By Pension and Benefits Editorial Staff
The U.S. Department of Labor has announced the issuance of Employee Benefits Security Administration (EBSA) final regulations that will allow employers to post retirement plan disclosures online or deliver them to workers by email, as a default. The final regulations provide a new, additional safe harbor for employee benefit plan administrators to use electronic media, as a default, to furnish information to participants and beneficiaries of plans subject to ERISA. The rule allows plan administrators who satisfy specified conditions to provide participants and beneficiaries with a notice that certain disclosures will be made available on a website, or to furnish disclosures via email. Individuals who prefer to receive disclosures on paper can request paper copies of disclosures and opt out of electronic delivery entirely. The final regulations were published in the May 27, 2020 Federal Register. They will be effective and applicable 60 days after publication in the Federal Register.
The DOL expects that enhancing the ability of employers to furnish retirement plan disclosures electronically will reduce administrative expenses for job creators and make the disclosures more readily accessible and useful for America’s workers. The regulations also may help some employers and the retirement plan industry in their economic recovery from the disruption caused by the coronavirus pandemic, according to the DOL. Many retirement plan representatives and their service providers have indicated that they are experiencing increased difficulties and, in some cases, a present inability to furnish ERISA disclosures in paper form. The DOL expects that enhanced electronic delivery will offer an immediate solution to some of these problems.
Background. The DOL noted that, through the years, guidance has been issued on the standards for the delivery of required plan disclosures, especially on electronic delivery of disclosures. In 2002, the DOL amended the general standards for delivery of required disclosures by establishing a safe harbor for the use of electronic media. Among other requirements, the final regulations required that notice be provided to each participant, beneficiary, or other individual at the time a document is furnished electronically, that apprised the individual of the significance of the document when it is not otherwise reasonably evident as transmitted, and of the right to request and obtain a paper version of such document. This safe harbor applied to two categories of individual recipients: participants who could effectively access documents furnished electronically through their jobs, and participants, beneficiaries, and other persons who were entitled to documents under Title I of ERISA who did not fit into the first category, but who affirmatively consented to receive documents electronically.
In 2006, EBSA issued Field Assistance Bulletin 2006-03 (FAB 2006-03) to help administrators and their service providers comply with amendments to ERISA’s periodic pension benefit statement requirements made by the Pension Protection Act of 2006 The guidance provides that, when pension plans give participants continuous access to benefit statement information through one or more secure websites, “the Department will view the availability of pension benefit statement information through such media as good faith compliance with the requirement to furnish benefit statement information, provided that participants and beneficiaries have been furnished notification that explains the availability of the required pension benefit statement information and how such information can be accessed by the participants and beneficiaries.”
In October 2019, the DOL issued proposed regulations and a Request for Information (RFI) intended to expand the methods by which required ERISA disclosures may be furnished electronically. After the issuance of the proposed rule and RFI, the Department received 257 written comments from a variety of parties. The DOL explains that it is analyzing the responses to the RFI to determine whether regulatory or other action, in addition to the final regulations on electronic delivery of disclosures, should be taken to further enhance the effectiveness of ERISA’s disclosures.
Alternative electronic disclosure safe harbor. The final regulations are fundamentally similar to the proposed rule, although modifications were made to reflect a variety of comments from affected parties, according to the DOL. Like the proposed regulations, the final regulations establish a safe harbor for compliance with ERISA’s general standard for delivery of disclosures to participants and beneficiaries. The final regulations allow retirement plan administrators to furnish certain required disclosures using the “notice-and-access” model.
The DOL states that the new, additional safe harbor does not supersede the 2002 safe harbor; the 2002 safe harbor remains in place as another option for plan administrators. In response to received comments, the DOL explains that plan administrators who wish to continue to rely on the 2002 safe harbor for electronic delivery, or to furnish paper documents by hand-delivery or by mail, can continue doing so. In addition, among the conditions in the final regulations is a provision that guarantees covered individuals a right to request and receive paper copies of specific covered documents or to globally opt out of electronic delivery altogether. Not only are plan administrators prohibited from charging covered individuals a fee in connection with their exercise of these rights, plan administrators also are prohibited from having procedurally cumbersome or complex processes for exercising these rights, according to the DOL. Further, the final regulations mandate that covered individuals receive multiple reminders, on different mediums, of these rights.
