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Electronic Disclosure 2.0 - Department of Labor Offers New Electronic Disclosure Guidance Designed to be "Future-Proof"

Client Updates

On May 27, 2020, the final regulations were published by the Department of Labor (the “DOL”) establishing a new alternative safe harbor for electronic disclosure (“Alternative Safe Harbor”) 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 an alternative to the existing electronic disclosure safe harbor established by the DOL in 2002 (the “2002 Safe Harbor”). See 29 CFR § 2520.104b-1.

This Alternative Safe Harbor takes into consideration the technological advances of the last two decades and tries to be mindful of what may occur in the future to hopefully provide a means for making electronic disclosures of plan information for many years to come. The DOL expects the Alternative Safe Harbor to enhance the effectiveness of ERISA disclosures and significantly reduce the cost and burden of furnishing required disclosures and notices. This is a significant and welcome development, made even more so in light of the economic and administrative challenges that have arisen due to the COVID-19 emergency.

Background
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. Almost 20 years later, that is no longer the case. As noted in the Fact Sheet for the Alternative Safe Harbor regarding surveys over the last few years on internet availability:

  • 90 percent of U.S. adults use the internet in 2019, a substantial increase from 52 percent in 2000;

  • 93 percent of households owning defined contribution accounts had access to, and used, the internet in 2016; and

  • 87 percent of the U.S. population lives in a home with a broadband internet subscription.

In short, the 2002 Safe Harbor was showing signs of becoming outdated as access to the internet at home and work and through portable electronic devices, such as “smart phones,” has dramatically increased, along with the use of text messaging and social media by employees and employers.

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. The Alternative Safe Harbor allows plan administrators to notify participants that certain ERISA-required disclosures will be provided electronically unless the participant affirmatively opts-out of receiving electronic disclosures. If a participant opts-out, the participant will receive the plan disclosures and notices in paper.

As indicated above, the Alternative Safe Harbor does 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. A plan administrator may use the 2002 Safe Harbor for its “wired at work” employees and the Alternative Safe Harbor for all other employees.

Alternative Safe Harbor
Under the Alternative Safe Harbor, a plan administrator may provide “covered documents” to “covered individuals” using one of two delivery methods: (1) website posting; or (2) email delivery.

Prior to using one of these electronic delivery methods, the plan administrator must provide the participants with an “initial notice of default electronic delivery” in paper form. Also, a “notice of internet availability,” which provides that the covered documents are available electronically, must be sent to participants from time to time using one of the electronic delivery methods.

Covered Individuals.
Covered individuals” are 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.

The final regulations permit the use of employer-assigned email addresses if the email address is assigned by an employer to an employee for employment-related purposes that include but are not limited to the delivery of covered documents. Thus, the employer cannot provide an email address that is used solely for plan documents. As a result, employer-assigned email addresses are not permitted for beneficiaries, alternative payees or other non-employee participants.

The final regulations also provide that at the time a covered individual who is an employee with an employer-assigned email address terminates employment, the plan administrator must take measures reasonably calculated to ensure the continued accuracy and availability of such electronic address or to obtain a new electronic address that enables receipt of covered documents following the individual's severance from employment.

Covered Documents
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, but the DOL noted that it will continue to consider whether it should be extended to these plans and under what circumstances. Also, currently, the Alternative Safe Harbor does not apply to disclosures required by the Internal Revenue Code (“IRS”) and the Department of the Treasury (“Treasury”). However, the IRS and Treasury intend to issue additional guidance relating to the use of electronic delivery for participant notices that may align with the Alternative Safe Harbor rule.

Initial Notice of Default Electronic Delivery
Prior to making electronic disclosures under the Alternative Safe Harbor, participants must be provided with a paper “initial notice of default electronic delivery,” which provides that the plan administrator is using the Alternative Safe Harbor method of electronic delivery for various covered documents to the participant’s electronic addresses.

The initial notice must be written in a manner calculated to be understood by the average plan participant and is required to include the following information:

  • The electronic address that will be used for the participant.

  • Any instructions necessary to access the covered documents.

  • 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 statement of the right to request and obtain a paper version of a covered document, free of charge, and an explanation of the procedures that must be followed to exercise this right.

  • A statement of the right, free of charge, to opt out of electronic delivery and receive only paper versions of covered documents, and an explanation of the procedures that must be followed to exercise this right.

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. It 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” (“NOIA”) must be sent to a covered individual’s electronic address to inform the covered individual that a covered document is available online. Unless being issued as part of a consolidated notice covering more than one covered document (discussed below), a NOIA should be issued no later than the day the covered document that is the subject of the notice is legally required to be furnished.

The NOIA must be written in a manner calculated to be understood by the average plan participant and is 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” and the following statement:
    “Important information about your retirement plan is now available. Please review this information.”

  • An identification of the covered document by name (e.g., a statement that reads “your Quarterly Benefit Statement is now available”) and a brief description of the covered document if identification only by name would not reasonably convey the nature of the covered document.

  • The internet website address, or hyperlink to such 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 receive only paper version of covered documents, 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 NOIA, in order to avoid “notice overload,” the regulations permit the consolidation of these notices for certain reoccurring disclosures which are required at certain times (as opposed to a specific event). A consolidated NOIA covering more than one covered document may be issued 14-months from the date of the prior year’s consolidated notice.

A consolidated NOIA may be issued with respect to the following covered documents:

  • Summary plan description.

  • Any covered document or information that must be furnished annually, rather than upon the occurrence of a particular event, and does not require action by a covered individual by a particular deadline.

  • Any other covered document if authorized in writing by the Secretary of Labor, by regulation or otherwise, in compliance with section 110 of ERISA.

  • Any applicable notice required by the Internal Revenue Code if authorized in writing by the Secretary of the Treasury

Regardless of when and how the NOIA 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, in a format that is widely available, printer-friendly, searchable, comfortable for viewing on a computer or mobile device and able to be permanently retained in an electronic format. 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.

Direct Disclosure Through Email
In a change from the proposed regulations, the final regulations permit the plan administrator to directly deliver the covered document using the covered individual’s email address. A NOIA is not required under these circumstances because the covered document is delivered directly to the covered individual. The email delivery method must comply with the following:

  • The covered document in the body of the email or as an attachment.

  • A subject line that reads: “Disclosure About Your Retirement Plan.”

  • An identification of the covered document by name and a brief description of the covered document if identification only by name would not reasonably convey the nature of 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 receive only paper version of covered documents, and an explanation of how to exercise this right.

  • A telephone number to contact the plan administrator or other designated representative of the plan.

The covered document must meet all the same timing, presentation and formatting requirements as described above with respect to disclosures on a website. Moreover, the plan administrator is expected to take similar steps as described above to ensure that the confidentiality of personal information relating to any covered individual remains protected.

Right to Paper.
As indicated above, covered individuals can always request paper copies of particular documents, or globally opt out of electronic disclosure and receive all documents in paper, at any time and free of charge.

Effective Date
The Alternative Safe Harbor is effective July 27, 2020. However, the DOL stated in the preamble to the final regulations that they will not take any enforcement action against a plan administrator that relies on the Alternative Safe Harbor before the effective date (i.e., as part of the DOL’s support of the Federal government’s broader effort to respond to COVID-19).

 

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