A recent GAO Report offers interesting insight into the Department of Labor’s thinking on electronic disclosure.

For the better part of the last ten years, many plan sponsors and service providers have been pushing for more flexibility to provide required disclosures electronically.  In particular, they have asked the Labor and Treasury Departments to replace an existing “opt in” regime with an “opt out” regime.  Instead of requiring affirmative consent to distribute communications electronically, many plan sponsors and service providers would like the default to be electronic disclosure–with an opportunity to elect to receive paper.

In 2011, the Department of Labor issued a public request for information regarding electronic disclosures.  The responses included thoughtful suggestions for moving toward an “opt out” regime while still ensuring that important communications are actually received.  The Department has not formally taken action in response to the RFI, but comments included in the GAO report offer insight into the Department’s thinking.

The GAO report summarizes the existing Labor and Treasury rules on electronic disclosure, and offers three suggestions for improvement:

  1. Labor and Treasury should work together to develop consistent requirements for electronic disclosure.  The report notes that Labor’s existing standards for electronic disclosure are different from Treasury’s existing standards.
  2. Labor and Treasury should consider requiring plan sponsors to offer participants an opportunity to opt out of all forms of electronic delivery.  Under the existing rules, affirmative consent generally is not required to send electronic disclosure to an employee who has a computer at his or her desk.  (This is an exception to the “opt out” regime.)  Employees who want paper copies generally must make this election on a disclosure-by-disclosure basis, but a participant must receive the electronic disclosure (or know that it was distributed) to elect the paper option.
  3. Labor and Treasury should consider requiring plan sponsors to send a periodic paper notice to participants reminding them of their right to change their preferred delivery method at any time.  This notice would address a concern that some participants might forget that they have elected electronic disclosure, and therefore might not realize that they are not receiving important information.

In response to the report, the Department of Labor generally agreed with the suggestions for improvement.  More interesting than what the Department said, however, is what the Department did not say.  The Department indicated that it has reviewed the comments submitted in response to its 2011 RFI, but did not suggest an openness to relaxing the electronic delivery requirements.  To the contrary, the Department repeated views that are reflected in its 2002 “opt in” regulations, and suggested an inclination to respond to changes in how people communicate with one another by imposing more restrictions rather than fewer.

In particular, the Department embraced the GAO’s suggestions to require a blanket opt-out option (rather than the existing disclosure-by-disclosure basis) and to require periodic paper notices reminding participants who elected electronic disclosure of their right to change back to paper–apparently in addition to the existing requirements.

The Department’s paramount goal of ensuring that participants actually receive important information is the right one.  But this goal can still be realized in an opt-out regime.  For example, as the ERISA Industry Committee suggested back in 2011, plan sponsors could provide periodic paper notices that describe the disclosures being provided electronically and offer participants an opportunity to elect to receive some or all of the notices by paper.  The periodic paper notices could include the key details that people need to know about their rights, such as:

  • A description of the documents that will be provided electronically;
  • An explanation of how electronic information will be delivered (e.g., by e-mail to the address on file with the plan administrator or posting on a Web site);
  • Access instructions, including a description of the hardware and software requirements for viewing, printing, and saving;
  • The recipient’s right to request and obtain paper versions of required disclosures; and
  • A phone number, e-mail, and physical address for questions and requests to receive paper copies.

The notices could even include lists of disclosures that were provided electronically since the last notice, although the required information should be calibrated to fit on a post card or single page.  The notices would achieve all three of the GAO’s suggestions for improvement in the current regime.

This approach would allow plan sponsors, service providers, and participants to realize the myriad benefits of electronic disclosure–such as cost-efficiency, time-efficiency, interactive capability, protecting privacy, easing storage and access, and protecting our environment–without sacrificing the paramount concern of ensuring that participants actually receive important information.

We hope the GAO’s report will spark productive dialogue and an openness to rethinking the existing regime for electronic disclosure.