The final rule allows retirement plan administrators to furnish certain required disclosures using the proposed “notice-and-access” model. Retirement plan administrators also have the option to use email to send disclosures directly to participants. These administrators must notify plan participants about the online disclosures, provide information on how to access the disclosures, and inform participants of their rights to request paper or opt out completely. The new rule also includes additional protections for retirement plan covered individuals, such as accessibility and readability standards for online disclosures and system checks for invalid electronic addresses.
The safe harbor applies only to “covered individuals” and only with respect to “covered documents.”
Covered individuals. A covered individual for purposes of the safe harbor, is a participant, beneficiary, or other individual entitled to covered documents and who, as a condition of employment, at commencement of plan participation, or otherwise, provides the employer, plan sponsor, or administrator (or an appropriate designee of any of the foregoing) with an electronic address, such as an email address or internet-connected mobile-computing-device (e.g., smartphone) number. Alternatively, if an electronic address is assigned by an employer to an employee for this purpose, the employee is treated as if he or she provided the electronic address. It is a condition of reliance on the safe harbor that an administrator receives an electronic address or number with which to communicate with a covered individual, according to the DOL.
Commenters asked what would happen if a notice of internet availability (NOIA) inadvertently is sent to a landline number, rather than a smartphone or similar number. ERISA generally mandates that disclosures be in writing. The DOL does not consider receipt of a voice-based message to be operable for purposes of these regulations. Thus, the electronic address must be able to accept text (rather than audio) messaging. To address this concern, the final regulations clarify that an electronic address that will be used to satisfy requirements for a covered individual must be an address at which the individual may receive and inspect a written NOIA. Plan administrators who use internet-connected mobile computing device numbers, as opposed to email addresses, for example, will have to take steps to confirm with plan participants and beneficiaries, or through other reasonable means s, such as using mobile phone carriers’ validator services, to distinguish landline numbers from mobile or similar numbers that enable the receipt and inspection of written messages.
Some commenters were concerned about the language in the proposed regulations that permitted an employer-assigned address to be created solely for purposes of using the proposed safe harbor. These commenters were concerned that ineffective disclosure will result if employers, or service providers or third-party technology firms hired by employers, create and assign electronic addresses with unclear or unfamiliar URL components solely to comply with the new safe harbor. In response, the DOL eliminated the phrase “for this purpose” from the final rule. The regulation now provides that participants will be treated as if they provided an electronic address to an employer if the electronic address is assigned by an employer to an employee “for employment-related purposes that include but are not limited to the delivery of covered documents.”
Note that the regulations do not permit plan administrators, or their service providers, to assign employer-assigned electronic addresses under the new safe harbor. However, employers cannot assign electronic addresses for non-employee spouses or other beneficiaries of their plans’ participants. For a spouse or other beneficiary that is entitled to ERISA disclosures to be a covered individual for purposes of the final regulations, the spouse or other beneficiary must affirmatively provide (or must have provided) the employer, plan sponsor, or administrator (or appropriate designee) with an electronic address. Otherwise, the plan administrator cannot furnish disclosures to these individuals pursuant to this safe harbor.
In response to comments, the DOL states that the definition of “covered individual” in the final regulations does not exclude participants in multiemployer plans. The DOL has slightly rephrased the regulations to clarify that providing an electronic address as a condition of employment is only one way that an individual might supply an electronic address.
Covered documents. The safe harbor may be used by a pension benefit plan to furnish any document that the administrator is required to furnish to participants and beneficiaries pursuant to Title I of ERISA, except for any document that must be furnished upon request. This includes documents that must be furnished solely because of the passage of time and because of a specific triggering event (other than the passage of time). DOL explains that a plan administrator is not required to furnish all of these documents pursuant to the safe harbor if the administrator prefers a different method of furnishing for some of the documents.
