401(k) Plans: Electronic Distribution

 

The Department of Labor (“DOL”) has established rules under ERISA concerning the distribution of various disclosures required by ERISA to employees and participants in retirement plans, including 401(k) plans, as well as to retirement plan beneficiaries outside of the work place. These rules establish various safe harbors for both electronic and paper distribution of materials.

Although electronic disclosures have generally been permissible since 2002, Final DOL Regulations issued on May 21, 2020, established a safe harbor that permits 401(k) to use electronic methods as the default (i.e., regular) means of disseminating most required notices and disclosures required for retirement plans under Title I of ERISA.

ERISA Disclosures

The Final DOL Regulations allow 401(k) plan administrators to electronically send all disclosures required under Title I of ERISA for retirement plans as the default means of distribution, provided certain requirements, including measures meant to protect participant rights, are met. ERISA Title I retirement plan disclosures include:

• Summary Plan Descriptions (“SPD”)
• Summaries of material modifications
• Summary annual reports
• Qualified domestic relations order (“QDRO”) notices
• 401(k) plan fee disclosure notices
• Safe harbor notices, automatic enrollment notices, “blackout” notices
• Annual benefit statements

Delivery Methods

E-Delivery Safe Harbor Under Final DOL Regulations

The Final DOL Regulations established a new, voluntary safe harbor for sponsors of 401(k)’s and other retirement plans who wish to use electronic media as the default means of furnishing participants and beneficiaries with copies of their ERISA-required retirement plan disclosures. Importantly, recipients always have the right to opt out of electronic delivery if they prefer to receive paper notices.

Employers who make use of the new safe harbor receive certain legal protections — for example, protection from the substantial monetary penalties that may be imposed for with ERISA’s notice and disclosure provisions – assuming the guidelines spelled out in the Final DOL Regulations are followed to the letter.

Summary of Conditions of Meeting Safe Harbor

Generally stated, there are two ways in which a 401(k) plan sponsor may meet the new default electronic delivery safe harbor – either through posting covered documents to an internet website devoted to that purpose, or by direct e-mailing of covered documents to covered individuals.

For this purpose, a “covered individual” is:

• A participant, beneficiary, or other individual entitled to covered documents –
• Who provides the employer, plan sponsor, or plan administrator (or designee fo any of the foregoing) with an electronic address –
  • This can be an e-mail or an internet-connected mobile-computing-device (e.g., smartphone) number.

Conditions for Safe Harbor Method I – Use of Internet Website for Posting Covered Documents

Generally stated, the safe harbor for internet websites is satisfied if the following conditions are met:

•  Each covered individual must receive a “notice of internet availability” (see below) when each “covered document” (i.e., any retirement plan document required to be disclosed by Title I of ERISA) is posted to the plan internet website dedicated for this purpose.
• The “notice of internet avaiability” must contain the following information:
  •  A prominent statement (a title, legend, or subject line) that reads: “Disclosure About Your Retirement Plan.”
  • A statement that reads: “Important information about your retirement plan is now available. Please review this information.”
  •  The name and a brief description of the covered document.
  • The internet website address, or a link to such address, where the covered document is available.
  • A statement of the right to request a paper version of the covered document, free of charge, and an explanation of how to exercise this right.
  • A statement of the right, free of charge, to opt out of electronic delivery and receive only paper versions of covered documents, and an explanation of how to exercise this right.
  • A statement that the covered document is generally not required to be available on the website for longer than one year.
  • The telephone number of the plan administrator or designated plan representative.
• The notice of internet availability must be sent to the electronic address previously provided by the recipient (usually, an e-mail address or smartphone number).
•  The notice generally must be sent each time a retirement plan disclosure is posted to the internet website.
• The notice generally must be furnished separately from other documents or disclosures.
• The notice must be written in a manner calculated to be understood by the average plan participant.

