On October 22, 2019, the U.S. Department of Labor (the “DOL”) proposed regulations that would establish a new safe harbor for electronically providing retirement plan participants with disclosures and notices required under the Employee Retirement Income Security Act (“ERISA”). Note that the DOL’s proposal (the “Proposal”) only applies to retirement plans subject to ERISA, although the DOL has reserved its right to include health and welfare plans in the final regulations or at a later date.
Under the safe harbor electronic disclosure rules currently in place, copies of summary plan descriptions, summary annual reports, fee disclosures, notices and other communications can be provided to participants electronically only if those participants either use a computer regularly in performing their work duties as an employee, or if the participants provide affirmative consent to receive electronic disclosures. Recognizing the increased access to computers and the internet since the current safe harbor was adopted in 2002, the DOL anticipates that the addition of this new safe harbor will simplify the disclosure process for employers. In a fact sheet released in connection with the Proposal, the DOL indicates that the new safe harbor would save employers an estimated $2.4 billion over the next 10 years as a result of reduced printing and mailing costs that would otherwise be incurred under the current rules.
Under the Proposal, most required retirement plan disclosures could be provided to participants and beneficiaries by posting them to a website, if participants provide the employer with an e-mail address or smartphone number (or one is provided to them by their employer).
In order to satisfy the new safe harbor under the Proposal, the following requirements also must be met:
- Employers must provide participants (even those currently receiving electronic disclosures under the existing safe harbor) with an initial paper notice which explains that electronic disclosures will be implemented and that they have the right to opt out.
- The disclosures posted to the website must be in a format that is widely accessible, suitable for reading online or in print, and is electronically searchable.
- Each time a disclosure is posted online, a “Notice of Internet Availability” must be provided to the e-mail address or smartphone number provided by the participant that sets forth certain information regarding the nature and location of the disclosure. Generally, these notices must be provided separately from other notices or communications to the participants, although the Proposal does permit consolidation of multiple notices in certain circumstances.
- Disclosures must still be posted by the deadline required under ERISA and must remain available on the website until they are superseded by a later document.
- Paper copies of the disclosures must still be made available to participants upon request, and employers must permit participants to opt out of electronic delivery.
- Upon termination of employment, the Proposal requires employers to either take reasonable steps to ensure continued accuracy of the given address or get a new electronic address for the participant.
- The Proposal also requires employers to have a system in place to alert them of any invalid or inoperable addresses for participants or beneficiaries. If the employer is notified that an electronic address is invalid or inoperable, that participant must be considered to have opted out of electronic disclosures.
Unfortunately, the Proposal cannot be relied upon until the regulations are finalized. With that said, Morris, Manning & Martin, LLP, expects that the Proposal will be welcome news for employers and will be finalized by the DOL in a similar form sooner rather than later. In anticipation of these changes, employers can start taking steps now. Employers may want to gauge the interest of employees who don’t already receive disclosures electronically and determine whether the Proposal would be beneficial to them. They may also want to start planning or developing a platform by which they could post the disclosures online, if one is not already available. When providing annual disclosures this year, employers may also want to consider the timing and potential to combine those disclosures in the future as part of a consolidated electronic notice.
If you have any questions about the current electronic disclosure rules or the Proposal, please do not hesitate to reach out to any of your contact(s) on the Morris, Manning & Martin, LLP, Employee Benefits and Executive Compensation team.