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Potential $2.4 Billion and Countless Trees Saved – Department of Labor’s Proposed Rule on Electronic Disclosure for Retirement Plans

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The Department of Labor recently issued a proposed rule that allows certain retirement plan disclosures to be posted online, rather than requiring such disclosures to be printed and mailed. The Department of Labor anticipates this rule, if finalized, would save plan sponsors $2.4 billion over the next ten years. The rule is currently in proposed form and will not become effective until 60 days after the final rule is published. As such, plan sponsors may not rely on this proposed rule now.

Current Electronic Disclosure Requirements

In 2002, the Department of Labor issued a safe harbor for the use of electronic media. The safe harbor generally limited electronic delivery to those employees (1) who have regular access to a computer at work and whose use of the computer is an integral part of the employee’s job or (2) who affirmatively consent to the electronic disclosure. The 2002 safe harbor is satisfied if (1) the electronic system for furnishing the documents results in actual receipt and protects the confidentiality of the personal information relating to the individual’s accounts and benefits, (2) the electronically delivered documents are prepared and furnished in a manner consistent with the style, format and content requirements of ERISA and (3) notice is provided at the time a document is furnished electronically that apprises the individual of the significance of the document and the right to request and receive a paper copy of the documents. This rule has been somewhat ineffective due to the opt in nature of the rule and the other restrictions on its use.

Default Electronic Delivery

The proposed rule, if finalized, will permit much broader use of electronic delivery as it permits plan administrators to furnish documents electronically to participants and beneficiaries with email addresses, unless an individual affirmatively opts out of electronic delivery. Before defaulting a participant into electronic delivery, a plan administrator must notify the individual by paper that some or all retirement documents will be furnished electronically and provide the participant with information regarding the right to receive paper copies and to opt out of electronic delivery.

Notice and Access Style

The proposed safe harbor adopts a “notice and access” style of electronic delivery. Specifically, it permits plan sponsors to provide retirement plan disclosures through a website and then notify participants and beneficiaries of the availability of these disclosures.

A notice of availability of the disclosures must be emailed to the participant. The proposed rule provides that the notice of availability must include a brief description of the documents being posted online, the website where the document is posted, the instructions for requesting a free paper copy of the disclosure and the procedures for opting out of electronic delivery.

A notice of availability must be sent each time a disclosure is posted to the website, but it may be possible to combine the notices in certain instances.

Any system used for distributing the notice of availability must be designed to alert the administrator of an invalid email address and such invalid email address will be treated as an opt out of electronic delivery unless the address is promptly corrected. In addition, when an employee terminates employment, the employer must continue to ensure the accuracy of the former employee’s email address.

Request for Comment and Impact on Health Plans

The Department of Labor is requesting comments on the proposed rule. The Department also noted that the proposed rule applies only to retirement plans and not to health and welfare plans.