DOL Issues Final Rule on Electronic Delivery

On May 27, 2020, the Department of Labor ("DOL") published a final rule ("Final Rule") that allows retirement plan administrators to use an electronic "notice-and-access" method of delivery for required disclosures to participants in employee retirement plans. The Final Rule is fundamentally similar to the Proposed Rule published in October 2019, which we discussed in our prior alert. The Final Rule takes effect on July 26, 2020.

For public sector plans (i.e., government retirement plans) the Final Rule is not binding, but serves as useful guidance.

It is anticipated that the Final Rule will reduce administrative expenses and make the disclosures more readily accessible for retirement plan participants.

Current Guidance

The Employee Retirement Income Security Act of 1974, as amended, ("ERISA") requires the disclosure of a wide variety of documents and information to participants and beneficiaries of employee benefit plans. A plan administrator is generally obligated to use measures "reasonably calculated to ensure actual receipt" of the material by plan participants, beneficiaries, and other individuals.

DOL regulations have long provided a safe harbor method of electronic distribution ("2002 Safe Harbor") that satisfies the obligation to use measures "reasonably calculated to ensure actual receipt." However, this method has required electronic distribution of the required documents (not merely notice and access) and has been limited to:
 

• Participants who can effectively access the documents any place they are reasonably expected to perform duties as an employee, and for whom access to the electronic information system is an integral part of job duties; and
• Individuals entitled to documents that have affirmatively consented to receive the documents, in a manner that reasonably demonstrates their ability to access electronic information, and who have provided an electronic address to receive the information.The new safe harbor allows plan administrators to satisfy their disclosure obligations with regard to "covered documents" for "covered individuals" by meeting the notice-and-access requirements of the Final Rule.

Covered Documents

The new disclosure options apply to "covered documents." Currently, covered documents are limited to those related to "employee pension benefit plans" as defined under ERISA § 3(2). The final regulations do not apply to required disclosures for employee welfare benefit plans, although future guidance on this issue may be forthcoming. 

Covered documents include any document or information that Title I of ERISA requires a plan administrator to furnish to participants and beneficiaries, except for documents or information required to be furnished only upon request.

Covered Individuals

A "covered individual" is any individual entitled to a covered document who:
 

• provides an electronic address (e.g., an email or smartphone number) to receive a notice of internet availability; or
• is assigned an electronic address for employment-related purposes that include the delivery of covered documents.

Unlike under the Proposed Rule, the Final Rule provides that employers cannot assign an employee an electronic address to be used solely for purposes of complying with the safe harbor. Essentially, the electronic address must have another employment-related purpose (such as the employee’s general work email address).

Initial Paper Notice

Before an administrator can rely on the notice-and-access safe harbor with regard to a covered individual, it must issue an initial paper notice to the covered individual. The paper notice must contain:
 

• A statement that the way they currently receive disclosures is changing and that covered documents will be issued electronically to an electronic address;
• Identification of the electronic address that will be used;
• Any instructions required to access the covered document;
• A warning that the covered document is not required to be available on the website for more than one year or until superseded, if later;
• A statement of the right to request a paper copy of the covered document for free, and an explanation of how to do so;
• A statement of the right to opt out of electronic delivery, free of charge, and receive only paper copies, and an explanation of how to do so.

The initial paper notice must be written in a manner calculated to be understood by the average plan participant.
 
Required Electronic Notice of Internet Availability ("NOIA")

The notice-and-access method also requires administrators to furnish an annual notice of internet availability for each covered document that uses the method. The Final Rule dictates the timing and content of this notice.

The notice must be furnished at the time the covered document is made available online, unless the administrator uses a combined notice, as described below.

The Final Rule is highly specific about the content of the required notice of internet availability. The notice must contain all of the following:
 

• A prominent statement that reads: "Disclosure About Your Retirement Plan.”
• A statement that reads: "Important information about your retirement plan is now available. Please review this information."
• An identification of the covered document by name.
• A brief description of the document, if the document's name does not reasonably convey the nature of the covered document.
• The web address (or a hyperlink to it) where the covered document is available.
• A statement of the right to obtain a paper copy of the covered document, and an explanation of how to exercise that right.
• A statement of the right to opt out of electronic delivery and obtain only paper copies of covered documents.
• A cautionary statement that the covered document is not required to be available for more than one year or, if later, after it is superseded.
• A telephone number to contact the administrator or designated representative.

The notice may not contain anything other than the above information, except:
 

• Pictures, logos, etc.
• A statement as to whether action by the covered individual is invited or required, and how to take such action.

The notice must be written in a manner calculated to be understood by the average plan participant. It must also be provided separately from any other documents or disclosures provided to covered individuals, except if it is part of a combined notice.

The system for providing the NOIA must be designed to alert the administrator if a covered individual's electronic address is inoperable or becomes invalid. If the administrator is alerted to an invalid address, the administrator must promptly take reasonable steps to cure the problem or treat the individual as having opted out of electronic delivery, in which case the disclosure must be provided in paper form as soon as is reasonably practicable.