Standards for Internet Websites

The Final DOL Regulations establish the following standards for internet websites:

• All covered documents must be available on the website by no later than the date on which they are required to be furnished under Title I of ERISA.
• Covered documents must remain on an internet website until superseded by a subsequent version, but in no event for less than one year.
• Covered documents must be presented on the website in a manner calculated to be understood by the average plan participant.
• Covered documents must be presented on the website in a widely available format suitable for both reading online and printing clearly on paper.
• Covered documents must be searchable electronically by numbers, letters, or words.
• Covered documents must be presented on the website in a format that allows them to be permanently retained electronically.
• The plan administrator must take reasonable measures to ensure that the website protects the confidentiality of personal information relating to any covered individual.

Participants’ Right to Paper Copies or to Opt-Out of Electronic Delivery

Under the Final DOL Regulations, 401(k) plan administrators must maintain reasonable procedures to ensure that covered individuals retain the rights to:

• Have the plan administrator, upon request and without charge, provide no more than one paper copy of a covered document; and
• Globally opt out of electronic delivery and receive only paper versions of covered documents.

Conditions for Safe Harbor Method II – Direct E-mailing of Covered Documents

The Final DOL Regulations provide that, as an alternative to posting covered documents on a dedicated plan website, a plan administrator may elect to satisfy the ERISA participant disclosure retirements by directly furnishing a covered document to a covered individual by sending it to a previously provided e-mail address, assuming the following conditions are met:

• The covered document is sent to a covered individual’s previously provided e-mail address by no later than the date on which it is required to be furnished under ERISA.
• In place of a “notice of internet availability” (see above), the plan administrator sends an e-mail to the covered individual that:
  • Includes the covered document in the body of the e-mail, or as an attachment.
  • Includes the subject line that reads: “Disclosure About Your Retirement Plan.”
  • Includes the following:
    • style=”margin-top: 5px;”>A brief description of the covered document;
    • A statement of the right to receive a paper copy of covered document;
    • A statement of right to opt out of electronic delivery; and
    • A telephone number to call for help with these items.
  • Is written in a manner calculated to be understood by the average plan participant.
• The covered document itself must be:
  • Written in a manner calculated to be understand by the average plna participant;
  • Presented in a widely available format suitable to be read online, printed clearly on paper, and permanently retained in an electronic format; and
  • Searchable electronically by numbers, letters, and words.
•  The plan administrator or service provider must take measures reasonably calculated to ensure the confidentiality of personal information relating to any covered individual.
• The recipient has all of the same rights relating to requests for paper documents and the right to globally opt out of electronic delivery as under the use of internet website posting safe harbor method (see above).

Conditions Applicable to Both Safe Harbor Methods

Safeguards Designed to Detect Invalid or Inoperable E-mail Address

Plans must have a system designed to alert the plan administrator or service provider of a covered individual’s invalid or inoperable electronic address. If an e-mail address is identified as invalid or inoperable, then the plan must promptly take reasonable steps to cure the problem, such as resending the covered document to any secondary email address on file.

Special Procedures Upon Separation from Employment

When an employee leaves his or her job, 401(k) plan administrators must take active steps to ensure the continued accuracy of the electronic address on file at the time of separation, to ensure continued access of either the notice of internet availability or the covered documents themselves, as applicable.

Previous Electronic Distribution Safe Harbor

Prior DOL regulations (in effect before the 2020 Final DOL Regulations discussed above) provide examples of acceptable distribution methods. These “safe harbors” are described below. The following provisions are still valid, and 401(k) plan sponsors may choose to follow them in lieu of the provisions set forth in the Final DOL Regulations discussed previously.

Please note that these provisions must comply with requirements described in the next section:

• Email
• Attachment to email
• Posting documents to a company website
• Provision of documents by magnetic disk, CD-ROM, or DVD

Documents delivered electronically must be furnished in a manner consistent with the applicable style, format, and content requirements required by ERISA.  However, the DOL has indicated that the appearance of paper and electronic versions need not be identical.

In addition, when personal information pertaining to an individual’s benefits or accounts is transmitted electronically, steps must be taken to protect the confidentiality of the information.

Requirements

The electronic safe harbor provisions must comply with the requirements described below.

The plan administrator must take steps to ensure the actual receipt of information that is distributed electronically.

