On October 22, 2019, the Department of Labor (“DOL”) released proposed regulations updating the electronic disclosure rules for ERISA notices. In response to commentary from the public, the DOL made several modifications and additions to these proposed regulations, which have been published as a final rule. Given the significant advances in technology over the last decade, employers have long-awaited a meaningful update to the current, outdated electronic disclosure safe harbor. Although employers may continue to provide paper notices to employees, the DOL anticipates that most employers will migrate to the new safe harbor for electronic disclosure of ERISA notices. The new safe harbor is expected to create efficiency, increase participant awareness, and result in cost savings for employers. The only downside – the safe harbor does not apply to health and welfare plans.
What disclosures are impacted by the rule?
The new safe harbor can be used for any ERISA notices required to be distributed to pension benefit plan participants, other than those documents only required to be furnished upon request. In other words, pension benefit statements, Safe Harbor Notices, QDIA Notices, fee disclosures, summary annual reports, and other documents required to be furnished solely because of the passage of time may be disclosed electronically under the new safe harbor. Certain disclosures may be combined into one, annual notice of internet availability; however, quarterly benefit statements must continue to be disclosed on a quarterly basis. Furthermore, disclosures such as the plan document, terminal report, trust agreement, and other documents that only need be to be furnished upon request cannot utilize the new safe harbor for disclosure.
Curiously, the safe harbor only applies to pension benefit plans, as defined in ERISA Section 3(2), including defined contribution (e.g., 401(k) plans) and defined benefit (e.g., pension) plans. The safe harbor does not apply to “employee welfare benefit plans,” which means that group health plans, disability plans, and other health and welfare plans must continue to rely on the old electronic disclosure regulations. The DOL expressed concern about the safe harbor as applied to group health plans, given the special considerations relating to issues such as pre-service claims review, access to emergency health care, and more.
Who can receive retirement plan disclosures electronically?
Participants, beneficiaries, or other individuals (“Covered Individuals”) entitled to ERISA notices can receive the notices electronically if: (1) they provide the employer, as a condition of employment, at the beginning of plan participation, or through a job application or other Human Resources document, with an e-mail address or smartphone telephone number; (2) they are assigned an e-mail address by the employer; or (3) they are given an internet-based mobile computing device by the employer. The final rule clarifies that any e-mail addresses created by an employer for the sole purpose of delivering notices of internet availability or disclosures is prohibited. Spouses and beneficiaries must also provide e-mail addresses directly to the employer to qualify for electronic delivery under this rule.
Internet-based mobile computing devices include smartphones with data plans, laptops, tablets, or similar devices. The DOL does not want to specifically limit the regulations to any particular devices, as technology changes quickly over time and they want to avoid ending up with outdated regulations.
What are the notice and access requirements?
The “notice and access” safe harbor requires just that: delivery of a specific notice of internet availability and compliance with certain minimum standards concerning the availability of and access to the notices. A notice of internet availability must comply with certain content requirements and must be furnished electronically to the Covered Individuals no later than the time the notice is available on the internet/website. In other words, if a notice is due to participants on January 1st and is uploaded to the company website on such date, the notice of internet availability must be provided to Covered Individuals on January 1st. For an employer that chooses to provide all notices at the same time each year, the notice of availability must only be provided each plan year, and no more than 14 months following the date the prior plan year’s notice was furnished.
The “access” prong of the safe harbor requires that employers comply with the following requirements: (1) the employer must ensure the existence of an internet website or mobile app that individuals have been provided reasonable access to at which a covered individual is able to access covered documents; (2) the notices must be available on the applicable, required dates; (3) each notice must remain available on the website until it is superseded by a subsequent version of the notice, but in no event less than one year; (4) the notice must be presented on the website in a manner calculated to be understood by the average plan participant (must be “readable”); (5) the notice must be presented in a widely-available format or formats that are suitable to be both read online and printed clearly on paper, and must be “searchable”; (6) the notice must be presented on the website in a widely-available format or formats that allow the covered document to be permanently retained in an electronic format; and (7) the website must protect the confidentiality of personal information relating to the Covered Individuals.
Are there any other electronic means by which a Covered Individual can receive Covered Documents?
Yes. Electronic disclosures may also be sent directly via e-mail rather than by a notice of internet availability that then provides access to retrieve a Covered Document. In order to directly send disclosures via e-mail, employers must comply with the following: (1) the e-mail must contain the Covered Document as an attachment or in the body of the e-mail; (2) the subject line of the e-mail must include specific language; and (3) the e-mail must comply with certain content requirements. The inclusion of a notice of internet availability is not required because the e-mail already contains the attached or embodied Covered Document. These direct disclosures are only allowed via e-mail and not via any telephone numbers provided by Covered Individuals.
Can a Covered Individual opt out?
Yes. The safe harbor includes a “global” opt out provision. It is required that Covered Individuals under this new safe harbor receive an initial notice, in writing, that some or all of the plan’s documents will be furnished electronically to the electronic address listed on the notice, along with instructions regarding access of the Covered Documents and a timeline for online document retention. Covered Individuals may then elect to opt out of electronic disclosure and receive all notices in paper. The plan may allow Covered Individuals to opt out of electronic disclosures on a document-by-document basis. Covered Individuals may also maintain electronic disclosures, but request that the employer furnish them, free of charge, a paper copy of a notice (or all of the notices) as soon as reasonably practicable. However, employers are required to provide only one copy of each requested document at no charge. For individuals that opt out, the employer must establish and maintain reasonable procedures governing requests or elections for paper copies.
The regulations require employers to send an initial notification of default electronic delivery and the right to opt out to ensure that all participants and beneficiaries accustomed to receiving paper notices are aware of the new method for electronic disclosure and have the opportunity to choose to continue to receive paper copies. The system responsible for furnishing the notices of internet availability must be designed to alert the plan administrator of any invalid or inoperable electronic addresses. In the event that this occurs, the Covered Individual must be treated as though he or she elected to opt out of electronic delivery and must then be provided with paper delivery of Covered Documents until the problem is resolved.
The final rule will be effective 60 days after publication of the final rule. Due to current conditions stemming from the COVID-19 pandemic, the DOL has also stated that it will not take any enforcement action against a plan administrator who relies on this safe harbor prior to the effective date.
If you have any questions regarding the new electronic delivery rules, please contact any member of the McGrath North Employee Benefits Group.