On May 21, 2020, the U.S. Department of Labor and the Employee Benefits Security Administration (EBSA) announced the publication of a final rule that will allow employers to communicate the required retirement plan disclosures and other plan information electronically. The rule finishes a 2018 DOL initiative aimed at reducing administrative burdens and costs associated with the delivery of retirement plan disclosures. EBSA projects that electronic delivery could save retirement plan sponsors an estimated $3.2 billion over the next 10 years by eliminating significant materials, printing, and mailing costs associated with furnishing printed disclosures. As businesses face economic and logistical challenges due to the COVID-19 National Emergency, the rule brings much needed relief to plan sponsors and service providers while making disclosures more readily accessible and useful for America’s workers.
New Voluntary Safe Harbor
The final rule, which was effective July 26, 2020, establishes a voluntary safe harbor for retirement plan administrators who elect to use electronic media to furnish retirement plan disclosures to “covered individuals.” For plan sponsors interested in taking advantage of the new safe harbor, there are three rules to which they must comply:
- The safe harbor only applies to retirement plan disclosures and does not include any document that must be furnished only if it is requested.
- Covered individuals must provide an electronic delivery address such as an email address or smartphone number. An employer assigned email address, such as a company email address, may be treated as provided by the individual if the email address has a separate employment related purpose.
- The initial notification of electronic delivery must be on paper. For those plans that would like to rely on the new safe harbor, the plan administrator must distribute a paper notice to covered individuals advising them of the intended electronic delivery and providing an opportunity for the individual to opt out.
“EBSA projects that electronic delivery could save retirement plan sponsors an estimated $3.2 billion over the next 10 years” — Employee Benefits Security Administration, 2020
The rule allows two methods for delivering retirement plan disclosures electronically:
- Website posting. Referred to as the Notice and Access model, administrators may post participant disclosures on a website if an appropriate Notice of Internet Availability (NOIA) is furnished to the electronic addresses of covered individuals. These documents must remain on a website until superseded by a subsequent version but never for less than one year. The NOIA must include a description of the covered document(s), the electronic address (or hyperlink to the address) where the individual can access the document, and a required statement that advises individuals of their
right to opt out of electronic delivery and to receive free paper copies along with the administrator’s or a designated representative’s phone number. The NOIA must generally be provided each time a new covered document is available for review on the website. However, the final rule permits an annual NOIA to include information about multiple covered documents instead of requiring that plan sponsors provide multiple NOIAs throughout the year.
- Email delivery. Alternatively, administrators may send required disclosures directly to the email addresses of plan participants. Required documents must be sent to participants’ email addresses no later than the date by which the document must be furnished under ERISA.
Documents Eligible for Electronic Delivery
Under the final rule, documents that may be provided electronically include:
- Annual disclosure notices such as safe harbor, Qualified Default Investment Alternative (QDIA), Fee
- Disclosures, and automatic enrollment.
- Summary Plan Descriptions (SPDs)
- Summaries of Material Modifications (SMMs)
- Summary Annual Reports (SARs)
- Notice of blackout period for participant investment direction
- Notices relating to Qualified Domestic Relations Orders (QDROs) Indiviual benefit statements required
- by the Pension Protection Act
IMPORTANT: The rules do not apply to any document that must be furnished only if it is requested.
The final rule allows the use of electronic media to furnish retirement plan disclosures to “covered individuals.” Covered individuals include plan participants (employees or former employees covered by the plan), beneficiaries (e.g., spouses and dependents covered by the plan), and other persons entitled to documents under Title I of ERISA who have provided the plan administrator or other appropriate designee with an email address or smartphone number. Electronic addresses previously provided to the plan administrator may be used without verifying the address if such reliance is in good faith and otherwise complies with the new safe harbor rule.
Covered individuals must be able to globally opt out of electronic delivery and receive paper copies at no cost to the individual. For administrative ease, the plan sponsor may continue to provide electronic copies in tandem with paper delivery. When a participant who has elected electronic delivery terminates employment, administrators must “take measures reasonably calculated to ensure the continued accuracy and availability” of electronic addresses used to deliver required documents, or take steps to obtain new, valid electronic addresses from plan participants.”
Additionally, the plan administrator must have a system for identifying bounce backs or delivery attempts to a covered individual that have been returned as “undeliverable.” If a bounce back is received, the plan administrator must promptly take reasonable steps to cure the problem by sending the NOIA or email to a secondary electronic address on file, obtaining a new valid and operable electronic address, or treating the covered individual as having globally opted out of electronic disclosures and distributing paper notices from that point forward.
Pre-existing Electronic Delivery Rule
The new safe harbor is an additional option for electronic disclosure and does not replace the prior DOL edisclosure rule that allowed for electronic delivery to those employees that were “wired at work.” The new safe harbor rule only applies to retirement plans (and is voluntary) and not employee welfare benefit plans, such as plans providing group health or disability benefits.
“A 2019 survey found that 90% of U.S. adults use the internet, representing a substantial increase from 2000 when 52% of U.S. adults reported using the internet.” — Pew Research Center, “10% of Americans don’t use the internet. Who are they?” (Apr.22, 2019)
This newsletter is intended to provide general information on matters of interest in the area of qualified retirement plans and is distributed with the understanding that the publisher and distributor are not rendering legal, tax or other professional advice. Readers should not act or rely on any information in this newsletter without first seeking the advice of an independent tax advisor such as an attorney or CPA.
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