On May 21, 2020, the Department of Labor (“DOL”) adopted the final version of a safe harbor rule (the “Electronic Disclosure Safe Harbor”) that allows retirement plan sponsors to satisfy required disclosure requirements by using website postings or email as a default approach for all participants. This reflects a major relaxation from the main existing DOL rules related to electronic disclosure, which generally permit electronic disclosures only for participants who affirmatively consent or who have computers that are integral to their jobs. The Electronic Disclosure Safe Harbor is an important potential cost- and time-saving tool for employers who provide participants hard copy disclosures.
Generally. The Electronic Disclosure Safe Harbor applies to all disclosures and information a plan administrator is required to provide to participants
and beneficiaries in pension benefit plans under Title I of ERISA, except those required to be provided only upon request.
Covered Documents. The documents covered by the Electronic Disclosure Safe Harbor (“Covered Documents”) include without limitation summary plan descriptions, summaries of material modifications, summary annual reports, annual disclosures (such as fee and investment return disclosures), quarterly or annual benefit statements and blackout notices. Covered documents do not include, for example, copies of plan documents and Forms 5500, since those are only required to be provided upon request.
Covered Plans. Most types of employer sponsored retirement plans, such as 401(k) plans, profit sharing plans, defined benefit pension plans, stock bonus plans and ESOPs may use the Electronic Disclosure Safe Harbor. Welfare benefit plans, such as group health, life, and disability plans may not use the Electronic Disclosure Safe Harbor, though DOL may reconsider permitting that in the future.
Covered Individuals and Required Email Addresses. Plan sponsors may use the Electronic Disclosure Safe Harbor with retirement plan participants who are “Covered Individuals.” Covered Individuals are participants or other individuals entitled to receive Covered Documents (such as beneficiaries) who provide to their employer, plan sponsor or plan administrator an email address or smartphone number that can receive a Notice of Internet Availability (detailed below) or Covered Documents via email. Covered Individuals may include employees who receive an employer-assigned email address for employment-related purposes that extend beyond providing Covered Documents. Terminated employees can remain Covered Individuals as long as the administrator takes measures reasonably calculated to
ensure the contact address is accurate or obtains a new post-employment contact address for the Covered Individual.
Website Disclosure Approach
Website. The administrator must maintain a website or other electronic location (“Website”), such as an app, where Covered Documents can be accessed. The administrator must take reasonable measures to ensure Covered Documents remain on the Website until the later of one year after posting or a new version of the Covered Document is posted. The administrator must also make sure the Covered Document is presented in a format that is widely available and can be saved, text searched and printed clearly on paper.
Initial Notice. An administrator using the Electronic Disclosure Safe Harbor must provide each Covered Individual an initial paper notice stating that Covered
Documents will be furnished electronically. The paper notice must contain the Covered Individual’s contact address, Website access instructions, how long Covered Documents will be available, and the right to paper copies, to request copies, and to opt out of electronic delivery.
Notice of Internet Availability. In addition to the initial notice, the administrator must provide each Covered Individual a Notice of Internet Availability (“Notice”) when Covered Documents are posted on the Website.
Frequency; Combined Notice. Generally, the Notice must be sent when each Covered Document is posted. For certain Covered Documents, including summary plan descriptions and documents required to be provided annually, such as qualified default investment alternative (“QDIA”) notices, annual fee and investment disclosures and annual (but not quarterly) pension benefit statements, the plan administrator is permitted to provide a combined Notice on an annual basis. Such a combined Notice must be sent not more than 14 months after the prior combined Notice.
Contents. The Notice must state, among other things, that the Notice relates to retirement plan documents, the title and description of the Covered Document(s), the link to the Website, the Covered Individual’s right to paper copies and to opt out of electronic delivery, and the administrator’s or other designated individual’s contact information.
Invalid or Inoperable Email Address. The system for delivering Notices must be able to inform the administrator if the Covered Individual’s email address is invalid or inoperable. If so, the administrator must either send the Notice to a secondary email address, obtain a new email address, or treat the Covered Individual as if he or she opted out of electronic delivery and provide a paper document.
Right to Paper Documents and to Opt Out of Electronic Delivery
Administrators must provide Covered Individuals one free paper copy of each electronic Covered Document upon request. In addition, Covered Individuals must have the right to opt out of electronic delivery of Covered Documents. Administrators must establish procedures to provide for paper documents or opt outs.
Alternative Approach: Sending Covered Documents by Email
Instead of posting the Covered Documents on a Website, plan administrators may send Covered Documents to a Covered Individual's email, provided that the other requirements of the rules are met. The email’s subject line must state “Disclosure About Your Retirement Plan” and the
email, among other things, must (1) provide the title and description of the Covered Document, (2) state that a paper document may be requested, (3) state that the participant has the right to opt out of receiving Covered Documents electronically, and (4) provide the administrator’s or other designated individual’s contact information. Each Covered Document must be in a format that is widely available and can be saved and text searched. Additionally, the administrator must still provide an initial notice and follow the paper copy procedures and opt out requirements described above.
The Electronic Disclosure Safe Harbor rules take effect on July 26, 2020 – 60 days after the date they were published in the Federal Register. This should allow employers and plan administrators of calendar year plans time to adjust their systems and provide
the requisite notices to participants so as to make use of the Electronic Disclosure Safe Harbor with respect to summary annual reports, QDIA notices and other disclosure documents due under ERISA in the fourth quarter of 2020.
The preamble to the final regulations indicates that DOL intends to consider whether and to what extent to permit welfare plans to utilize approaches similar to the Electronic Disclosure Safe Harbor. Also, the preamble states that Treasury Department and IRS intend to issue additional guidance relating to the use of electronic delivery for participant notices, which hopefully will allow participant notices required under IRS rules (such as the annual notices for 401(k) plans providing for automatic enrollment or safe harbor matching contributions) to be provided in a manner aligning with the Electronic Disclosure
Please contact your Calfee attorney if you have any questions about how to make use of the Electronic Disclosure Safe Harbor.