Are you meeting the DOL requirements for electronic plan delivery?
Plan sponsors have a safe harbor means to deliver certain plan documents and notices electronically to participants and other interested parties. The Department of Labor (DOL) announced a final rule on May 21, 2020, effective July 27, 2020, that allows employers to post certain retirement plan disclosures online (with a notice of availability) or deliver them to participants and beneficiaries by email, as a default. Initial year and annual notice requirements apply. Moreover, during the COVID-19 pandemic, plans have “good faith relief” under the final regulations, meaning they can provide notices through email, text messaging and continuous access website without fear of DOL enforcement action. Alternatively, plan sponsors may continue to rely on prior DOL electronic notice guidelines in effect as of 2002.
Website or Email—Plan Sponsors May Choose
Effective July 27, 2020, plan sponsors have two new electronic means to satisfy delivery requirements for “covered information” to “covered individuals” related to their qualified retirement plans. The two new methods of delivery are via website or email.
- Website: Sponsors may post covered documents on a website if notification of internet availability is furnished to the electronic addresses of covered individuals; or
- Email: Sponsors may send covered documents to the electronic addresses of covered individuals.
A covered individual is any participant, beneficiary or alternate payee, regardless of employment status, who has provided an electronic address (e.g., email, smartphone) to the employer. Covered documents include any plan information an employer is required to furnish under Title I of the Employee Retirement Income Security Act of 1974 (ERISA), excluding documents that must be furnished upon request (e.g., plan documents, trust agreements, Forms 5500, etc.). Examples of covered documents include the following items:
- Summary plan descriptions,
- Summaries of material modifications,
- Pension benefit statements,
- Summary annual reports,
- Fee disclosures,
- Annual funding notices,
- Safe harbor notices,
- ERISA 404(c) disclosures (i.e., investment information for participant-directed accounts),
- Qualified default investment alternative (QDIA) notices, and
- Blackout notices.
Checkpoint 1: Initial Paper Notice Required
Plan sponsors who elect to use the new methods of electronic deliver must issue an initial paper notice of internet availability to covered individuals, which must be able to be understood by the average participant.
The initial paper notice must include the following information:
- A statement that covered documents will be provided electronically to the individual;
- The covered individual’s electronic address;
- Instructions for accessing documents;
- A statement that each covered document will remain on the website at least one year, or until it is superseded by a subsequent version, if applicable;
- The individual’s right to request paper copies; and
- The individual’s right to opt out of electronic delivery.
If the above information is provided in a hardcopy format, the plan sponsor is not required to obtain affirmative consent from the covered individual to proceed with the electronic delivery method.
Checkpoint 2: Annual Notice of Internet Availability
After the initial paper notice, plan sponsors using this new safe harbor are required to issue an annual notice of internet availability (NOIA) for each covered document that will be furnished to covered individuals. However, a consolidated NOIA option (covered in a later paragraph) may apply under certain circumstances.
The annual NOIA must contain the following statements and information:
- “Disclosure About Your Retirement Plan;”
- “Important information about your retirement plan is available at the website address below. Please review this information.”
- The covered document’s name and a brief description;
- The website or hyperlink to where the covered document can be accessed;
- A statement that a covered individual has the right to receive a paper version of the covered document, free of charge, and how;
- A statement that the covered individual has the right to opt out of receiving covered documents electronically, and how;
- A statement that a covered document is not required to be available on the website longer than one year, or the time the document is superseded, if later; and
- The phone number to contact the plan administrator.
Some covered documents can be grouped in a “Consolidated NOIA,” including
- The summary plan description,
- Any document or information that must be furnished annually,
- Any other covered document authorized by the Secretary of Labor, and
- Any applicable notice required by the Internal Revenue Code if authorized by the Secretary of the Treasury.
Note: The consolidated notice may not cover participant quarterly statements.
Checkpoint 3: System Checks
In order to meet the safe harbor, the DOL requires the electronic delivery system a plan sponsor uses must include a mechanism to alert plan sponsors if a participant’s electronic address is invalid. When an invalid electronic address is discovered, the sponsor must attempt to obtain a new, viable electronic address, or treat the participant as opting out of electronic delivery. Similarly, when someone leaves their job, the plan sponsor must take steps to ensure the continued accuracy and operability of the person’s electronic address.
IRS Maintains Separate Electronic Notice Rules
Keep in mind that since 2006, the IRS has maintained its own rules for electronic delivery of plan notices [Treasury Regulation §1.401(a)-21]. While the DOL intended its new safe harbor for electronic disclosure to align with the IRS’s rules; it did not get official confirmation from the IRS that following the new rule would also satisfy the IRS’s electronic notice delivery standard. Consequently, the industry is left with two standards for the time being—one from the DOL and one from the IRS. The IRS has indicated it will issue additional guidance in this are, but, to date, has not done so.
Under new regulations from the DOL, delivering certain plan notices and information (i.e., covered information) electronically (i.e., via a website or email) to covered individuals can be the default method plan sponsors use, as opposed to issuing hard copies or following prior electronic delivery guidance. There is an outstanding question of compatibility with the IRS’s rules that, hopefully, will be resolved in the near future.
This material is for informational and educational purposes only and is not intended to provide, and should not be construed as, or relied upon for, tax, legal, investment or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction, including, for example, establishing a retirement plan for your company or retaining a service provider for your company’s retirement plan.