DOL's Final Alternative Electronic Delivery Rules for Pension Plans Permit Direct Delivery via Email
On May 27, 2020, the Department of Labor (DOL) published a final rule setting forth alternative safe harbors for the electronic delivery of disclosures required by Title I of the Employee Retirement Income Security Act (ERISA). These new safe harbors apply only for pension benefit plans and allow plan administrators to satisfy the notice and disclosure requirements by posting the required documents on a website or sending them as email attachments. The final rule can be found at this link. This alert highlights the significant changes from the 2019 proposed rule and explains the new permissive disclosure of documents via email attachment.
Effective Date: The final rule becomes effective July 27, 2020.
ERISA requires plan administrators to provide various notices and disclosures to participants and beneficiaries. In 2002, the DOL issued regulations that created a safe harbor for allowing some of ERISA's disclosure requirements to be provided by electronic media.1 That safe harbor allowed so-called "wired at work" employees to be automatically enrolled for electronic notifications but required non-wired employees to affirmatively consent to receive notices electronically.
On October 23, 2019, the DOL proposed to add a new section 2520.104b-31 to the regulations to allow pension plan administrators to use a "notice and access" structure to provide "covered individuals" with "covered documents." Under this approach, the individuals would receive electronic notification when a covered document is available for access on the employer's or plan administrator’s website. For a summary of the proposed rule and additional background please see Cheiron’s prior alert of November 13, 2019.
Note the new safe harbors are additional methods of delivery and do not change the 2002 safe harbor. Plan administrators, therefore, will have the flexibility to select the electronic delivery method that best suits their plans and participants.
Key Provisions of the Final Rule
In general, the final regulation follows the proposed rules but with some modifications. Therefore, the final regulation permits a notice of the availability of documents to be sent to an electronic address for an individual. The individual would then be able to access the document on the website. This electronic disclosure would take the place of a paper mailing of the document.
Additionally, the final regulation permits the direct delivery of documents by email, which can be used instead of making them available on a website or using a paper mailing. This is a significant modification of the proposed regulation, and the requirements are described below.
- Valid Electronic Address. To use either the website safe harbor or the delivery via email option, a plan administrator must possess an electronic address that enables electronic communication with a covered individual. While the proposed rule allowed an employer-assigned address to be created solely for purposes of using the proposed safe harbor, the final rule provides that the electronic address assigned by the employer must be “for employment-related purposes that include but are not limited to the delivery of covered documents.
CHEIRON OBSERVATION: The final rule continues to prohibit plan administrators or service providers from assigning the electronic address. In addition, employers cannot assign electronic addresses for non-employee spouses or other beneficiaries of their plans’ participants. Spouses and other beneficiaries must affirmatively provide (or must have provided) the employer, plan sponsor, or administrator with an electronic address.
- Covered Individual and Covered Document. The final rule made minor changes to the definitions of covered individual and covered document. These terms are now defined as:
- Covered individual. A “covered individual” is a participant, beneficiary, or other individual entitled to covered documents and who—when he or she begins participating in the plan, as a condition of employment, 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 electronic mail (“email”) address or internet-connected mobile-computing-device (e.g., “smartphone”) number, at which the covered individual may receive a written notice of internet availability or an email. Alternatively, if an 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, the employee is treated as if he or she provided the electronic address.
CHEIRON OBSERVATION: In response to concerns raised by sponsors of multiemployer plans, the final rule slightly rephrased the definition of “covered individual” to make clear that it encompasses multiemployer plan participants who provide their electronic addresses directly to the plan administrator, as well as plan participants whose personal or employer-assigned electronic address is provided to the plan administrator by an employer.
- Covered document. Any document or information that the administrator is required to furnish to pension plan participants and beneficiaries pursuant to Title I of ERISA Act, except for any document or information that must be furnished only upon request.
CHEIRON OBSERVATION: The final rule made two minor revisions to the definition of covered document. It added “or information” to clarify that certain “information” required to be disclosed pursuant to the DOL’s participant-level fee disclosure regulation, is covered by the safe harbor. Second, the word “only” was added 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”).