The final regulations include two minor revisions. First, in response to numerous commenters, the DOL added the words “or information” to the provision to clarify that certain “information” required to be disclosed pursuant to ERISA Reg. Sec. 2550.404a-5, the Department’s participant-level fee disclosure regulation, is covered by the final regulations. Second, the DOL added the word “only” to this regulation to clarify the scope of the definition’s exception for documents that must be furnished upon request (the exception now applies to documents “that must be furnished only upon request.” The DOL explains that it’s intention, as reflected in the preamble to the proposed regulation and unchanged for purposes of the final regulations, is that the exception applies to documents that are furnished only upon request (i.e., the exception does not apply to, and therefore the final rule includes as covered documents, documents for which the plan administrator has an affirmative obligation to furnish but that are also, for various reasons, requested by covered individuals). The DOL notes that the 2002 safe harbor, if satisfied, remains available for plan administrators to furnish ERISA disclosures that are excluded from this safe harbor.
Notice of internet availability. In general, plan administrators must furnish each covered individual with a notice of internet availability for each covered document. A list of content requirements for the notice of internet availability is provided in the final regulations. The final regulations do allow an administrator to combine notices for certain covered documents. The administrator must furnish a notice of internet availability at the time the covered document that is the subject of the notice is made available on the website. If, however, the administrator furnishes a combined notice of internet availability for more than one covered document, the requirement to furnish a notice of internet availability will be treated as satisfied if the combined notice of internet availability is furnished each plan year, and, if the combined notice was furnished in the prior plan year, no more than 14 months following the date the prior plan year’s notice was furnished.
The final regulations require that a covered document must be made available on the website no later than the date on which the covered document otherwise must be furnished in accordance with the applicable section of ERISA or regulations. The DOL wants the notice of internet availability to be a concise, clear disclosure that will convey its importance and easily call the recipient’s attention to its content. Among other requirements, the notice of internet availability must be furnished separately from any other documents or disclosures furnished to covered individuals, except as permitted for the consolidation of certain notices of internet availability (NOIA). The regulations also provide minimum standards for the availability of the covered documents on a website.
The DOL explains that the covered documents that may be combined in the final regulations have changed. The final regulations continue to provide that plan administrators can furnish one annual NOIA that incorporates or combines the required content with respect to more than one document. As opposed to the proposed list of seven covered documents, though, the group of documents for which a single annual combined NOIA is permitted has been revised. The final regulations permit one annual combined NOIA that incorporates the required content for four categories of documents and information. The first category is the summary plan description, as required pursuant to ERISA Sec. 104(a). The second category is any covered document or information that must be furnished annually, rather than upon the occurrence of a particular event, and does not require action by a covered individual by a particular deadline. The third category is any covered document, not in the first and second categories, if authorized in writing by the Secretary of Labor, by regulation or otherwise, in compliance with ERISA Sec. 110. The fourth category is any applicable notice required by the Code if authorized in writing by the Secretary of the Treasury.
The DOL reminds plan administrators that, if they choose to furnish a consolidated NOIA once a year under the regulations, doing so will not change the date on which the covered documents must be made available on the website. Each covered document described in the consolidated NOIA must be made available on the website no later than the date it must be furnished to participants and beneficiaries by law.
Based on comments received, the DOL decided that its intention for the NOIA may be better achieved by adopting some revisions to the NOIA’s content requirements. An NOIA, under the final regulations, must include “[a]n identification of the covered document by name (for example, a statement that reads: ‘your Quarterly Benefit Statement is now available’) and a brief description of the covered document if identification only by name would not reasonably convey the nature of the covered document.”
