DOL Issues Interim Policy on Electronic Distribution of Plan Participant Fee Disclosures

In a new Technical Release, the U.S. Department of Labor (DOL) has announced an interim policy on electronic distribution of the new participant-level fee disclosures. The new disclosure requirements first apply for plan years beginning on or after November 1, 2011, but a transition rule delays the earliest disclosures until May 31, 2012. DOL regulations provide a general safe harbor permitting electronic disclosure without a recipient’s consent if a computer (or other electronic system) is an “integral part” of the employee’s employment duties, but requiring a recipient’s affirmative consent if a computer is not integral to the recipient’s employment. In 2006, the DOL issued guidance (FAB 2006-03) allowing quarterly individual benefit statements to be furnished alternatively using Treasury’s more lenient guidance for electronic disclosures, which does not require affirmative consent. While it’s clear that the DOL safe harbor rules apply to electronic distribution of the new participant-level fee disclosures, the DOL received many comments requesting that the more lenient standard in FAB 2006-03 for benefit statements also be available. Since the safe harbor disclosure regulations are currently under review, the DOL responded with this interim policy.

The following is a brief summary of the interim policy, as it applies to the two types of disclosures required under the participant-level rules:
  • Plan-Related Disclosures: FAB 2006-03 Rule. Plan-related information (which includes general investment information, administrative expenses, and individual expenses) that is included in a participant’s quarterly benefit statement can, under the interim policy, be furnished electronically in the same manner as the rest of the quarterly benefit statement using FAB 2006-03.
  • Investment-Related Disclosures: Safe Harbor or Alternative Email Method. Investment-related information (which includes, among other things, specific investment information and performance and benchmark data in a comparative chart format) that is not included in a participant’s quarterly benefit statement may be furnished electronically using the existing DOL safe harbor or an alternative email method set out in the interim policy. (It cannot be furnished using the FAB rule.)

The email method requires that the following six conditions be met:
  1. recipients (participants or beneficiaries) entitled to the disclosures voluntarily provide an email address in response to an initial notice;
  2. a “clear and conspicuous” initial notice that satisfies specific content requirements is provided (“contemporaneously and in the same medium”) with the request for the email address;
  3. an annual notice that satisfies most of the initial notice content requirements is provided thereafter;
  4. the electronic delivery method is “reasonably calculated” to result in actual receipt (which, for example, could be demonstrated by return receipts, notices of undelivered electronic mail, or periodic surveys);
  5. the system protects the confidentiality of personal information; and
  6. the notice is written in a manner calculated to be understood by the average plan participant.

The notice must include information about the right to request a free paper copy, and the right to opt out of electronic delivery. The initial notice due May 31, 2012, must be in paper form unless the recipient is part of a transition group that has an email address on file and there is evidence that the recipient used the address to interact electronically with the plan during the 12-month period preceding the date of the initial notice. Similarly, the annual notice must be in paper form unless there is evidence of the recipient’s electronic interaction in the preceding 12-month period. Plan sponsors and their advisors now have the guidance they need to get their delivery systems in place ahead of the May 31, 2012 compliance date. But the DOL still faces the daunting task of reviewing the electronic disclosure safe harbor. Public comments on the safe harbor range from advocating the FAB rule for all ERISA disclosures to seeking affirmative consent for any electronic disclosure.

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