- Initial Notification of Default Electronic Delivery and Right to Opt-Out. Before first using the new safe harbors, the plan administrator must send the covered individual a one-time paper notification informing the covered individual that covered documents will be furnished electronically to an electronic address. The final regulation was modified to require that the initial notification must include the following information: (i) identification of the electronic address that will be used for the individual; (ii) any instructions necessary to access the covered documents; (iii) 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; (iv) a statement of the right to request and obtain a paper version of a covered document, free of charge, and an explanation of how to exercise this right; and (v) a statement of the right, free of charge, to opt out of electronic delivery and receive only paper versions of covered documents, and an explanation of how to exercise this right. As under the proposed rule, this notification must be written in a manner calculated to be understood by the average plan participant.
- Notice of Internet Availability. Under the final rule the plan administrator must furnish each covered individual with a notice of internet availability (NOIA) for each covered document that will be delivered electronically by posting on a website. The final regulation permits the use of a hyperlink to direct participants to the website address and added additional content requirements for the NOIA. However, timing of the notice was not changed.
- Timing. The NOIA must be furnished at the time the covered document that is the subject of the notice is made available on the website. A plan that furnishes more than one covered document under the special rule for combined notices, described below, will satisfy the NOIA if the combined notice of internet availability is furnished each plan year, and if the combined notice was furnished in the prior plan year, then no more than 14 months following the date the prior year’s notice was furnished. Each covered document must be made available on the employer’s website no later than the date on which it is otherwise is required to be furnished under ERISA.
- Content. The NOIA must contain the following content:
- a prominent statement such as a title, legend or subject line that reads, “Disclosure About Your Retirement Plan;”
- a statement that "Important information about your retirement plan is now available. Please review this information;"
- an identification of the covered document by name and a brief description of the covered document if identification only by name would not reasonably convey the nature of the covered document;
- the internet website address where the covered document is available. The website address or hyperlink must be sufficiently specific to provide ready access to the covered document and will satisfy this standard if it leads the covered individual either directly to the covered document or to a login page that provides, or immediately after a covered individual logs on provides, a prominent link to the covered document;
- a statement of the right to request and obtain a paper version of the covered document free of charge and an explanation of how to exercise that right;
- a statement of the right, free of charge, to opt out of electronic delivery and receive only paper versions of covered documents, and an explanation of how to exercise this right;
- 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; and
- a telephone number to contact the administrator or other designated representative of the plan.
The NOIA may contain a statement as to whether action by the covered individual is invited or required in response to the covered document and how to take such action, or that no action is required if the statement is accurate and not misleading.
- Form and Manner of Furnishing Notice of Internet Availability. The NOIA must: (i) be furnished electronically to the individual’s electronic address; (ii) contain only the content listed above, except that the administrator may include pictures, logos, or similar design elements, so long as the design is not inaccurate or misleading and the required content is clear; (iii) be furnished separately from any other documents or disclosures furnished to covered individuals (except as permitted for a combined notice); and (iv) be written in a manner calculated to be understood by the average plan participant.
- Special Rule for Annual Combined Notices of Internet Availability. The final rule permits an administrator to furnish one annual combined NOIA that incorporates the required content with respect to the four following categories of documents and information:
- the SPD, as required pursuant to section 104(a) of ERISA;
- 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;
- 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 section 110 of ERISA; and
- any applicable notice required by the Code if authorized in writing by the Secretary of the Treasury.
CHEIRON OBSERVATION: Unlike under the proposed rule, this special rule no longer permits an annual NOIA to cover quarterly benefit statements. Accordingly, a separate NOIA must be furnished for each quarterly benefit statement.
- Website Requirements. For purposes of the safe harbor, “website” means an internet website, or other internet or electronic-based information repository, such as a mobile application, to which covered individuals have been provided reasonable access. The administrator must take measures reasonably calculated to ensure that the covered document:
- is available on the website no later than the date on which the covered document must be furnished under ERISA;
- remains available on the website at least until the date that is one year after the date the covered document is made available on the website or, if later, the date it is superseded by a subsequent version of the covered document;
- is presented on the website in a manner calculated to be understood by the average plan participant;
- is presented on the website in a widely available format or formats that are suitable to be both read online and printed clearly on paper;
- can be searched electronically by numbers, letters, or words; and
- is presented on the website in a widely-available format or formats that allow the covered document to be permanently retained in an electronic format that is presented on the website in a widely-available format or formats that are suitable to be both read online and printed clearly on paper.
In addition, the administrator must take measures reasonably calculated to ensure that the website protects the confidentiality of personal information relating to any covered individual.
CHEIRON OBSERVATION: The administrator must ensure maintenance of an internet website at which the covered individual is able to access covered documents. However, as under the proposed rule, the plan administrator has no affirmative obligation to monitor whether covered individuals visit the specified website or login at the website.
