The Future of Retirement Plan Disclosures?

On October 23, 2019, the Department of Labor (DOL) published a proposed rule that would ease retirement plan administration by allowing broader use of electronic disclosure. This proposed rule was foreshadowed by an Executive Order issued in August 2018 directing the DOL to review actions that could be taken to improve the effectiveness of retirement plan disclosures under ERISA and to reduce the costs to employers.

Currently, plan sponsors can rely on a 2002 safe harbor for electronic delivery of documents and other information required under ERISA. However, the 2002 safe harbor is limited; notice can be provided electronically only to participants and beneficiaries who either (1) have work-related computer access or (2) provide affirmative consent to receive documents electronically (in addition to meeting certain other requirements). Anyone not falling within one of those categories must receive a hard copy.

The proposed rule would add a new safe harbor that would exist in addition to the 2002 safe harbor. If the rule is finalized as proposed, plan sponsors could choose between the two safe harbors, or use both.

Electronic Disclosure under the Proposed Rule

Key components for electronic disclosure under the proposed rule (which the DOL describes as a “notice and access” structure) include:

  • Covered Documents. The proposed rule would be available for any document required pursuant to Title I of ERISA (g., SPD, SMM, blackout notices), other than documents that must be provided on request.
  • Covered Individuals. Electronic disclosure would be allowed under the proposed safe harbor to participants, beneficiaries or other individuals entitled to receive disclosures and who have provided an electronic address. If an employer assigns an electronic address to an employee, that employee would be treated as if he or she provided the electronic address. This category is significantly broader than under the 2002 safe harbor because it would not require work-related computer access.
  • Notice of Internet Availability. The plan administrator would be required to provide a “notice of internet availability” to each covered individual for each covered document delivered pursuant to the proposed safe harbor. The notice would need to include certain specific information, including but not limited to (1) the website address where the covered document is available and (2) a statement of the right to request and receive a paper copy of the covered document free of charge. The proposed rule also provides guidance on what is necessary for a document to be calculated to be understood by the average plan participant (g., using everyday words and the active voice).
  • Standards for Internet Website. The plan administrator would be required to provide a website that meets certain minimum standards. For example, the plan administrator would need to take reasonable measures to ensure that a covered document is available no later than the date it is required to be provided, that the website protects confidential information and that the covered document is searchable.
  • Initial Notice Regarding Paper Version and Opt Out. Before electronic disclosure could be made, the plan administrator would first need to provide each covered individual with an initial paper notice. This initial notice would need to state that future notices will be delivered electronically and that the individual has the option to receive a hard copy on request.
  • Severance from Employment. When an employee terminates employment, the plan administrator would be required to request a new email address as part of the termination procedures or take other measures reasonably calculated to ensure the continued accuracy of the individual’s electronic address or smartphone number.
  • Consolidation of Multiple Notices. The proposed rule would allow certain regularly recurring disclosures to be announced in a single notice provided annually. These include the SPD, SMM, SAR, annual funding notices, QDIA notices and certain investment-related information required to be disclosed in participant-directed plans. Otherwise, a separate “notice of internet availability” would need to be provided in connection with each new covered document posted on a website.

Timing and Next Steps

One important takeaway is that plan sponsors may not rely on the proposed rule. Therefore, no changes should be made to current distribution procedures based on the new electronic disclosure rules at this time. Also, the proposed rule only applies to retirement plans ─ so welfare plan disclosures (such as COBRA notices) would remain subject to the 2002 safe harbor.

In terms of next steps, the DOL is accepting public comments on the proposed rule, including whether the proposed safe harbor should be expanded to cover welfare plan disclosures. The DOL also has published an RFI (request for information) asking specific questions about the use of electronic media to furnish notices.

We will provide updated information on the electronic disclosure proposal as it becomes available, as well as a more in-depth examination of the requirements once (and if) the rule is finalized and can be relied upon.