The Labor Department is offering a small fix for retirement plan administrators that could relieve a looming paperwork burden, giving companies more discretion to send plan materials to employees electronically.
The department issued a notice earlier this month updating the process companies must use to send retirement plan materials electronically. Bottom line: Companies may send some materials by e-mail without first getting employee consent, and plan sponsors can use plan employee e-mail addresses already on file.
Until now, companies that wanted to send retirement plan materials electronically had to abide by affirmative consent rules, adopted in 1997, that required them to mail paper forms to employees, wait for a reply, and then file the consent paperwork before plan information could be sent electronically to participants.
“Affirmative consent is a fairly detailed process, plus you have to get the consent form back from participants before using the electronic delivery method,” says Edward Leeds, counsel at law firm Ballard Spahr. He says the relief provided in the recent notice will eliminate the multi-step process and makes compliance much simpler.
The change is good news for plan participants since new disclosures approved last year will soon go into effect, greatly increasing the information plan sponsors must send out. Plan administrators must now inform participants of any changes in plan fees and expenses each quarter, rather than just in the annual report. The new disclosure prompted the Labor Department to review the electronic delivery rules. Although the department hasn't yet finished the new guidelines for electronic delivery, plan sponsors and administrators can begin using them immediately since they were issued as “interim relief.”
“The special transition provision opens up the pool of people to whom plan administrators can send out e-distribution, including to employees that have e-mail addresses on file,” Leeds says. The Labor Department's concern, he says, is to ensure that employees can access information by e-mail just as effectively as when paper notices were sent out.
To qualify, employers must first send an initial notice to participants as early as 90 days and no less than 30 days before the May 31, 2012, implementation deadline for the new fiduciary disclosure rule under the Employment Retirement Income Security Act (ERISA). The initial notice must contain a description of the information that will be furnished by e-mail, the participant's right to request a paper copy, the participant's right to opt out of electronic delivery, and the procedure for participants to update their e-mail addresses.
“The special transition provision opens up the pool of people to whom plan administrators can send out e-distribution to if employees have e-mails on file.”
—Edward Leeds,
Counsel,
Ballard Spahr
According to the Labor Department, the first fee disclosure notice must still be furnished on paper, although exemption to use electronic delivery will be granted if there is evidence of participants' electronic interactions with the plan during the 12-month period prior to sending out the initial notice. That first disclosure must contain a brief description of the general plan, expenses incurred by administrators and plan participants, and investment information such as performance, benchmark plan fees, and a glossary of terminology used in investment products offered to participants. Plan and investment-related information should be provided in easy-to-understand formats, including charts, and must be written in plan language.
To qualify, employers or their plan administrators must use a tracking system to confirm the receipt of the electronically transmitted information, either with return receipts or notice of undelivered electronic mails.
The Labor Department is still considering new electronic disclosure rules that could be based on how well the interim rules work. “What the agency wants to find out is if the employers or administrators can distribute the information more effectively using electronic disclosure,” says Michael Richman, counsel at law firm Morgan Lewis.
E-DISCLOSURE CONDITIONS
In the following excerpt from the DoL's Interim Policy on Electronic Disclosure, the conditions for e-mail disclosure in regard to pension benefit statements:
Conditions. [A]ll of the conditions of paragraphs 1 through 6, below, must be satisfied:
1. Voluntary Provision of E-mail Address. Participants and beneficiaries entitled to receive information under section 2550.404a-5 must voluntarily provide the employer, plan sponsor, or plan administrator (or its designee) with an e-mail address for the purpose of receiving disclosures required by section 2550.404a-5. The e-mail address must be provided in response to a request accompanied by an Initial Notice, as described in paragraph 2, below. If the provision of an e-mail address is a condition of employment or participation in the plan, such e-mail address shall not be treated as being provided voluntarily. If a participant, however, is required to provide an e-mail address electronically in order to access a secure continuous access Website housing the required disclosure, the provision of such e-mail address is considered voluntary where an Initial Notice is provided in accordance with paragraph 2, below.
