Under a new proposed rule, certain required disclosures could be provided electronically to all retirement plan participants, including former employees and beneficiaries. On October 23, 2019, the U.S. Department of Labor issued a proposed rule intended to expand the use of internet technology to furnish ERISA-required disclosures to plan participants, and to reduce printing and mail expenses. The proposed rule cannot be relied on until a final rule is issued, and the final rule will take effect as of the first calendar year following its publication.

Proposed Rule Would Create a New “Notice and Access” Safe Harbor

The proposed rule would allow plan sponsors to provide certain disclosures to participants and beneficiaries using a “notice and access” procedure. This requires providing a notice to recipients of the availability of the disclosure on an internet website, and posting the disclosure on the website. The notice and access method could be used for anyone for whom the plan sponsor has a smartphone number or an electronic address, including an email address assigned to the recipient by the plan sponsor (i.e. the participant's work email address). Before using the new safe harbor, plan sponsors would need to provide a one-time paper notice to explain that electronic disclosure will be used in the future, and how recipients can opt out of electronic disclosure and receive paper copies of the disclosures, free of charge, instead.

Covered Disclosures

As proposed, the new rule applies only to retirement plans – not to health plans. For covered plans, the new safe harbor would apply to documents that must be furnished automatically under the Employee Retirement Income Security Act of 1974 (ERISA), including summary plan descriptions and benefit statements. The safe harbor would also apply to notices required because of a triggering event, such as a summary of material modifications of a plan, or notice of a blackout period for participant-directed defined contribution plans. The new safe harbor would not apply to notices that must be provided upon request. While the new rules would not apply to governmental plans that are not covered by ERISA, many governmental plan administrators follow ERISA guidance as a best practice.

Requirements for Notice of Internet Availability

Timing. A notice of internet availability of a required disclosure must be provided when the document is posted on the website, which must occur no later than the due date under ERISA that applies to the disclosure. Generally, a separate notice of internet availability must be sent for each electronic disclosure. However, plan sponsors can provide an annual combined notice of specific electronic disclosures, including a summary plan description, summary of material modifications, annual funding notice, and pension benefit statement.

Contents. A notice of internet availability must describe the document being disclosed on the website, and include a prominent subject line and specific language to alert the recipient of the importance of the information being disclosed. Other content requirements include:

• The website address where the disclosure is posted.
• Notice of the right to receive a paper copy, free of charge, and how to obtain one.
• Notice of the right to opt out of future electronic disclosures and how to opt out.
• A telephone number for the plan administrator or other designated representative.

Language. To ensure that the notice of internet availability can be easily understood by recipients, the notice must use everyday words, rather than technical or legal terms, and short sentences without double negatives. The notice should result in a Flesch Reading Ease test score of at least 60.

Existing Electronic Disclosure Safe Harbor Would Still Apply

Under the new rule, plan sponsors could continue to use the current safe harbor for electronic disclosures or provide paper notices. The current safe harbor can be used for two categories of recipients: (1) participants and beneficiaries who have affirmatively consented to receive disclosures electronically, and 2) participants who are “wired at work”, meaning they can effectively access the disclosures where they work, and access to the plan sponsor's electronic information system is an integral part of their job duties. Because of these limited categories, the current safe harbor makes it difficult for plan sponsors to provide electronic disclosures to former employees. Under the new proposed rule, employers can collect a non-work email address when employees terminate, so that electronic disclosures could be provided to former employees who remain covered by the employer's retirement plan.

The rule was issued in response to Executive Order 13847, issued in August 2018, that directed the Department of Labor to explore the potential for broader use of electronic delivery as a way to improve the effectiveness of disclosures and to reduce their associated costs and burdens. The Department of Labor accepted comments on the proposed rule until November 22, 2019. We will monitor the proposed rule and provide an update when a final rule is issued.