Beginning in May 2012 fiduciaries of participant-directed individual account plans, such as 401(k) plans, must provide additional disclosures to participants. We have previously written in detail about what information is required to be disclosed under Section 404(a) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and the 404(a) regulations (see our February 2011 and May 2011 issues). Just in time to prepare for the May 2012 deadline, the Department of Labor (the “DOL”) issued temporary guidance as to how those participant disclosures may be provided electronically. The guidance includes several methods, some old and one new, to electronically disclose the information to participants. This article discusses the various methods, to help plan administrators familiarize themselves with them in order to determine which one works best for their particular circumstances.
At the time the participant fee disclosure regulation was first proposed and finalized, the DOL reserved a section in the regulations for detailing how the disclosures must be furnished to participants. Piecemeal guidance followed addressing how some, but not all, of the disclosures may be made electronically. EBSA Technical Release 2011–03 (“TR 2011–03”) contains an interim policy that provides additional guidance. This guidance provides two different regimes for providing disclosures electronically: one for disclosures that may be included in a participant benefit statement, and another for the disclosures that may not be included in a participant benefit statement.
Disclosures That May be Included in a Participant Benefit Statement
Disclosures that may be included in a participant benefit statement (for example, general plan information, administrative expenses, and individual expenses) may be furnished electronically in the same manner that the other information included in the same participant benefit statement is furnished. The requirements for providing pension benefit statements were previously addressed in Field Assistance Bulletin 2006–03 (“FAB 2006–03”), and that guidance is reaffirmed in TR 2011–03. Pension benefit statements, and the participant fee disclosures that may be included in those statements, may be provided in accordance with:
- the existing DOL safe harbor for electronic delivery;
- the Internal Revenue Service regulations governing electronic delivery; or
- the method described in FAB 2006–03.
ERISA generally requires plan administrators to take measures reasonably calculated to ensure actual receipt of materials required to be disclosed to participants and beneficiaries. If required materials are being furnished electronically, DOL regulations provide a safe harbor under which a plan administrator will be deemed to have satisfied the general requirement stated above. The safe harbor applies to two classes of intended recipients.
- Intended recipients who have the ability to access electronic documents at any location where he or she works, and the intended recipient’s access to he plan sponsor’s information system is an integral part of the recipients duties as an employee. Under these circumstances, the intended recipient need not specifically consent to receiving the disclosures electronically, though the intended recipient must receive an affirmative communication describing the significance of the materials being disclosed electronically, and an offer to provide the recipient, upon request, a paper copy of the disclosures.
- Intended recipients who do not routinely use the plan sponsor’s computer or email system, if the following additional requirements are satisfied:
- The intended recipient must affirmatively consent to receiving the disclosures electronically.
- This consent must be provided electronically, in a manner that reasonably demonstrates the recipient’s ability to access the disclosures in electronic form.
- If there is a change in the hardware or software requirements needed to access or retain the disclosures in electronic form and this change creates a material risk that the intended recipient will be unable to access or retain the disclosures, the recipient must receive a statement of the revised hardware or software requirements and must again consent to receiving the disclosures electronically.
The IRS regulations generally provide that electronically provided information must be no less understandable than the written documents. Participants must be:
- alerted to the significance of the disclosures being provided electronically;
- given instructions on how to access the disclosures; and
- notified of their right to receive a paper copy of the disclosures.
The participant must affirmatively consent to the electronic disclosure, unless the recipient has the effective ability to access the electronic medium used to provide the disclosure. Under FAB 2006–03, if a plan provides participants with continuous access to pension benefit statements through one or more secure websites, the DOL will consider the availability of the pension benefit statement via such a website as good faith compliance with the requirement to furnish pension benefit statements to participants and beneficiaries if these individuals are:
- furnished with a notice that explains the availability of the required pension benefit statement and how the statement may be accessed; and
- notified that they may request paper copies of the statements, provided free of charge.
The notices must be written in a manner reasonably calculated to be understood by the individuals.
Disclosures That Must Be Provided Separately from the Participant Benefit Statement
Disclosures that must be provided separately from the pension benefit statements (e.g., investment related disclosures) may not be furnished electronically under FAB 2006–03. Instead, the plan administrator may rely on the DOL safe harbor (as described above) or on the temporary guidance in TR 2011–03.
In order to rely on the Technical Release 2011–03 guidance, the following requirements must be met:
- Individuals entitled to receive the disclosures must voluntarily provide an email address for the purpose of receiving the disclosures.
- The email address must have been provided to the plan in response to a request contained in an initial notice. The initial notice must be clear and conspicuous and must:
- Request the individual’s email address
- State that the receipt of the disclosures via email is entirely voluntary
- Include a brief description of the disclosure information that will be provided electronically and how it can be accessed
- State that the paper copies of the information may be requested and provided free of charge
- State that the individual may opt out at any time from receiving the disclosures electronically
- Explain the procedure for updating email addresses.
- The same general information provided in the initial notice must be provided annually to participants. The annual notice must be furnished on paper unless there is evidence that the participant interacted electronically with the plan since the prior annual notice was provided.
- The plan administrator must take appropriate and necessary measures reasonably calculated to ensure that the electronic delivery system results in actual receipt of transmitted information, for example using a return receipt or notice of undelivered electronic mail.
- The plan administrator must take appropriate and necessary measures reasonably calculated to ensure that the electronic delivery system protects the confidentiality of personal information.
- Notices furnished to participants and beneficiaries must be written in a manner calculated to be understood by the average plan participant.
A special transition rule applies for email addresses of participants and beneficiaries that are already on file with the plan administrator. Such emails will be deemed to have been provided voluntarily if the participants are provided a notice that contains generally the same information required in the initial notice, no earlier that 90 days nor later than 30 days prior to the date the initial disclosures under Section 404(a) must be provided. Similar to the annual notice, the transition rule notice must be provided on paper, unless there is evidence that the participant interacted with the plan electronically during the preceding 12 months. Also, the transition rule does not apply to an email address established or assigned by the employer or plan sponsor, unless there is evidence that the email address was used by the participant for plan purposes during the preceding 12 months.
While the guidance provided in Technical Release is only temporary, it provides plan administrators with a framework within which to electronically furnish the first round of participant disclosures. Since the new guidance affirms that the existing DOL safe harbor applies to the electronic delivery of all of the participant disclosures and because the safe harbor does not mandate the use of notices like the new method provided in the Technical Release, the usefulness of the new method is not entirely evident. We suggest plan administrators approach their plan service providers to discuss how the various electronic delivery procedures can assist in providing the disclosures, and hopefully make the process easier and less expensive.