- Right to Paper Documents or Opt-Out of Electronic Delivery. Upon request from a covered individual, the administrator must promptly furnish to such individual, free of charge, a paper copy of a covered document. Note only one paper copy of any covered document must be provided free of charge. Additionally, covered individuals must have the right, free of charge, to globally opt out of electronic delivery and receive only paper versions of covered documents. Upon request from a covered individual, the administrator must promptly comply with such an election. The administrator must establish and maintain reasonable procedures governing such requests or elections. The procedures are not reasonable if they contain any provision, or are administered in a way, that unduly inhibits or hampers the initiation or processing of a request or election. The system for furnishing a NOIA must be designed to alert the administrator of a covered individual’s invalid or inoperable electronic address. If the administrator is alerted that a covered individual’s electronic address has become invalid or inoperable, such as if a NOIA sent to that address is returned as undeliverable, the administrator must promptly take reasonable steps to cure the problem or treat the covered individual as if he or she has opted out of electronic delivery and then furnish a paper version of the undelivered document to the covered individual as soon as reasonably practicable.
- Special Rule for Severance from Employment. At the time a covered individual who is an employee, and for whom an electronic address assigned by an employer is used to furnish covered documents, severs from employment with the employer, the administrator must take measures reasonably calculated to ensure the continued accuracy and availability of such electronic address or to obtain a new electronic address that enables receipt of covered documents following the individual’s severance from employment.
CHEIRON OBSERVATION. The proposed rule imposed the requirement for administrators to ensure the continued accuracy of the electronic address for all employees who severed employment. In response to concerns raised by sponsors of multiemployer plans, where an employee may work for multiple different employers in the same year if not the same month, the administrator’s obligations upon severance from employment apply only with respect to employees for whom an employer-assigned electronic address is used to furnish covered documents.
- New Alternative Method for Disclosure through Email Systems. The final rule contains a new section (k) that was not in the proposed rule, which allows an administrator to use an email address to furnish a covered document directly to a covered individual, provided that:
- The covered document is sent to a covered individual’s email address by no later than the date on which the covered document must be furnished under ERISA;
- In lieu of furnishing a NOIA, the administrator sends an email written to be understood by the average participant that includes (i) the covered document in the body of the email or as an attachment; (ii) a subject line that reads: “Disclosure About Your Retirement Plan”; (iii) an identification or brief description of the covered document, (iv) a statement of right to a paper copy of covered document, (v) a statement of right to opt out of electronic delivery, and (vi) a telephone contact number;
- The covered document must satisfy the following requirements: (i) be written in a manner reasonably calculated to be understood by the average plan participant, (ii) be presented in a widely-available format or formats that are suitable to be read online, (iii) be able to be printed clearly on paper, and permanently retained in an electronic format that satisfies the preceding requirements in this sentence, and (iv) be searchable electronically by numbers, letters, or words;
- The administrator takes measures reasonably calculated to protect the confidentiality of personal information relating to the covered individual; and
- The administrator complies with the requirements relating to providing paper copies, offering the right to opt out, providing the initial notification of default electronic delivery (except for the cautionary statement), and severance from employment.
CHEIRON OBSERVATION. Most notable, this method of delivery does not require plan administrators to furnish a notice of internet availability (NOIA), and plan administrators may treat the email to the covered individual as the “envelope” and attach more than one document. With the elimination of the requirements for the employer to maintain a website and provide a NOIA, this method of direct delivery via email should prove to be the most streamlined and user-friendly method for electronic delivery.
- Reasonable Procedures for Compliance. The final rule provides a safe harbor when covered documents are temporarily unavailable for a period of time due to unforeseeable events, technical maintenance, unforeseeable events, or circumstances beyond the control of the plan administrator. In such instances, the electronic delivery requirements are deemed satisfied if the administrator (i) has reasonable procedures in place to ensure that the covered documents are available in the manner required by this section; and (ii) takes prompt action to ensure that the covered documents become available as required as soon as practicable following the earlier of the time at which the administrator knows or reasonably should know that the covered documents are temporarily unavailable.
Cheiron is an actuarial consulting firm that provides actuarial and consulting advice. However, we are neither attorneys nor accountants. Accordingly, we do not provide legal services or tax advice.
1 See 29 CFR 2520.104b-1(c).