DOL Introduces New Safe Harbor for Retirement Plan Disclosures; Health and Welfare Plans Remain Subject to Existing Safe Harbor E-Disclosure Rules

By Anne Tyler Hall and Eric Schillinger, Hall Benefits Law

On May 27, 2020, the Department of Labor (“DOL”) published a final rule on electronic disclosures of ERISA-required documents (the “Final Rule”) that relaxes previous disclosure guidelines and allows retirement plan administrators to deliver documents to participants using modern electronic methods (the “2020 Safe Harbor”). Importantly, the Final Rule establishes an additional safe harbor, under which plan administrators may furnish retirement plan disclosures to all participants electronically as a default and be deemed in compliance with ERISA. Although the 2020 Safe Harbor applies to retirement plan disclosures exclusively, the DOL has indicated that it will continue to explore the possibility of extending the safe harbor to include health and welfare plan disclosures in the future.

The DOL has stated that retirement plans may rely upon the 2020 Safe Harbor immediately, although the Final Rule’s effective date is July 27, 2020 (60 days after its publication date).  Retirement plan sponsors should carefully review the Final Rule to decide if their plans would benefit economically or logistically from furnishing participant disclosures electronically by default. The plan sponsor should then revise existing disclosure processes to align with the new safe harbor if it is in the best interest of the plan.

Background

Under ERISA, employee benefit plan administrators are required to disclose certain documents to participants (e.g., Summary Plan Descriptions and various legal notices). Employers have always had the option of furnishing disclosures to participants as paper documents; however, many employers have taken advantage of electronic disclosure methods that became available in 2002 when the DOL established the original safe harbor (the “2002 Safe Harbor”). The 2002 Safe Harbor, which remains available in addition to the new 2020 Safe Harbor, only allows for electronic disclosure to participants who have work-related computer access that is integral to their job duties or who affirmatively consent to electronic disclosure. The DOL provided for the 2020 Safe Harbor to ease burdens associated with ERISA compliance for employers that are currently facing economic and logistical challenges related to COVID-19.

New 2020 Safe Harbors Under the Final Rule

The Final Rule provides two new disclosure methods that can be used to comply with ERISA: 

  1. Notification to a participant of a document’s availability on a website (“Notice-and-Access Safe Harbor”); and 
  2. Direct email of a document to a participant (“Email-Delivery Safe Harbor”).    

Under both safe harbors, the plan administrator must first provide the participant with an initial notice on paper (“Initial Paper Notice”) stating that disclosures will be provided electronically unless the participant opts out. The Initial Paper Notice must include the electronic address of the participant (either an email address or a smartphone number) that will be used for future electronic disclosures and meet certain other content requirements.

For plan sponsors utilizing the Email-Delivery Safe Harbor, the plan administrator can directly email documents to participants (either in the body of an email or as an attachment) after distributing the Initial Paper Notice. However, there are additional steps if the plan administrator is using the Notice-and-Access Safe Harbor:

  1. The document must first be uploaded to a website, such as a company’s intranet site or a website created for the purpose of electronic disclosures. 
  2. Once the Initial Paper Notice has been distributed and the plan document has been uploaded to the website, the plan administrator must send an additional electronic notification to participants called a Notice of Internet Availability (NOIA). The NOIA must include, among other provisions, a statement informing participants that a document has been posted on a website, along with a link to that website. For the sake of simplicity, the Final Rule uses the term “website” to include other electronic-based repositories, such as mobile apps.  

What to Include in the Initial Paper Notice, an NOIA, and an Email of a Document

Initial Paper Notice

The required Initial Paper Notice (regardless of whether a plan administrator is using the Notice-and-Access Safe Harbor or the Email-Delivery Safe Harbor) must include the following information:

  1. The electronic address (email address or smartphone number) that will be used for the participant;
  2. Any instructions needed to access the document;
  3. A statement explaining that the participant has the right to request a paper version of the document, free of charge, and how to make such a request;
  4. A statement explaining that the participant has the right to opt out of electronic delivery and receive only paper versions of disclosures (free of charge) and how to opt out; and
  5. If using the Notice-and-Access Safe Harbor, a cautionary statement that the document is  required to remain on the website for one year. After one year, the document must remain on the website until it is replaced by a new version.