In one change, the final regulations require a brief description only when identifying a covered document by name would not reasonably convey the nature of the covered document. Otherwise, only identification of the covered document by name is required. In another change, the final regulations reflect a limited revision in response to commenters’ questions about whether plan administrators could use a hyperlink on an NOIA, rather than simply a website address. The Department did not intend to limit NOIAs to including only website address citations. Thus, plan administrators are encouraged to use hyperlinks that take covered individuals directly to a website address. The rule has been revised explicitly to include hyperlinks. Also, the final regulations now require an NOIA to include a cautionary statement that the covered document is not required to be available on the website for more than one year or, if later, after it is superseded by a subsequent version of the covered document. Given an overall lack of interest, and in light of changes made to improve the required content of the NOIA in response to commenters’ concerns, the DOL has not included a model NOIA in the final regulations.
The DOL did not adopt certain commenters’ suggestion that plan administrators should be able to furnish the NOIA in paper form. According to the DOL, one of the goals in adopting this safe harbor is to advance the use of electronic tools to enhance the effectiveness of, and reduce the costs associated with, ERISA disclosures. The DOL maintains that it is important for covered individuals to receive an initial notice, on paper, alerting them that disclosures will be furnished using different procedures. But after that, the safe harbor will create consistency by requiring plan administrators to communicate electronically. As to ensuring the receipt of electronic notices, the regulations include a specific provision requiring that action be taken in response to invalid or inoperable electronic addresses. Thus, the final regulations adopt the proposed regulation’s requirement that an NOIA must be furnished electronically to the address provided pursuant to the safe harbor.
In response to commenters’ concerns, the DOL has removed from the final regulations the more detailed guidelines for meeting the general readability standard provided in the proposed regulations. The final regulations require that the NOIA must be written in a manner calculated to be understood by the average plan participant. Although those additional guidelines may be helpful tools suitable for drafting clear and simple notices under this rule, the DOL agrees with commenters that it would not be desirable to imply that these guidelines are mandatory for ERISA disclosures or notices in general. Although the DOL has removed the proposed regulations’ specific guidelines in the final regulations, the DOL will continue to analyze readability and other measures in connection with the responses to the RFI on general disclosure issues that was published with the proposed regulations. In the meantime, plan administrators may look to the Department’s summary plan description regulations for guidance on the meaning of “written in a manner calculated to be understood by the average plan participant.”
Reasonable procedures for compliance. The DOL included a provision in the proposed regulations to ensure that plan administrators would not violate their disclosure obligations under ERISA when, for a variety of reasons beyond the control of the plan administrator, there may be temporary interruptions in the availability of covered documents on a website. The DOL agrees with commenters that plan administrators should not fail the safe harbor during times when websites are periodically be offline for technical maintenance, upgrades, or similar activities to maintain or improve the website. The DOL has added the concept of “technical maintenance” to the regulations to address these reasonable situations in which systems staff and other providers perform tasks necessary to maintain and improve the website on which covered documents are posted. The DOL further agrees that consideration should be given to facts and circumstances surrounding failure and that covered documents may be unavailable for only a “reasonable” period of time. The final regulations have been modified accordingly.
Subregulatory guidance. In the preamble to the proposed rule, the DOL stated that although the new safe harbor would have no impact on the current electronic delivery rule at ERISA Reg. Sec. 2520.104b-1(c), the new safe harbor would, if finalized, supersede the relevant portions of certain prior interpretive guidance. Specifically, the relevant documents are FAB 2006-03, FAB 2008-03 (Q&A 7), and Technical Release 2011-03R. Many commenters objected to the DOL’s statement that this prior guidance would be superseded. The DOL agrees with commenters that a reasonable transition period, during which plan administrators may continue to rely on the prior guidance as they make necessary system changes and acquire electronic addresses to comply with the final regulations, is appropriate. Accordingly, for 18 months following the effective date of this final rule, plan administrators may continue to rely on the above guidance. Thereafter, the relevant portions of such guidance are superseded, the DOL stated. The DOL will take no enforcement action against plan administrators who comply with the requirements of the guidance to satisfy their delivery obligations for the specified disclosures during this transition period.
Source: U.S. Department of Labor News Release No. 20-727-NAT, May 21, 2020. EBSA final regulations, 85 FR 31884, May 27, 2020.
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