The Department of Labor (DOL) issued final electronic disclosure rules on May 27, 2020. These rules provide relief from printing and mailing certain Employee Retirement Income Security Act (ERISA) notices to plan participants and beneficiaries. This relief is great news for plan sponsors of retirement plans. It is, however, not all-encompassing because it does not yet apply to welfare benefit plans.
The rule allows employers to deliver disclosures to individuals primarily electronically, which will reduce printing, mailing and related plan costs by an estimated $3.2 billion over the next decade, the DOL said in a statement announcing the final rule. The rule will also make disclosures more readily accessible and useful for individuals, but preserve the rights of those who prefer paper disclosures.
Arriving at a new electronic disclosure regulation
The DOL’s current 2002 safe harbor for electronic delivery requires plan participants to have work-related computer access and consent to receive ERISA disclosures electronically. This was before smartphones and tablets made it possible to easily access email and company websites through these devices. However, these regulations do not reflect how technology, and use of that technology, has evolved since 2002.
The new regulation was the result of an Executive Order issued by the President in 2018, which directed the DOL to review whether regulatory actions could be taken to make retirement plan disclosures more understandable and useful for plan participants. The Order emphasized that the review address broader use of electronic delivery as a method to improve effectiveness of the disclosures while reducing the cost and burden on plan administrators.
The DOL’s new safe harbor
The final regulations establish a new voluntary safe harbor method for retirement plan administrators to furnish certain documents to plan participants electronically. To be eligible for the safe harbor, plan administrators are required to mail a one-time paper notice to all plan participants, which includes required content, such as the right to opt-out of electronic delivery. The one-time paper notices, of course, will need to be mailed when participants become plan eligible.
Under the regulation, electronic delivery may be the default method for distribution of certain retirement plan disclosures once the initial paper notice is delivered.
The rule permits the following two methods of electronic delivery:
- Posting to a Website or Electronic Media
Plan administrators may post certain disclosures to a website if specified requirements are met. For example, plan participants are required to be notified of postings along with mandated content.
- Sending via Direct Email
Plan administrators may send certain disclosures directly to the email addresses of plan participants. The email must include specific language within the subject line of the email and a statement that briefly describes the content of the disclosures.
The applicable disclosures and plan participants
The retirement plan disclosures, which may be delivered electronically under this new safe harbor, and the applicable plan participants are defined in the regulation as follows:
- Covered Documents
This includes summary plan descriptions, participant-level fee disclosures and pension benefit statements. In other words, Covered Documents under the regulation are any document or information required to be furnished to participants and beneficiaries under Title I of ERISA.
- Covered Individual
This is a participant, beneficiary or other individual entitled to Covered Documents who has provided, or has been provided with, an electronic address. This includes an email address or internet-connected mobile-computing-device (e.g., smartphone) number.
The final rule is not effective until 60 days after its publication in the Federal Register, yet the DOL indicated that it will not take any enforcement action against a plan administrator who relies on the safe harbor before that date. In addition, this regulation retains the 2002 safe harbor method as an option of choice for plan administrators, as well.
However, a key difference is that the 2002 safe harbor applies to retirement plans and welfare benefit plans, while the 2020 safe harbor only applies to retirement plans. Therefore, a plan administrator may find it simpler to continue using the 2002 safe harbor for certain retirement plan disclosures that have been historically distributed together with many of the same welfare benefit plan disclosures.
There are additional practical matters to consider before implementing the new safe harbor, such as coordinating efforts with vendors and amending existing service agreements that apply to the delivery of retirement plan disclosures. In the meantime, the DOL indicated that they will continue to explore whether to extend the safe harbor to welfare benefit plan disclosures, so stay tuned.
For more information, contact your ORBA advisor at 312.670.7444. Visit ORBA.com to learn more about our Employee Benefit Plans Services.