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DOL Issues Final Regs on E-Delivery

Regulatory Compliance

Labor Department

Acknowledging that technology has made significant strides over the past two decades—and that many Americans are working remotely during the COVID crisis—the Labor Department has unveiled a new safe harbor for electronic disclosures.

The final rule adopted today is “fundamentally similar” to the rule proposed last October, although it does include some modifications in response to comments received. Over 10 years, the Labor Department anticipates that the new safe harbor will save plans approximately $3.2 billion net, annualized to $349 million per year (using a 3% discount rate).

In a call announcing the new rule, Assistant Secretary of Labor Preston Rutledge explained that under the final rule employers will be allowed to make better use of modern technology in ways that are more efficient, reduce plan costs to the benefit of plan participants, and which, during the current COVID crisis allows them to send information to plan participants where traditional methods may be impossible.

“We’re very pleased and grateful that the Department of Labor has finalized this extremely important regulation,” noted Brian H. Graff, CEO of the American Retirement Association. “These challenging times have—more than ever before—highlighted the importance of being able to deliver information electronically. Through this regulation, the Department of Labor is allowing plan sponsors to provide more effective communications, while saving plan participant hundreds of millions of dollars a year in wasteful and unnecessary expenses. This is truly a big win for everyone who cares about America’s retirement system.”

The final rule, which will be effective 60 days following the May 21 publication in the Federal Register[i], continues to require, as a condition of reliance on the safe harbor that a plan administrator possess an electronic address that enables electronic communication with a covered individual. The rule outlines a variety of ways to comply with the condition to obtain an electronic address for each covered individual; the company can, of course, provide plan participants an electronic address because of their employment, but the requirement can also be satisfied if an employee provides a personal electronic address to the plan administrator or plan sponsor.

The Labor Department also notes that a plan administrator or service provider can request an electronic address in plan enrollment paperwork or to establish a plan participant’s online access to plan documents and account information. However, to satisfy the rule’s definition of a covered individual, the electronic address assigned by an employer for an employee must be assigned for some employment-related purpose other than the delivery of covered documents under the new safe harbor.

The final rule continues to require that each individual with respect to whom a plan administrator intends to rely on the new safe harbor, be furnished a notification, ON PAPER, that some or all of the plan’s covered documents will be furnished electronically to an electronic address. That initial notice, as in the proposed rule, requires that a statement of the right to request and obtain a paper version of covered documents and of the right to opt out of receiving covered documents electronically, be provided free of charge, along with an explanation of how to exercise these rights.

As a general rule, the proposal required that plan administrators furnish to each covered individual a Notice of Internet Availability (NOIA) for each covered document in accordance with the requirements of this section—and the final rule continues to allow plan administrators to furnish a combined NOIA each plan year for more than one covered document. If a combined NOIA was furnished in the prior plan year, the next plan year’s combined NOIA must be furnished no more than 14 months later.

The final rule notes that the system for furnishing an NOIA must be designed to alert the administrator of a covered individual’s invalid or inoperable electronic address. If alerted that a covered individual’s electronic address has become invalid or inoperable, such as if a notice of internet availability sent to that address is returned as undeliverable, the administrator must promptly take reasonable steps to cure the problem (“for example,” the Labor Department explains, “by furnishing a notice of internet availability to a valid and operable secondary electronic address that had been provided by the covered individual, if available, or obtaining a new valid and operable electronic address for the covered individual”) or treat the covered individual as if he or she had opted out of electronic delivery. And in that latter case, the administrator “must furnish to the covered individual, as soon as is reasonably practicable, a paper version of the covered document identified in the undelivered notice of internet availability.”

For those concerned about the default switch, the final regulation guarantees covered individuals the right to not only request and receive paper copies of specific covered documents, but to globally opt out of electronic delivery altogether. Additionally, not only are plan administrators prohibited from charging covered individuals a fee in connection with their exercise of these rights, the rule states that plan administrators also are prohibited from having “procedurally cumbersome or complex processes for exercising these rights.” Finally, the final rule mandates that covered individuals receive “multiple reminders, on different mediums, of these rights.” Consequently, the Labor Department explains that a participant’s initial decision against opting out of electronic delivery “is not permanent and can be revisited with each reminder or at any time.”

The final rule is available here

[i] However, the Department of Labor notes that, as an enforcement policy, it will not take any enforcement action against a plan administrator that relies on this safe harbor before that date.