2. Initial Notice. The Initial Notice must be clear and conspicuous, provided contemporaneously and in the same medium as the request for the e-mail address and contain the following information:
a. A statement that providing an e-mail address for the receipt of the required section 2550.404a-5 disclosures is entirely voluntary, and that as the result of providing the e-mail address, the required disclosures will be made electronically;
b. Identification or a brief description of the section 2550.404a-5 information that will be furnished electronically and how it can be accessed by participants and beneficiaries;
c. A statement that the participant or beneficiary has the right to request and obtain, free of charge, a paper copy of any of the section 2550.404a-5 information provided electronically and an explanation of how to exercise that right;
d. A statement that the participant or beneficiary has the right, at any time, to opt out of receiving the section 2550.404a-5 information electronically and an explanation of how to exercise that right; and
e. An explanation of the procedure for updating the participant's or beneficiary's e-mail address.
3. Annual Notice. Commencing with the year beginning after the year that the participant or beneficiary voluntarily provided his or her e-mail address in accordance with paragraph 1, above, and annually thereafter, the plan administrator shall furnish an Annual Notice to each such participant or beneficiary. For purposes of this paragraph 3, “year” means a calendar year, plan year, or any other 12-month period selected by the plan administrator.
The Annual Notice must contain the information set out in subparagraphs b. through e. of paragraph 2, above. The Annual Notice must be furnished on paper in accordance with 29 CFR 2520.104b-1(b). Alternatively, the plan may furnish the Annual Notice electronically by sending it to the e-mail address on file for the participant or beneficiary if there is evidence that such participant or beneficiary interacted electronically with the plan after the date the Annual Notice for the preceding year was furnished (or in the case of the first Annual Notice, after the date the Initial Notice was furnished). Examples of electronic interaction include, but are not limited to: the participant or beneficiary updating, resubmitting, or confirming his or her e-mail address to the plan; the participant or beneficiary sending an electronic message to the plan; logging onto a secure continuous access Web site housing plan information; or the receipt and opening of an electronic message sent by the plan to the participant or beneficiary.
4. Delivery. The plan administrator takes appropriate and necessary measures reasonably calculated to ensure that the electronic delivery system results in actual receipt of transmitted information (e.g., using return receipt or notice of undelivered electronic mail features, conducting periodic reviews or surveys to confirm receipt of transmitted information, etc.).
5. Confidentiality. The plan administrator takes appropriate and necessary measures reasonably calculated to ensure that the electronic delivery system protects the confidentiality of personal information.
6. Calculated to Be Understood. Notices furnished to participants and beneficiaries shall be written in a manner calculated to be understood by the average plan participant.
Source: DoL: Interim Policy on Electronic Disclosure.
The transition rule is a good way for the Labor Department to test the water on the change in electronic distribution of benefits plan information, agrees Joan Disler, chair of employee benefits practice at law firm Epstein Becker Green. “The existing safe harbor provision for that method of delivery is dated back to 1997. The interim rule tells us that the department is looking to update the rule,” she says.
Although the rule is not a complete replication of what employers sought, she says the compromise rule is still a good step. “Employers are facing burdensome responsibilities in ensuring the information gets to employees. With the new rule, it will at least reduce some of those [paper distribution] burdens.”
Getting Ready
Richman says employers and record keepers should start preparing the initial notice to be sent out to participants and check the percentage of e-mail addresses on file for plan participants. Some of those e-mails may reside in different places and will need to be assembled in one database.
“On an on-going basis, employers have to ensure there is a process in place to utilize the electronic distribution,” Richman says. He suggests employers begin asking for plan participant e-mail addresses in all enrollment packages if they do not already.
Focus your attention on possible online distribution privacy issues, Leeds says. “Look into privacy issues with your IT department and make sure they have the standard procedures set up to distribute the information, to change the password settings and other related matters.”
Richman adds employers should also start checking whether their systems can support the appropriate measures to ensure the actual receipt of information requirement as highlighted by the Labor Department. Aside from checking on companies' undelivered e-mail and return receipt features, he says employers should also conduct periodic reviews and survey employees to make sure that the delivery method is effective.
Although final rules on electronic distribution are still to come, many lawyers don't expect them to deviate much from the interim rules. “I don't expect any major changes in the final version of the [electronic distribution] rule,” Leeds says.
He adds that even if the Labor Department changes its mind to tighten rules on e-distribution, it will give employers and plan administrators enough time to comply with the new set of rules.
What the final rules will look like could depend on how well employers use the many distribution methods to keep employees informed of changes to retirement plans, Disler says. The Labor Department's main concern, she says, is the feasibility of this delivery method to all employees and how easily it will be for employees to access this information. Many workers don't have on-the-job access to e-mail. “The agency has to make sure that all employees, including factory workers, will have access to this information,” she says.
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