plan sponsor, plan administrator or an appropriate designee thereof with an “electronic address” (e.g., email address or number for any internet-connected mobile device (such as a smart phone)) or (b) have been assigned an electronic address by their employer.
Initial Notice of Default Electronic Delivery
Prior to making electronic disclosures under the Alternative Safe Harbor, all participants must be provided with a paper-form of “initial notice of default electronic delivery” that the plan administrator is adopting a new method of electronic delivery in which notice of access to some or all covered documents will be delivered to their electronic addresses. The initial notice must make clear that participants have the right to request paper copies of covered documents or to opt-out of electronic delivery altogether and the procedures that must be followed to exercise these rights. This initial notice should be furnished to existing participants, regardless of whether they are already receiving electronic disclosures pursuant to another safe harbor, and to all new participants going forward.
The initial notice is a one-time disclosure requirement and is separate from the requirement to provide a notice of internet availability described below.
Notice of Internet Availability.
A “notice of internet availability” should be sent to a covered individual’s electronic address shortly after the covered document that is the subject of the notice is made available online. Unless being issued as part of a consolidated notice covering more than one covered document (discussed below), a notice of internet availability should be issued no later than the day the covered document that is the subject of the notice is legally required to be furnished.
Notices of internet availability must be written in a manner calculated to be understood by the average plan participant and are required to include the following information:
- A prominent statement, for example as a title, legend, or subject line that reads, “Disclosure About Your Retirement Plan.”
- A statement that: “Important information about your retirement plan is available at the website address below. Please review this information.”
- A brief description of the covered document.
- The internet website address where the covered document is available, which should either lead the covered individual directly to the covered document or to a login page that provides (or immediately after a covered individual logs on provides) a prominent link to the covered document.
- A statement of the right to request and obtain a paper copy 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 receiving covered documents electronically, and an explanation of how to exercise this right.
- A telephone number to contact the plan administrator or other designated representative of the plan.
Consolidation of Notices of Internet Availability
Although the default rule is that each covered document requires the delivery of its own separate notice of internet availability, the proposed regulations permit the consolidation of these notices for certain reoccurring disclosures which are triggered by no event other than the passage of time. A consolidated notice covering more than one covered document may be issued 14-months from the date of the prior year’s consolidated notice.
A "consolidated notice of internet availability" may be issued with respect to the following covered documents:
- Summary plan description.
- Summary of material modifications.
- Summary annual report.
- Annual funding notice.
- Disclosures regarding the investment of plan assets in participant-directed individual account plans.
- Qualified default investment alternative notice.
- Pension benefit statement.
Regardless of when and how the notice of internet availability is delivered to covered participants, covered documents must be made available online the day the documents are legally required to be furnished.
Website Standards and Reasonable Procedures
The Alternative Safe Harbor requires the establishment and maintenance of a website where covered documents can be posted and accessed by covered individuals. Such covered documents must be timely posted and remain available on the website until superseded by a subsequent version of the document. Moreover, the presentation of covered documents must be done in a manner calculated to be understood by the average plan participant and in a format that is widely available, printer-friendly and comfortable for viewing on a computer or mobile device. In addition, the Alternative Safe Harbor requires that procedures be put in place that are reasonably calculated to ensure that the confidentiality of personal information relating to any covered individual remains protected.
Effective and Applicability Dates
The Alternative Safe Harbor will not be effective until 60 days following publication of a final regulations in the Federal Register. It may be applied to pension benefit plans beginning on the first day of the first calendar year following the publication of the final regulations.
The DOL has received more than 250 comments on the proposed regulations from individuals and interest groups, including from the American Benefits Council, the American Retirement Association, The ERISA Industry Committee, and the Pension Rights Center.
We will continue to monitor for further developments and whether the final regulations will provide further detail and instruction.
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