On May 21, 2020, the U.S. Department of Labor (“DOL”) released Final Regulations (along with a related DOL fact sheet) permitting administrators of retirement plans (including 401(k) plans) to use electronic methods as the default means of disseminating most required notices and disclosures required under Title I of ERISA.
SPECIAL COVID-19 ENFORCEMENT POLICY: Although the Final Regulations will not become effective until 60 days after their publication in the Federal Register, the DOL has stated that it will not take any enforcement action against a plan administrator that relies on them before that date. This non-enforcement policy supports the Federal government’s broader response to COVID-19, wishing to remain flexible in helping to reduce the administrative burden on employers and retirement service providers during this unprecedented time.
Background. The DOL had previously issued proposed regulations on October 23, 2019 (see our previous blog, “DOL Releases Proposed Regulations Authorizing Default Electronic Notices and Disclosures for 401(k) Plans” covering the same subject matter). The proposed regulations had been issued in response to Presidential Executive Order 13847 issued on August 31, 2018 (see our previous blog, “401(k): Coverage Under 401(k) Plans Expanding?”) which among other things expressly supported the broader use of electronic delivery methods for retirement plan participant disclosures.
OBSERVATION: Like the proposed regs, the Final Regulations reverse the longstanding policy preference for paper disclosures, mainly due to the enormous cost savings (an estimated $3.2 billion over the next decade, according to DOL sources) that electronic delivery is expected to produce. This helps further the Trump administration’s goal of expanding retirement plan coverage by easing the administrative and financial burdens associated with plan sponsorship.
Final Regulations Respond to Comments. In response to the proposed regulations, the DOL received 467 written comments submitted by plan sponsors, fiduciaries, service providers, and retirement plan industry representatives. Although most commentators reportedly supported the default e-delivery rule, some detractors remain concerned that many workers and retirees lack computer access or competence, or still prefer to receive sensitive and critical retirement information in paper form. Accordingly, although the Final Regulations largely mirror the proposed regulations, there are a few additional participant protections – such as accessibility and readability standards for online disclosures, and system checks to identify invalid electronic addresses.
Final Version of E-Delivery Safe Harbor. Similar to the proposed regs, the Final Regulations establish a new, voluntary safe harbor for sponsors of 401(k)’s and other retirement plans who wish to use electronic media as the default means of furnishing participants and beneficiaries with copies of their ERISA-required retirement plan disclosures. (Examples include summary plan descriptions (“SPDs”) and fee disclosure notices.) Importantly, recipients will always have the right to opt out of electronic delivery if they prefer to receive paper notices.
COMMENT: Although electronic delivery has been permitted in a wide variety of situations for some time now (see “Effect on Prior Rules,” below), until now, paper disclosures and notices have long remained the default delivery vehicles.
Employers who make use of the new safe harbor receive certain legal protections — for example, protection from the substantial monetary penalties that may be imposed for with ERISA’s notice and disclosure provisions — assuming the guidelines spelled out in the Final Regulations are followed to the letter.
Summary of Conditions for Meeting Safe Harbor. Generally stated, there are two ways in which a 401(k) plan sponsor may meet the default electronic delivery safe harbor –either through posting covered documents to an internet website devoted to that purpose, or by direct e-mailing of covered documents to covered individuals.
- For this purpose, a “covered individual” is:
- A participant, beneficiary, or other individual entitled to covered documents,
- Who provides the employer, plan sponsor, or plan administrator (or designee of any of the foregoing) with an electronic address (this can be an e-mail address or an internet-connected mobile- computing-device (e.g., smartphone) number).
Conditions for Safe Harbor Method I — Use of Internet Website for Posting Covered Documents. Generally stated, the safe harbor method for internet websites is satisfied if the following conditions are met:
- Each covered individual must receive a “notice of internet availability” (see below) when each “covered document” (i.e., any retirement plan document required to be disclosed by Title I of ERISA) is posted to the plan internet website dedicated for this purpose.
- The “notice of internet availability” must contain the following information:
- A prominent statement (a title, legend, or subject line) that reads: “Disclosure About Your Retirement Plan”;
- A statement that reads: “Important information about your retirement plan is now available. Please review this information”;
- The name and a brief description of the covered document;
- The internet website address, or a link to such address, where the covered document is available;
- A statement of the right to request a paper version of the covered document, free of charge, and an explanation of how 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 how to exercise this right;
- A statement that the covered document is generally not required to be available on the website for longer than one year; and
- The telephone number of the plan administrator or designated plan representative.
The notice of internet availability must be sent to the electronic address previously provided by the recipient (usually, an e-mail address or smartphone number).
- The notice generally must be sent each time a retirement plan disclosure is posted to the internet website.
- The notice generally must be furnished separately from other documents or disclosures.
- Finally, the notice must be written in a manner calculated to be understood by the average plan participant.
Standards for Internet Websites. The Final Regulations establish the following standards for internet websites:
- All covered documents must be available on the website by no later than the date on which they are required to be furnished under Title I of ERISA;
- Covered documents must remain on an internet website until superseded by a subsequent version, but in no event for less than one year;
- Covered documents must be presented on the website in a manner calculated to be understood by the average plan participant;
- Covered documents must be presented on the website in a widely available format suitable for both reading online and printing clearly on paper;
- Covered documents must be searchable electronically by numbers, letters, or words; and
- Covered documents must be presented on the website in a format that allows them to be permanently retained electronically.
