DOL proposes electronic disclosure rule for retirement plans

The proposed rule would replace paper disclosures with electronic delivery for qualifying participants

On Oct. 22, 2019, the Department of Labor (DOL) proposed a rule that’s meant to encourage more employers to issue retirement plan disclosures electronically to plan participants.

The rule would allow sponsors of 401(k) and other defined contribution (DC) plans to default participants with valid email addresses into receiving all of their retirement plan disclosures digitally instead of on paper, as has been the traditional route.

In an August 2018 executive order, President Donald Trump directed the DOL to assess ways to reduce plan disclosure costs for employers and other plan fiduciaries. Several months earlier, the retirement industry began a push for allowing e-delivery of retirement disclosures.

The DOL proposal lays out specific conditions with which employers and plan service providers would have to comply in order to rely on the new safe harbor default e-delivery for the roughly 700,000 retirement plans subject to the Employee Retirement Income Security Act of 1974 (ERISA). Participants can choose to opt out of e-delivery if they prefer paper notices.

The DOL estimates that the rule would save plans and participants about $2.4 billion over the next decade, due to reduced printing and mail costs.

Proposed rule would provide a safe harbor for participants

The DOL proposal is structured as a safe harbor, which offers legal protections to employers that follow the guidelines laid out in the rule. Plans could continue to rely on existing DOL rules or use this new safe harbor for some or all of their participant population. The new safe harbor is voluntary.

The safe harbor would apply to all participants, beneficiaries or alternate payees for which the plan has an electronic communication method, such as an email address or smartphone number. Thus, for example, the safe harbor could be used to furnish documents to former employees with a benefit under the plan, although there are rules that apply upon separation from employment to ensure an email address remains valid.

The DOL describes the proposed safe harbor as a “notice and access” model. Therefore, generally, a plan would furnish a notice by making the document accessible online and by electronically providing a notice to participants and beneficiaries to alert them that the document is available. The notice must be sent when each covered document is posted on the website, with the exception of a single annual notice which covers one or more of the following documents:

  • Summary plan description
  • Summary of material modifications
  • Summary annual report
  • Annual funding notice
  • Annual participant investment disclosure
  • Qualified default investment alternative (QDIA) notice
  • Pension benefit statement (which in the case of most DC plans is furnished quarterly)

In other words, rather than sending a notice of internet availability every time these documents are posted on the website, the plan could send a single notice for all of these documents at least once each plan year (and not more than 14 months after the prior year’s notice was sent).

The safe harbor could be used to deliver any document that ERISA requires to be delivered to a retirement plan participant, with the exception of any document required to be furnished only upon request. Documents that must be provided periodically (such as a benefit statement) and documents that must be provided because of a triggering event (such as a blackout notice) are covered. The proposal does not apply to health and welfare plans, although the DOL plans to consider this point in the future. The proposal also does not apply to disclosures that fall under the Internal Revenue Service’s jurisdiction.

Under the safe harbor, a covered individual always has the right to receive upon request a paper copy of any disclosure provided under the safe harbor at no cost. Further, a covered individual must have the right to opt out of electronic delivery and receive paper versions of some or all of the covered documents.

Comments are due on the proposal (and a related request for information on other measures the DOL could take to improve the effectiveness of ERISA disclosures) on Nov. 22, 2019.

We’ll keep you posted.

Sources:

Investment News, “DOL proposes rule on digital 401(k) disclosures,” Greg Iacurci, Oct. 22, 2019

SPARK Institute, “Summary of e-delivery proposal,” Michael Hadley, Oct. 23, 2019

Investment Company Institute, “DOL releases its proposal on e-delivery,” Shannon Salinas, Oct. 23, 2019

Ignites, “DOL proposes e-delivery for retirement plans,” Beagan Wilcox Volz, Oct. 23, 2019

Important information

Blog header image: Tetra Images / Getty

Jon Vogler
Senior Analyst
Retirement Research, Invesco Consulting

Senior Analyst Jon Vogler draws on extensive pension expertise to offer retirement thought leadership for Invesco. In addition to writing Invesco’s Retirement blog, he tracks legislative and regulatory developments and contributes as a writer and editor to a variety of retirement-related Invesco communications.

Prior to joining Invesco in 2008, Jon spent more than 25 years in the research, writing, compliance and underwriting areas of the retirement services industry, including roles as a senior consultant at Mutual Benefit Life’s pension consulting firm and as a compliance manager in the Automatic Data Processing retirement services division.

Jon earned the Fellow, Life Management Institute (FLMI) and Competent Toastmaster (CTM) designations. He has a B.A. in History from Rutgers, The State University of New Jersey.

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