(From the April 15, 2002 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)
DOL Issues Final New Technologies Regulations for ERISA Plans
After more than three years the Department of Labor finally has issued final regulations relating to electronic communication and recordkeeping by ERISA pension and welfare benefit plans. 67 FR 17264 (April 9, 2002). However, the final rule - which creates far more opportunities for using electronic distribution methods for ERISA plan documents and notices than the proposed rule - may be worthy of the wait. The final regulation takes effect on October 9, 2002.
Impact on Plan Sponsors
ERISA plan sponsors are not required to follow the safe harbor requirements outlined in the proposed or final rules for electronic disclosure of ERISA plan information. However, electronic disclosures meeting the conditions of the safe harbor are deemed to satisfy the general disclosure requirements under DOL Reg. Sec. 2520.104b-1. Thus, for plan sponsors already using electronic media to satisfy certain ERISA disclosure requirements, it may make sense to conform current practices to the safe harbor, if possible. For those not yet using electronic media, now may be a good time to explore the possibilities presented by the new regulation.
Current DOL regulations include a safe harbor for group health plan administrators that use electronic media to distribute summary plan descriptions (SPDs) and summaries of material modifications (SMMs) to certain participants only. DOL Reg. Sec. 2520.104b-1(c). Early in 1999, the DOL published a proposed rule to expand the safe harbor to cover all ERISA plans, include electronic distribution of summary annual reports (SARs), and to establish standards for using electronic media to satisfy certain ERISA recordkeeping requirements. 64 FR 4506 (January 28, 1999).
The proposed regulation was issued in part because of a provision in the Taxpayer Relief Act of 1997 that directed the Treasury and Labor Secretaries to issue guidance on using so-called "new technologies" to satisfy ERISA notice, election, consent, disclosure, and recordkeeping requirements for retirement plans. The IRS issued final rules pursuant to this provision in 2000.
However, the proposed regulation also is motivated by the federal Electronic Signatures in Global and National Commerce (E-SIGN) Act, which is part of the government's overall effort to facilitate so-called "paperless transactions."
Summary of the Final Regulation
One major difference between the proposed and final rules is that the final rule's safe harbor relates to using electronic media to distribute practically all documents that ERISA Title I requires plan administrators to furnish (or make available) to participants and beneficiaries. Thus, among other things, the safe harbor will be available for electronic distribution of SPDs, SMMs, SARs, and the following:
The safe harbor also covers benefit determination notices provided pursuant to ERISA's claims procedure requirements. See DOL Reg. Sec. 2560.503-1(g)(1).
Because these types of notices include individual benefit and claims information, the safe harbor will be available only if the plan administrator takes "appropriate and necessary" measures to ensure that the confidentiality of such information is not compromised. In general, this means the plan administrator must incorporate features in the electronic delivery system to prevent individuals other than the intended recipient from receiving or gaining access to the information. Presumably, these features would include the use of personal identification numbers (PINs) or passwords, but the DOL has not endorsed these, or any other, specific methods.
Note that the safe harbor does not cover certain disclosures required by ERISA parts 2 and 3 because they are under the Treasury Department's jurisdiction. However, the Treasury Department has authorized electronic distribution of certain notices and consents, including the notice of distribution options and the right to defer distribution of amounts in excess of $5,000 [IRC section 411(a)(11)] and the explanation of the tax treatment of distributions and rollover options [IRC section 402(f)].
Safe Harbor Covers Electronic Distributions to Participants and Beneficiaries
The electronic distribution safe harbor will be available with respect to a fairly broad universe of participants and beneficiaries. The proposed regulation limited the safe harbor to participants who have effective access to electronically furnished documents at their work place.
Specifically, the safe harbor will be available with respect to participants for whom access to the employer's electronic information system is an integral part of their employment duties and who have the ability to effectively access electronically furnished documents at any location where they are reasonably expected to perform those duties. In contrast to the proposed regulation, this language is broad enough to encompass participants who work at home or otherwise work off site. Also, the final regulation does not condition the safe harbor on participants having the opportunity to convert the documents from electronic to paper form. (Note that a condition of the safe harbor is that recipients of electronic transmissions be allowed to request and receive a paper version of the document.)
Furthermore, the safe harbor generally will be available with respect to participants, beneficiaries, and others who affirmatively consent to receiving documents electronically. Before consent is given, the individuals must be provided (in electronic or non-electronic form) a "clear and conspicuous" statement indicating:
If the documents will be furnished through the Internet or other electronic communication network, individuals must provide consent in a manner that "reasonably demonstrates" their ability to access information in the electronic form it will be distributed, and provide an e-mail address. If the documents will be furnished through some other electronic media (e.g., CD-ROM), a simple affirmative consent will do.
Once an individual gives consent to receive certain types of documents electronically it will remain in effect until it is withdrawn, or until there is a change in the hardware or software requirements needed to access and retain electronically furnished documents. If the change in hardware of software requirements creates a material risk that individuals will no longer be able to access or retain electronically furnished documents, they must be given a statement of the new requirements, the right to withdraw their consent without charge, and they must consent again.
Miscellaneous Safe Harbor Requirements
Several other conditions must be satisfied for the safe harbor to apply. As noted previously, individuals must be provided, upon request, a paper version of any electronically furnished documents. Paper versions do not have to be duplicates of the electronically furnished documents, but both versions must satisfy the style, format, and content requirements applicable to the specific document.
The proposed regulation prohibited plan administrators from charging for paper versions of electronically furnished documents. This prohibition has been lifted in favor of a more flexible rule that allows plan administrators to impose a reasonable charge for paper versions if the law otherwise allows them to do so.
When documents are furnished to individuals electronically, the plan administrator also must provide them a notice of their right to receive a paper version of the document. Also, if the significance of the document is not evident from the transmittal, the notice must apprise recipients of its significance. According to the preamble to the final regulation, the second part of this notice requirement won't apply if, for example, the document is attached to an e-mail that includes a statement like, "The attached document describes changes in the benefits provided by your plan."
This notice - which also may be provided electronically - must be given at the time the document is furnished. It can be provided with other plan information, but only if it is conspicuous enough to alert individuals that the document has been furnished electronically. However, this requirement cannot be satisfied by periodically providing a general notice with other plan information.
The safe harbor also requires plan administrators to take "appropriate and necessary" steps in designing their systems to ensure that individuals actually receive documents and information intended for them. Examples include using return receipt or notice of undelivered electronic mail features, and conducting periodic reviews or surveys to confirm receipt of the transmitted information.
Finally, electronically delivered documents must be prepared and furnished in a manner that is consistent with the style, format, and content requirements applicable to the particular document. As noted above, however, this does not mean that the electronic document has to be identical to the paper version.
Recordkeeping Safe Harbor
The final regulation also creates a safe harbor for using electronic media to satisfy certain ERISA recordkeeping requirements. In general, ERISA section 107 requires plan administrators to keep plan-related records for six years, and ERISA section 209 requires employers to maintain records for each employee that are sufficient to determine benefits due (or benefits that may become due) to the employee.
According to the final regulation, electronic media can be used to satisfy these requirements if:
For purposes of the regulation, the term "legible" means that all letters and numbers can be identified positively and quickly. The term "readable" means groups of letters or numbers can be recognized as words or complete numbers.
In general, once records are transferred to an electronic recordkeeping system that satisfies these requirements, the original paper records may be destroyed. The only exception is if the electronic record would not constitute a duplicate or substitute record under the plan's terms or under federal or state law.
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