Peter O'Hara | Bloomberg LawInterim Policy on Electronic Disclosure Under 29 C.F.R. § 2550.404a-5, Technical Release 2011-03 (Sept. 13, 2011) In October 2010, the Department of Labor (DOL) issued a final rule regarding the fiduciary requirements for disclosure in participant-directed individual account plans. The final rule, found in 29 C.F.R. § 2550.404a-5, requires participant-directed individual account plans to provide an initial disclosure (Initial Notice) to participants or beneficiaries before they can first direct their investments. The DOL later issued transition guidance to the participant-level fee disclosure final regulations stating that the Initial Notices must be provided by the later of 60 days after the plan's applicability date or 60 days after the April 1, 2012 effective date of the ERISA § 408(b)(2) interim final regulations. On September 13, 2011, the DOL issued guidance in the form of a technical release (Release) in which it set forth an interim policy regarding the use of electronic media to satisfy the participant-level fee disclosure regulation.
Disclosures Included in Pension Benefit StatementsAccording to the Release, the disclosures required by 29 C.F.R. § 2550.404a-5(c) that are included in a pension benefit statement in accordance with 29 C.F.R. §§ 2550.404a-5(e)(1) or (e)(2) (including general investment information, administrative expenses, and individual expenses) may be provided in the same manner that the other information included in the same pension benefit statement is furnished. For example, if the pension benefit statement is furnished via a secure continuous access website in accordance with the guidance provided under Field Assistance Bulletin 2006-03, then the information required to be included in the pension benefit statement pursuant to 29 C.F.R. §§ 2550.404a-5(e)(1) or (e)(2) may be distributed electronically in the same manner. For information on the FAB 2006-03 requirements, see Bloomberg Law Reports, Labor & Employment, DOL Provides Further Guidance on Pension Benefit Statements, Vol. 1, No. 35 (Oct. 15, 2007).
Disclosures Not Included in Pension Benefit StatementsThe DOL noted that, pursuant to FAB 2006-03, required disclosures that are not included in a pension benefit statement, including specific investment-related information such as performance and benchmark data in comparative form, may not be furnished electronically under the FAB 2006-03 guidance. However, the plan administrators may use the safe harbor provided in 29 C.F.R. § 2520.104b-1(c) to furnish such disclosures electronically. Alternatively, a plan administrator may furnish such disclosures electronically if it is written in a manner that would be understood by the average plan participant and satisfies the following conditions:
(1) Participants and beneficiaries entitled to receive information under 29 C.F.R. § 2550.404a-5 voluntarily provide the employer, plan sponsor or plan administrator with an e-mail address for the purpose of receiving disclosures electronically. The e-mail address must be provided in response to a request accompanied by an Initial Notice. The provision of an e-mail address by an individual as a condition of employment or participation in the plan will not be treated as being provided voluntarily. The DOL noted that the "mere establishment or assignment of an e-mail address by an employer or plan sponsor for a participant or plan beneficiary will not be treated as a voluntary provision of an e-mail address." The DOL said that e-mail addresses from participants who were required to provide their e-mail addresses electronically in order to access a secure continuous access website housing the required disclosure is considered to be voluntary where an Initial Notice is provided. (2) The Initial Notice must be clear, conspicuous, provided contemporaneously and in the same medium as the request for the e-mail address and contain the following information: (a) a statement informing the participant that providing an e-mail address is entirely voluntary and that the required disclosures will be made electronically as a result; (b) a brief description of the information that will be furnished electronically and how it may be accessed by participants and beneficiaries; (c) a statement informing the participant or beneficiary that they have the right to request and obtain a paper copy of the information provided electronically and an explanation on how to exercise that right; (d) a statement informing the participant or beneficiary that they have the right to opt-out of the electronic disclosure and an explanation on how to exercise that right; and (e) an explanation of how to update the participant or beneficiary's e-mail address. (3) The DOL stated that that the annual notice, which must be provided to each participant or beneficiary each year, may be furnished electronically by sending it to the e-mail address on file for the participant or beneficiary if there is evidence that such participant or beneficiary interacted electronically with the plan during the preceding year. Examples of electronic interaction with the plan include an update, resubmission or confirmation from the participant or beneficiary regarding his or her e-mail address; the participant or beneficiary sending an e-mail to the plan; or the participant or beneficiary's action of logging onto a secure continuous access website housing plan information; or the receipt and opening of an e-mail that was sent by the plan by a participant or beneficiary. (4) The plan administrator must take appropriate and necessary measures to ensure that the electronic delivery system results in actual receipt of transmitted information include the use of return receipt and notice of undelivered electronic mail features and conducting periodic reviews or surveys to confirm receipt of transmitted information. The plan administrator must also take appropriate and necessary measures to ensure the confidentiality of personal information within the electronic delivery system.
