In October, the U.S. Department of Labor released a proposed rule that would increase plan administrators’ ability to make certain required ERISA pension disclosures through electronic, rather than paper, delivery.  Below is a summary of the proposed rule with some highlights on aspects of the proposal that have been questioned by interested parties and might be changed.

The Proposed Rule

Electronic disclosure has been permitted since 2002 under a safe harbor that allows plan administrators to electronically disclose ERISA documents to certain individuals, primarily those have affirmatively consented to electronic delivery.  The proposed safe harbor would be an alternative to the 2002 safe harbor, allowing plan administrators to take advantage of either, both, or neither option.  Significantly, however, the proposed safe harbor would be limited to pension plans, whereas the 2002 safe harbor also applies to welfare plans.

The new safe harbor would supersede specific guidance that currently permits plan administrators to provide pension benefit statements electronically by posting them on a continuous-access website and to electronically deliver QDIA notices with notices of automatic enrollment.  If finalized, this means that plan administrators could not post pension benefit statements without an electronic address for the individual and would have to take additional steps before electronically delivering QDIA notices.

Which Individuals Would Be Covered by the Proposed Safe Harbor?  An individual is covered by the safe harbor if she has provided an email address or smartphone number to her employer or plan administrator, or if her employer provided one or the other for this purpose, and the individual has not opted out of electronic disclosure.  When a covered individual leaves her job, her employer must take steps to ensure continuity in electronic delivery.  Some commenters have expressed concern that the proposed rule would allow employers to assign an electronic address to individuals who do not have access to a computer or smartphone, and have asked for clarification that this is not permitted.

Which Documents Would be Covered by the Proposed Safe Harbor?  Only ERISA documents that must be furnished as a matter of course are covered by the proposed rule.  These documents include, for example, pension benefit statements, summary annual reports, summaries of material modifications, and blackout notices.  Plan administrators could choose which, if any, of the covered documents to electronically furnish.  Documents that are provided only in response to an affirmative request are not eligible for electronic disclosure under the proposal.

How Would the Proposed Safe Harbor Operate?  The new safe harbor would use a “notice and access” framework, under which plan administrators would make covered documents available on a secure website and notify covered individuals of the documents’ availability using the individual’s email address or smartphone number.  Some commenters have asked the Department to clarify whether the use of mobile applications (“apps”) or other technology would be acceptable, and, if not, to expand the proposal to allow delivery via app.  Interested parties have also encouraged the Department to permit documents to be sent as attachments to email communications, instead of making them available on a website. 

Before beginning electronic disclosure under the new safe harbor, the plan administrator would provide a paper notice to covered individuals that explains the transition, the new process, and the recipient’s right to opt out or request paper copies of specific disclosures.  Some third-party plan administrators have informed the Department that they do not currently have the capability to allow opt-outs with respect to specific documents; their systems require an all-or-nothing selection.  There was debate in the public comments as to whether the Department should permit electronic delivery of this initial notice, and whether it should impose a requirement of an annual notification reminding covered individuals of their right to opt out of electronic delivery.

The plan administrator must notify participants and beneficiaries when a document is made available on the website.  The notice itself must be sent electronically and, among other requirements, contain a brief description of the document’s importance and a link to the document or to a website login page, after which the recipient may easily access the document.  Some commenters have expressed a desire for greater flexibility in how the notices may be delivered and are encouraging the Department to permit delivery by paper or any other method permitted under ERISA.

The proposed rule would impose certain requirements on the way the notices of internet availability are drafted, with the intent of ensuring the notices are understandable by recipients.  For example, the rule would require the notice use short sentences without double negatives, everyday words, active voice, and language that results in a Flesch Reading Ease score of at least 60.  There is some concern that these requirements are overly cumbersome and prescriptive, so the Department may revisit the proposed requirements.

Certain notices of internet availability may be consolidated, in which case the plan administrator would furnish the consolidated notice once per plan year, but no more than 14 months later than the prior year’s consolidated notice.  Consolidated notices may be used for summary plan descriptions, summaries of material modifications; summary annual reports, annual funding notices, investment-related disclosures under 29 C.F.R. 2550.404a-5(d), QDIA notices, and pension benefit statements.  Separate notification is required for other disclosures, which generally contain time-sensitive information, such as qualified domestic relations order determinations, 204(h) notices, blackout notices, and adverse benefit claims determinations.

The proposed safe harbor would require that documents remain available on the website until they are superseded by a newer version.  The Department may revise the proposal to specify how long documents must be maintained if they are not the sort of documents that are superseded, or may require websites to permanently archive documents because many recipients are not likely to access and save documents before they are removed from the website.  The proposal also sets out certain technical requirements the documents posted to the website must meet, procedures for when electronic notification of the posted documents fails, as well as the requirement that the website have measures reasonably calculated to protect personal information.

When Would the Safe Harbor Take Effect?  As written, the proposed rule would take effect 60 days after publication of the final rule, but the safe harbor would not be applicable until the first day of the first calendar year following publication.  This timing is subject to change in the final rule.

Considerations for Plan Administrators

Regardless of the extent to which the Department modifies the proposed rule in light of comments by interested parties, plan administrators will need to assess whether using the new safe harbor makes sense in their particular circumstances.  Among the issues plan administrators may consider are:

  • When to begin preparing for the safe harbor. As discussed above, the Department may modify the proposed rule, perhaps significantly.  It may be beneficial for plan administrators to consider how easily any initial planning could be revised to adapt to changes in the final rule.
  • The costs and time associated with technical changes to accommodate the proposed safe harbor’s requirements. Existing websites may need to be changed to meet the safe harbor’s security, disclosure, and other standards. In addition, websites will need to be capable of alerting the plan administrator if a recipient’s email address or smartphone number is inoperable or invalid.

The litigation advantages and disadvantages of using electronic disclosure.  Plan administrators should develop plans assessing risks related to, and for responding to, requests from government officials or other entities regarding data about participant and beneficiary engagement with plan communications.

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Photo of William Woolston William Woolston

Will Woolston is a partner in the firm’s Washington office who advises employers large and small on all aspects of employee benefits and executive compensation.  Mr. Woolston’s practice focuses significantly on tax-qualified retirement plans, with a particular emphasis on “hybrid” defined benefit plans…

Will Woolston is a partner in the firm’s Washington office who advises employers large and small on all aspects of employee benefits and executive compensation.  Mr. Woolston’s practice focuses significantly on tax-qualified retirement plans, with a particular emphasis on “hybrid” defined benefit plans like cash balance and pension equity plans.  Mr. Woolston regularly represents clients on matters before the Internal Revenue Service and the Department of the Treasury, and has assisted many companies in resolving with the IRS operational and administrative errors in qualified plans.  In addition to his qualified plan work, Mr. Woolston also advises clients on the full spectrum of executive compensation matters, including equity compensation arrangements, employment agreements, and compliance with the deferred compensation requirements of Section 409A of the Internal Revenue Code.

Photo of Sarah Friedman Sarah Friedman

Sarah Friedman helps clients navigate the complex regulatory requirements of ERISA, the Internal Revenue Code, and other applicable federal and state or local laws. Her practice covers all aspects of tax-qualified retirement plans, health and welfare plans, and executive compensation.