On May 21, 2020, the DOL finalized the electronic distribution safe harbor rule, which expands the options for electronic delivery of required retirement plan disclosures. As background, on October 23, 2019, the DOL proposed this rule, following Executive Order 13847, which instructed the DOL to determine whether regulatory actions could be taken to improve the effectiveness of participant disclosures and reduce their cost to employers. After review and consultation with other regulatory agencies, the DOL set forth a new “notice and access” safe harbor under which ERISA retirement plan disclosures could be made available on a website following specified notice. We wrote about the proposed rule in the October 29, 2019 edition of Compliance Corner.
As proposed, the new safe harbor permits required disclosures for retirement plans (including multi-employer plans) to be posted online following notice to covered individuals, who can then access the documents continuously using an internet-connected device. Covered individuals are participants, beneficiaries and any other individuals entitled to documents who have provided the plan administrator (or designee) with an electronic address, such as email address or smartphone number.
The DOL received many comments on the proposed rule. However, the finalized rule mainly adopts the provisions of the proposed rule, with minor changes. Among other changes, those minor changes include the following:
- While an employer can provide notices through the use of phone numbers, the employer will have to take steps to confirm with participants and beneficiaries that the phone is a smartphone or other mobile phone that will allow the individual to receive and inspect written messages.
- While employers can continue to use an electronic address provided by the employer, the electronic address can no longer be assigned only for the purpose of providing covered documents. Instead, the employer-provided electronic address has to have an employment-related purpose other than just complying with this safe harbor. Also, employers cannot assign electronic addresses for nonemployee spouses or other beneficiaries.
- The IRS clarified the covered documents to include all disclosures required under Title 1 of ERISA, with the exception of documents that must be furnished only upon request (such as the plan document).
- A brief description of the covered document is only required in addition to the name of the document when the name would not reasonably convey the nature of the covered document.
- The Notice of Internet Availability (NOIA) can utilize hyperlinks instead of just website addresses.
- Employers are only required to keep documents available online for a year from posting. Because of this, the NOIA must include a warning or reminder that covered documents may not always be available online.
- The NOIA must be written in a manner calculated to be understood by the average plan participant, but plan administrators may look to the DOL’s SPD regulations for guidance on the meaning of “written in a manner calculated to be understood by the average plan participant” instead of having to comply with the additional guidelines that were mentioned in the proposed rule.
- The term “website,” which dictates where the employer must post the covered documents, can include a mobile app as long as covered individuals have been provided reasonable access.
- If participants or beneficiaries want a paper copy of certain covered documents, only one copy of a specific document must be provided free of charge.
- While participants and beneficiaries must be given the opportunity to opt-out of receiving documents electronically, the employer can require a global opt-out. This means the employer can (but does not have to) require an all-or-nothing opt-out, instead of allowing participants and beneficiaries to opt-out document-by-document.
Notably, the DOL still declined to extend the final rule to welfare benefit plans. However, they did indicate an intention to review whether a similar rule should be provided for welfare benefit plans.
Employers who are seeking an alternative electronic delivery method for retirement plan disclosures may choose to adopt this safe harbor. Although it is officially effective as of 60 days after the publishing of this final rule in the Federal Register, the rule made it clear that the DOL will not seek enforcement against any employer that adopts the rule before the effective date.
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