Transition ReliefThe DOL provided transition relief with respect to the e-mail addresses of participants and beneficiaries that are on file with the employer, plan sponsor or plan administrator on the date initial disclosures are required to be provided. In this instance, the DOL states that a so-called transition group Initial Notice must be furnished on paper (unless there is evidence of electronic interaction between the participant and the plan within the last 12 months preceding the date the transition group Initial Notice is furnished) to members of this group no earlier than 90 or no later than 30 days prior to the date initial participant-level fee disclosures are electronically sent to the participant or beneficiary.
EnforcementThe DOL said it will not take enforcement action solely on a plan administrator's use of electronic means to make the required disclosures if the plan administrator complies with the conditions set forth in the Release.
NotesAt the time that the Final Rule was passed last October, the DOL reserved a section which related to the manner of furnishing information in participant-directed individual account plans, pending its review of comments relating to the electronic distribution of plan information to participants and beneficiaries. The preamble to the Final Rule stated that pending issuance of further guidance regarding electronic disclosure, the "general disclosure regulation at 29 C.F.R. § 2520.104b-1 applies to material furnished under this regulation, including the safe harbor for electronic disclosures at paragraph (c) of that regulation." The Release provides guidance plan fiduciaries needed to implement their electronic delivery systems before the May 31, 2012 compliance deadline for participant-level fee disclosures. For more information regarding the fee disclosure regulation, see Bloomberg Law Reports, Labor & Employment, Department of Labor Extends Applicability Dates for New Fiduciary-Level and Participant-Level Fee Disclosure Regulations, Vol. 5, No. 31 (July 25, 2011); Bloomberg Law Reports, Employee Benefits, U.S. Department of Labor Issues Final Regulation on Fiduciary Requirements for Participant Disclosure in Participant-Directed Individual Account Plans & A Final Amendment to the Regulation under ERISA Section 404(c), Vol. 3, No. 23 (Nov. 8, 2010); DOL Issues Final Regulations on Fee Disclosure in Participant-Directed Individual Account Plans, Vol. 3, No. 22 (Oct. 25, 2010). Disclaimer This document and any discussions set forth herein are for informational purposes only, and should not be construed as legal advice, which has to be addressed to particular facts and circumstances involved in any given situation. Review or use of the document and any discussions does not create an attorney-client relationship with the author or publisher. To the extent that this document may contain suggested provisions, they will require modification to suit a particular transaction, jurisdiction or situation. Please consult with an attorney with the appropriate level of experience if you have any questions. Any tax information contained in the document or discussions is not intended to be used, and cannot be used, for purposes of avoiding penalties imposed under the United States Internal Revenue Code. Any opinions expressed are those of the author. The Bureau of National Affairs, Inc. and its affiliated entities do not take responsibility for the content in this document or discussions and do not make any representation or warranty as to their completeness or accuracy. ©2014 The Bureau of National Affairs, Inc. All rights reserved. Bloomberg Law Reports ® is a registered trademark and service mark of The Bureau of National Affairs, Inc.
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