After the plan administrator distributes the Initial Paper Notice to participants, he or she can either notify participants of the document’s availability on a website or send the document directly to participants via email.

NOIA

If using the Notice-and-Access Safe Harbor, the plan administrator must distribute an NOIA that generally includes the following: 

  1. The name of the document;
  2. A brief description if the document name would not reasonably convey the nature of the document;
  3. A link to the website where the document is located;
  4. A statement explaining that the participant has the right to request a paper version of the document, free of charge, and how to make such a request;
  5. A statement explaining that the participant has the right to opt out of electronic delivery and receive only paper versions of disclosures; 
  6. A description of how to opt out of electronic delivery;
  7. A warning that, after the document has been available on the website for one year, the document is only required to remain until it is replaced by a new version; and
  8. A telephone number to contact the plan administrator or other designated representative.

Both the Initial Paper Notice and NOIA must be written in a way that the average plan participant would understand.

Email

If the administrator sends a disclosure directly via email (i.e. relying on the Email-Delivery Safe Harbor), the email must include the following:

  1. Identification of the document by its name if included as an attachment;  
  2. A brief description if the document name would not reasonably convey the nature of the document;
  3. A statement explaining that the participant has the right to request a paper version of the document, free of charge, and how to make such a request;
  4. A statement explaining that the participant has the right to opt out of electronic delivery and receive only paper versions of disclosures, free of charge, and how to opt out; and
  5. A telephone number to contact the plan administrator or other designated representative.

Important Notes Regarding the Final Rule

The 2020 Safe Harbor is notably different from the 2002 Safe Harbor rule because it applies to retirement plan disclosures but not health and welfare plan disclosures. The Final Rule also does not apply to retirement plan disclosures that are required to be provided only upon request. To take advantage of the 2020 Safe Harbor, the plan administrator must have a system in place to identify when an electronic notification has not been successfully delivered to an electronic address. If a notification is not successfully delivered to a participant, the plan administrator should either send the notification to another electronic address determined to be valid or treat the participant as having opted out of electronic disclosures entirely.

If a participant does not opt out of electronic disclosures under the 2020 Safe Harbor, he or she is entitled to one free paper copy of a document upon request. Pursuant to the Final Rule, the employer cannot assign a participant an electronic address solely for the purpose of electronic disclosures. If an employee terminates employment, the plan administrator should take “reasonably calculated” steps to ensure that notifications will still be delivered to an electronic address the former employee can access.

Conclusion

Despite the 2020 Safe Harbor’s precise administrative requirements and multi-step processes, the freedom to furnish disclosures electronically by default, regardless of whether a participant’s job requires working on a computer, is a welcome expansion to ERISA e-disclosure requirements for employers. After the Initial Paper Notice is distributed, most future retirement plan interactions with participants can be electronic, which should result in a reduction of paperwork (and administrative time and expense) and a modernization of the relationship between plan administrator and participant. Retirement plan sponsors should review the Final Rule and consider relying on the 2020 Safe Harbor to streamline their processes for furnishing disclosures to participants.


Special thanks to Allison Richter, Hall Benefits Law’s summer intern, for her assistance in researching and writing this article. Allison graduated magna cum laude from the University of Pennsylvania, and she will enter her second year of law school at George Washington University in the fall.

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Hall Benefits Law, LLC

HBL offers employers comprehensive legal guidance on benefits in mergers and acquisitions, Employee Stock Ownership Plans (ESOPs), executive compensation, health and welfare benefits, healthcare reform, and retirement plans. We counsel a wide spectrum of clients including small, mid-sized, and large companies, 401(k) investment advisors, health insurance brokers, accountants, attorneys, and HR consultants, just to name a few. HBL is passionate about advising clients, and we are dedicated to our mission: to provide comprehensive, personalized, and practical ERISA and benefits legal solutions that exceed client expectations.

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