Lindabury, McCormick, Estabrook & Cooper, P.C. Firm News & Events
On May 21, 2020, the U.S. Department of Labor (“DOL”) announced a final rule allowing employers to post retirement plan disclosures online or furnish them to workers via email. The rule is aimed at reducing administrative expenses for employers and making information more readily available to workers.
ERISA-covered retirement plans must furnish multiple disclosures each year to participants and beneficiaries. The exact number of disclosures per year depends on the specific type of retirement plan, its features, and in some cases the plan’s funding status. To deliver these disclosures electronically, plan administrators were previously required to comply with the regulatory safe harbor established in 2002 under 29 CFR 2520.104b-1(c), which required that disclosures be reasonably calculated to ensure that workers actually received the information, including confirmation that the transmitted information was actually received (e.g., using return-receipt or notice of undelivered electronic mail features, conducting periodic reviews or surveys to confirm receipt of the transmitted information).
On August 31, 2018, Executive Order 13847, entitled Strengthening Retirement Security in America, was issued. The Order directed the DOL to review whether regulatory or other actions could be taken to make retirement plan disclosures more understandable for participants and beneficiaries and to focus on reducing the production and distribution costs that retirement plan disclosures impose on employers. In October 2019, the Department published a proposed regulation with a solicitation for public comment. In response to the commentary received, a final rule creating a new voluntary safe harbor was established. The new safe harbor permits the following two optional methods for electronic delivery:
- Website Posting. Plan administrators may post covered documents on a website if appropriate notification of internet availability is furnished to the electronic addresses of covered individuals.
- Email Delivery. Alternatively, plan administrators may send covered documents directly to the electronic addresses of covered individuals, with the covered documents either in the body of the email or as an attachment to the email.
A plan administrator may use this safe harbor for distribution of retirement plan disclosures for “covered individuals” only. To be a covered person, the individual must be entitled under ERISA to receive covered documents and must have a valid electronic address (e.g., email address or smart phone number). The following additional protections exist for plan participants:
- Right to Paper.Covered individuals can request paper copies of specific documents, or globally opt out of electronic delivery entirely, at any time, free of charge.
- Initial Notification.Covered individuals must be furnished an initial notification, on paper, advising them of the new electronic delivery method, the electronic address that will be used, and the right to opt out if they prefer paper disclosures. The notice must be circulated to plan participants prior to the plan’s utilization of the new safe harbor.
- Notifications of Internet Availability. Covered individuals generally must be furnished a notice of internet availability (NOIA) each time a new covered document is made available for review on the internet website.
- To avoid “notice overload,” the final rule permits an annual NOIA to include information about multiple covered documents, instead of multiple NOIAs throughout the year.
- The NOIA must briefly describe or identify the covered document that is being posted online, include an address or hyperlink to the website, and inform the covered individual of the right to request paper copies or to opt out of electronic delivery altogether.
- The NOIA must be concise, understandable, and contain only specified information.
- Website Retention. Covered documents must remain on an internet website until superseded by a subsequent version, but in no event for less than one year.
- System Check for Invalid Electronic Addresses. Plan administrators must ensure that the electronic delivery system is designed to alert them if a participant’s electronic address is invalid or inoperable. In that case, the administrator must attempt to promptly cure the problem, or treat the participant as opting out of electronic delivery.
- System Check at Termination of Employment.When someone leaves their job, the plan administrator must take steps to ensure the continued accuracy and operability of the person’s employer-provided electronic address.
It is estimated that the new safe harbor rule will save approximately $3.2 billion in net costs for retirement plans covered by ERISA by eliminating significant costs associated with the creating, printing and mailing of paper disclosures. However, it is important to note that the new safe harbor does not supersede the 2002 safe harbor; the 2002 safe harbor remains in place as another option for plan administrators. Retirement plan administrators who comply with either safe harbor will satisfy their statutory duty under ERISA to furnish covered documents to covered individuals.
The new safe harbor is effective 60 days after its publication in the Federal Register. However, the DOL will not take any enforcement action against a plan administrator that relies on this safe harbor before that date in recognition of the COVID-19 pandemic and the need for flexibility given the current climate.