In addition, the plan administrator must take reasonable measures to ensure that the website protects the confidentiality of personal information relating to any covered individual.
Participants’ Right to Paper Copies or to Opt-Out of Electronic Delivery. Under the Final Regulations, Plan administrators must maintain reasonable procedures to ensure that covered individuals retain the rights to:
- Have the plan administrator, upon request and without charge, provide no more than one paper copy of a covered document; and
- Globally opt out of electronic delivery and receive only paper versions of covered documents.
Conditions for Safe Harbor Method II — Direct E-mailing of Covered Documents. The Final Regulations provide that, as an alternative to posting covered documents on a dedicated plan website, a plan administrator may elect to satisfy the ERISA participant disclosure retirements by directly furnishing a covered document to a covered individual by sending it to a previously provided email address, assuming the following conditions are met:
- The covered document is sent to a covered individual’s previously provided e-mail address by no later than the date on which it is required to be furnished under ERISA;
- In place of a “notice of internet availability” (see above), the plan administrator sends an e-mail to the covered individual that:
- Includes the covered document in the body of the email, or as an attachment;
- Includes a subject line that reads: “Disclosure About Your Retirement Plan”;
- Includes the following:
- A brief description of the covered document;
- A statement of right to receive a paper copy of covered document;
- A statement of right to opt out of electronic delivery; and
- A telephone number to call for help with these items.
- Is written in a manner calculated to be understood by the average plan participant.
- The coved document itself must be:
- Written in a manner calculated to be understood by the average plan participant;
- Presented in a widely available format suitable to be read online, printed clearly on paper, and permanently retained in an electronic format; and
- Searchable electronically by numbers, letters, or words
- The plan administrator or service provider must take measures reasonably calculated to ensure the confidentiality of personal information relating to any covered individual.
- Finally, the recipient has all of the same rights relating to requests for paper documents and the right to globally opt out of electronic delivery as under the use of internet website posting safe harbor method (see above).
Conditions Applicable to Both Methods:
Safeguards Designed to Detect Invalid or Inoperable E-mail Addresses. In reaction to concerns raised by commentators on the proposed regs, the Final Regulations provide that plans must have a system designed to alert the plan administrator or service provider of a covered individual’s invalid or inoperable electronic address. If an e-mail address is identified as invalid or inoperable, then the plan must promptly take reasonable steps to cure the problem, such as resending the covered document to any secondary email address on file.
Special Procedures Upon Separation from Employment. When an employee leaves his or her job, 401(k) plan administrators must take active steps to ensure the continued accuracy of the electronic address on file at the time of separation, to ensure continued access of either the notice of internet availability or the covered documents themselves, as applicable.
Final Regulations Do Not Cover Health and Welfare Plans. Like the proposed regs, the Final Regulations make clear that they do not apply to employee welfare benefit plans, as defined in section 3(1) of ERISA – for example, group health plans or plans providing group disability benefits. The DOL believes that group health plan disclosures present unique issues and challenges that warrant further consideration before extending the default rule to such plans.
COMMENT: Along with many of those submitting written comments, we continue to hold out hope that we might see a default electronic disclosure rule applicable to health and welfare plans introduced in the near future, especially since it appears that the DOL is keeping the door cracked open.
Effect on Prior Rules. Even before the proposed regs, there was extensive guidance on the permissible use of electronic media with respect to the provision or required retirement plan notices. Previous guidance governed both notices required for all retirement plans under Title I of ERISA, along with specific notices only applicable to certain 401(k) plans (for example, fee disclosure notices, “blackout” notices, and “safe harbor” plan notices). Importantly, the Final Regulations do not make any major changes to the existing guidance – and plan administrators may continue to follow the old rule, if they wish – but simply expand upon it by adding the new default e-delivery safe harbor described in this blog.
For a general discussion of the previous rules for electronic disclosure of required disclosures for both retirement plans and health and welfare plans, see our “Geek Out” article entitled “Electronic Distribution”.
NOTE: As of the date of posting of this blog, this reference article has not yet been updated to reflect the Final Regulations. We will be updating this article in the near future. Additionally, the DOL has published an extensive, employer-friendly reporting and disclosure guide which is available here. (Note that it also has not yet been updated in light of the Final Regulations.)
Effective Date. As previously mentioned, the Final Regulations will generally become effective 60 days after their publication in the Federal Register. Due to the COVID-19 crisis, the DOL has stated that it will not take any enforcement action against a plan administrator that relies on them before that date (see previous note, above).
Conclusion. Although some detractors remain unconvinced, overall, we believe that the Final Regulations go a long way to help 401(k) plan sponsors keep their administrative costs down and more effectively disseminate the participant information required to be provided under ERISA. Further, the numerous built-in protections for participants and beneficiaries who still prefer to receive their retirement plan information in paper form should alleviate many of the concerns that have been raised by troubled commentators and industry representatives.
The information and content contained in this blog post are for general informational purposes only, and does not, and is not intended to, constitute legal advice. As always, for specific questions concerning your 401(k)retirement plan, or for help in operating your plan during the current COVID-19 crisis, please consult your own ERISA attorney or professional advisor.