What the DOL’s final rule for electronic delivery means for ERISA retirement plans

After months of anticipation, the DOL's final rule for eDelivery was published in the Federal Register on May 27, 2020. The final rule—which provides a new safe harbor for delivering ERISA-required disclosures electronically—represents a significant enhancement to current delivery rules, and it could change the way some plan sponsors communicate to their participants. It also responds to an executive order calling for the improved effectiveness and reduced cost of retirement plan disclosures.

What the new eDelivery rules for participant communications are meant to accomplish

With the new safe harbor:

  • ERISA-required disclosures can now be delivered in a timelier and more effective manner, and
  • plan sponsors will be able to eliminate significant material, printing, and mailing costs associated with printed disclosures. In fact, the DOL has estimated that there will be a savings of $3.2 billion over the next 10 years for ERISA retirement plans.1

Although the final rule will not become effective until July 27, 2020, the DOL will not take enforcement action if plan sponsors start to use the new safe harbor before that date.

Here is a brief look at the DOL’s final rule, the logic behind it, and what it means for retirement plan sponsors. 

New safe harbor for eDelivery

“Default Electronic Disclosure by Employee Pension Benefit Plans Under ERISA,” the official title of the final rule, provides a default electronic distribution methodology for certain ERISA-required disclosures, such as annual qualified default investment alternative notices and summary plan descriptions. Plan sponsors that follow the safe harbor guidelines will be afforded legal protection. Note: A plan sponsor is generally obligated to use measures “reasonably calculated to ensure actual receipt” of the material by participants and beneficiaries.

Also referred to as a notice-and-access approach, the safe harbor reflects a straightforward process under which a plan sponsor sends out an email or text message alert (a notice of internet availability, or NOIA) indicating that an important plan disclosure is available online. The NOIA must include either the website address or a hyperlink to the website where the disclosure has been posted. Generally, a NOIA must be provided each time a new disclosure is posted to the site; however, a combined NOIA may be provided on an annual basis for certain recurring notices.

The final rule also includes an alternative safe harbor to the notice-and-access approach, referred to as the direct email method. With this approach, a required disclosure may be provided directly by email, either in the body of the email or as an attachment. Note: This alternative was not included in the proposed regulations issued in 2019, so it represents a welcome development.

What else is required for acceptable eDelivery?

The final rule sets specific guidelines for how eDelivery must work. Among other requirements:

  • eDelivery is available only for covered individuals (i.e., participants and beneficiaries with a current personal email, work email, or smartphone number on file with the plan sponsor, employer, administrator, or appropriate designee). Note: An employer-assigned electronic address meets this requirement, provided it is not solely to comply with the new safe harbor eDelivery rules.
  • The new safe harbor applies only to certain disclosures required by Title I of ERISA and under the domain of the DOL. Documents excluded for eDelivery purposes under the new safe harbor include:
    • documents furnished only on request, and
    • disclosures regulated by the IRS—although supplementary information accompanying the final rule states that the U.S. Department of the Treasury and the IRS intend to issue additional guidance on eDelivery of participant notices.
  • An initial notification, delivered on paper, must include the email address or internet-connected mobile device (e.g., smartphone) number that accepts texts and will be used for eDelivery. 
  • Every NOIA must include a subject line or headline with the words “Disclosure about your retirement plan,” as well as the statement, “Important information about your retirement plan is now available. Please review this information.”  
  • Participants must be able to completely opt out of eDelivery if they prefer to receive paper notices. 
  • Any returned email must be addressed by resending it to an operable email address or smartphone number. If none is available, the participant must be considered to have opted out of eDelivery (i.e., elected to receive paper disclosures).
  • Under the notice-and-access approach, documents must remain on an internet website until superseded by a subsequent version or for at least one year.

No effect on the 2002 safe harbor rules for electronic disclosure

The final rule does not supersede the prior 2002 safe harbor rule; it simply provides a modernized alternative. Plan sponsors may continue to apply the 2002 rules to participants who can access electronic documents at work effectively, as well as participants and beneficiaries who have consented to receive disclosures electronically. Note: Both the 2002 and 2020 safe harbors are voluntary rules, which means a plan sponsor can continue to furnish printed disclosures to participants and beneficiaries if they so choose.

What are the key considerations for plan sponsors?

Given that the final rule may reduce plan costs and benefit participants, plan sponsors should review this new safe harbor and consider its suitability. For example, for some plan sponsors, the DOL’s final rule, coupled with the deadline relief provided under EBSA Disaster Relief Notice 2020-01, may offer an immediate solution to the overwhelming challenge of issuing paper disclosures during the coronavirus pandemic.

The use of eDelivery for required disclosures by plan sponsors may also lead to additional benefits, such as:

  • increasing participant engagement by expanding access to online retirement readiness and e-learning tools, which may result in increases to savings rates;
  • improving the likelihood that information will be received, helping to address missing participants and prevent online account fraud; and
  • identifying the shortcomings associated with disseminating participant information through advanced analytics.

Conversely, although the final rule is helpful, it doesn’t guarantee that participants will necessarily open and read the disclosures or that they’ll understand the content if they do open them. Note: Although the final rule doesn’t address disclosure content, the DOL is expected to address simplification in future regulations.

Finally, since the final rule does not apply to ERISA-required notices for health and welfare plans, plan sponsors may find themselves using different disclosure methods for their various benefit plans.

1 “U.S. Department of Labor Announces Rule to Better Deliver Retirement Plan Information Options, While Saving Billions of Dollars for Plans,” dol.gov, 5/21/20.

The content of this document is for general information only and is believed to be accurate and reliable as of the posting date, but may be subject to change. It is not intended to provide investment, tax, plan design, or legal advice (unless otherwise indicated). Please consult your own independent advisor as to any investment, tax, or legal statements made herein.

 

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Chris Frank

Chris Frank, 

Head of Defined Contribution Consulting

John Hancock Retirement

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