Possible steps include:

• Using the return-receipt email feature
• Using the undelivered email feature
• Conducting periodic reviews or surveys to confirm receipt of transmitted material

The plan administrator must provide notice to each recipient at the time the electronic documents are furnished regarding the significance of the document.

Examples:

• When documents are delivered via email, the recipients should be able to distinguish them from all other items in their inbox.
• If the documents are newly posted to an intranet site, the intended recipients must be alerted to the fact that they are now available.

Please note: An annual or periodic notice is not sufficient.

Paper versions of the electronic documents must be available upon request.  In addition, the paper copies must be provided at no charge if the document in question must otherwise be provided at no charge.

See Electronic Delivery Rules for a printable summary of the Electronic Delivery Rules.

Recipient Requirements

Plan administrators may electronically distribute ERISA disclosures to recipients provided that:

• Employees have Work-Related Computer Access.
• Employees/Individuals Without Work Related Computer Access Affirmatively Consent to the Electronic Delivery.

Computer Access

Employees must meet the following requirements to qualify under this provision:

• The employee has the ability to access documents at any location where he/she could reasonably be expected to perform his/her employment duties.
• The employee’s access to the electronic information system is an integral part of his/her employment duties.

Employees working out of a home office will fall under this provision provided that they meet the requirements above and that the home office is a location where the employment duties could be reasonably performed and that access to the employer’s computer system is an integral part of the employee’s duties.

If the employees meet the criteria above, they DO NOT have to:

• Have the ability to print out a paper copy at the place where they have computer access
• Consent to receive documents electronically

Without Computer Access

Employees/Individuals without work related computer access may affirmatively consent to the electronic delivery of materials.

A consent must include a clear and conspicuous statement that explains:   

• The types of documents to which the consent will apply;
• That consent can be withdrawn at any time without charge;
• The procedures for withdrawing consent and for updating the address used for receipt of electronically furnished documents;
• The right to request and obtain a paper version of an electronically furnished document, including whether the paper version will be provided free of charge; and
• Hardware or software needed to access and retain the documents delivered electronically.

If delivery is through the Internet or other electronic communication system, the individual must affirmatively consent in a manner that reasonably demonstrates the individual’s ability to access information in the electronic format that will be used.  Requiring that the consents be furnished back to the employer electronically is a reasonable demonstration of the individual’s access ability. 

An individual must provide an address for delivery of documents.

Note:  The plan administrator is generally not required to distribute SPDs, SMMs, or SARs to each beneficiary under the plan. Therefore, the plan administrator is not required to obtain consent from each beneficiary under the plan (e.g. spouses and dependents).

FAQS

Can benefit and claim determinations be provided electronically?

Yes. The regulations permit benefit and claims determinations related to a specific individual to be communicated electronically to that individual. However, if the information contained within the communication is confidential in nature, the plan administrator must take appropriate and necessary steps to ensure that the information remains confidential. The regulations do not provide specific guidance on what measures must be used to protect the confidentiality of this information.

What forms of electronic disclosure are permissible?

The regulations do not require the use of any specific form of electronic media. Examples of permissible forms of electronic disclosure include delivery of documents by e-mail, attachment to an e-mail, posting documents on a company Web site, or on CD-ROM or DVD. Under the Final DOL Regulations, however, there are two methods of fulfilling the default e-delivery safe harbor – posting covered documents to a dedicated plan website, or direct e-mailing of covered documents to recipients (see above).

May a plan administrator electronically deliver ERISA notices by placing the information on a company website?

Yes; however, the plan administrator must also send a notice, either electronically or in paper form, that notifies the employee that the covered document is available on the website. The notice must meet specific requirements, as set forth in the Final DOL Regulations (see above).

Do the DOL Final Regulations apply to health and welfare plans?

The Final Regulations make clear that they do not apply to employee welfare benefit plans – for example, group health plans or plans providing group disability benefits. The DOL believes that group health plan disclosures present unique issues and challenges that warrant further consideration before extending the default rule to such plans. For the rules regarding electronic disclosure for health and welfare plans, see “Geek Out” article “Electronic Distribution.”