Combined Notice

A combined notice allows the administrator to issue a single notice with respect to multiple covered documents. The notice may incorporate or combine the required content for each of the covered documents. Documents for which a combined notice may be used include the following:
 

• Summary Plan Description;
• Summary of Material Modification;
• Summary Annual Report;
• Annual Funding Notice;
• Investment Related Disclosures;
• Qualified Default Investment Alternative Notice;
• Pension Benefit Statement;
• Any covered document or information that (a) must be furnished annually, rather than after a specified event, and (b) does not require action by a covered individual by a particular deadline;
• Any covered document, if authorized by the DOL; and
• Any applicable notice required by the Internal Revenue Code, if authorized by the IRS.

A combined notice must be furnished once every plan year, and no more than 14 months after the date it was last furnished.

Website

The plan administrator must ensure that a website is available for covered individuals to access covered documents. The administrator must "take measures reasonably calculated to ensure" that the covered document:
 

• Is available on the website by the date of required disclosure;
• Remains for at least one year or, if later, until superseded;
• Is presented in a manner calculated to be understood by the average plan participant;
• Is presented in a widely available format that is suitable both to be read online and to be printed clearly on paper, and in which the document can be permanently retained electronically; and
• Can be searched electronically by numbers, letters, or words.

The administrator must also take measures reasonably calculated to ensure that the website protects the confidentiality of covered individuals' personal information.

Paper Copies and Right to Opt Out

The new notice-and-access method of electronic disclosure does not completely obviate the provision of paper documents and provides two safeguards to ensure proper receipt by covered individuals.
 

• First, administrators must still "promptly" furnish a free paper copy of a covered document upon request. This obligation is limited to one copy of the covered document.
• Second, covered individuals have a right to globally opt out of all electronic delivery, free of charge, and receive only paper covered documents. Administrators must "promptly" comply with any such election. 

Severance from Employment

Special rules apply in the case of covered individuals who are assigned an electronic address by their employer for the receipt of covered documents. When these individuals sever employment, the administrator must take measures reasonably calculated to either:
 

• ensure the continued accuracy and availability of the electronic address; or
• obtain a new electronic address that allows for the electronic delivery of covered documents after the individual's severance from employment.

Temporary Unavailability of Covered Documents

The Final Rule anticipates that electronically available covered documents may, from time to time, become unavailable due to technical maintenance or unforeseeable circumstances beyond the administrator's control.

In such a case, an administrator does not fail to comply with the Final Rule if:
 

• The period of unavailability is "reasonable;"
• The administrator has "reasonable" procedures in place to alert them if a participant’s electronic address is invalid or inoperable; and
• The administrator takes prompt action to ensure the covered document becomes available as required by the Final Rule as soon as practicable after the earlier of the time the administrator (a) knows or (b) reasonably should know of the temporary unavailability.

New Alternative Email Method

In addition to providing the notice-and-access method of electronic delivery, the Final Rule also allows plan administrators to deliver covered documents to covered individuals using an email address (a NOIA is not required). The Final Rule requires that the document be delivered by email no later than the date on which it is required to be furnished, and that it be sent to an email that could be used for the notice-and-access method (i.e., an email the individual provides, or is assigned, to receive covered documents).

If an administrator elects to use the email alternative to notice-and-access delivery, it is not required to provide the annual electronic notice described above. However, it is still required to provide the initial paper notice of electronic delivery (minus the cautionary statement that the document is not required to be available for more than one year or, if later, after it is superseded).

The alternative email method requires the administrator to send the covered individual an email that:
 

• Includes the covered document as the body of the email or as an attachment;
• Includes a subject line that reads "Disclosure About Your Retirement Plan;"
• Identifies the covered document as required in an electronic notice (above), if the covered document is an attachment;
• States an individual's right to obtain a paper copy, as required in an electronic notice (above);
• States an individual's right to opt out of electronic delivery, as required in an electronic notice (above);
• Provides a telephone number to contact the administrator or designated representative, as required in an electronic notice (above); and
• Is written in a manner calculated to be understood by the average plan participant.

As with the notice-and-access method, the alternative email method requires that the covered document:
 

• Is presented in a manner calculated to be understood by the average plan participant;
• Is presented in a widely available format that is suitable both to be read online and to be printed clearly on paper, and in which the document can be permanently retained electronically; and
• Can be searched electronically by numbers, letters, or words.

In addition, the plan administrator must satisfy the same standards as described above with regard to protecting the confidentiality of personal information and ensuring delivery following severance from employment.
 
Governmental Plans

The Final Rule does not apply to disclosures furnished by governmental plans. However, governmental plans often use DOL guidance in determining what might be reasonable fiduciary conduct. In this respect, the Final Rule will be informative for providers of governmental retirement plans.

Next Steps

Compliance with the DOL Final Rule is optional. However, the DOL will not take any enforcement action if administrators rely on the safe harbor before its effective date. The DOL’s non-enforcement policy is intended to provide greater flexibility and help employers reduce their administrative burden due to the effects of COVID-19. Employers should discuss the Final Rule with their third party administrators and other advisors to determine if implementation of the safe harbor makes sense for their retirement plans. 

For more information, please contact Gary Blachman, Kathleen Sheil Scheidt, Melissa Proffitt, Rob Gauss, Audra Ferguson-Allen, Chris Sears, Tara Sciscoe, Lisa Harrison, Austin Anderson, or the Ice Miller LLP Employee Benefits attorney with whom you work.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.