Guest Article

(From the September 26, 2011 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

Labor Department Eases Ability to Deliver Upcoming Fiduciary Disclosures Electronically

In early 2012, the fiduciaries of participant-directed individual account plans are required to begin providing participants with additional information on the plan's fees and expenses. While Labor Department regulations impose restrictions on the ability to deliver ERISA notices electronically, recently released Technical Release 2011-03 provides important clarifications and a temporary safeharbor for the electronic delivery of these new disclosures.

On October 20, 2010, the Labor Department published final regulations that require the fiduciaries of participant-directed individual-account plans to disclose specific plan-related and investment-related information to the participants. Those regulations allow some of the new information to be provided as part of the summary plan description (SPD), and some to be provided as part of the pension benefit statement. Some items cannot be provided as part of either the SPD or the benefit statement. The deadline for delivery of the new disclosures is May 31, 2012 - or, if later, 60 days after the first day of the plan year beginning on or after November 1, 2011. Practitioners asked the Labor Department to clarify whether the new disclosures could be delivered electronically.

The Department responded in Technical Release 2011-03 by clarifying the existing guidance on electronic delivery and providing an additional temporary safe harbor for delivery of these new fiduciary disclosures.

Highlights of the New Disclosures

The final regulations essentially require the fiduciaries of participant-directed individual-account plans to provide the participants with three new categories of information:

1. Annual disclosure of plan-related information, which may be disclosed as part of the SPD or in the pension benefit statement:

   Annual Plan-Related Information
   Disclosure	Contents
   General Information	Investment Direction - When and how investment direction can be given and any plan limits that apply Voting Rights - Plan provisions regarding voting, tender and similar rights Investment Alternatives - The designated investment alternatives Investment Managers - The designated investment managers Brokerage Window - Any brokerage windows that are available
   Administrative Expenses	Fees for general plan services (e.g., legal, accounting) that may be charged against individual accounts and the basis they will be allocated (e.g., pro rata, per capita)
   Individual Expenses	Fees that may be charged on an individual basis against an individual account (e.g., for loans, QDROs, investment advice, brokerage windows, etc.)

2. Quarterly disclosure of plan-related administrative fees and expenses, which may be disclosed as part of the pension benefit statement:

   Quarterly Plan-Related Administrative and Individual Expenses

   The dollar amount of fees and expenses actually charged to the individual's account (whether by liquidating shares or deducting dollars) during the preceding quarter, along with a description of the related service for...

   General Plan Administrative Expenses - Legal, accounting, recordkeeping, etc.

   Individual Expenses - Fees for loans, QDROs, investment advice, brokerage windows, commissions, front or back-end loads or sales charges, redemptions fees, transfer fees, etc.

3. Annual disclosure of investment-related information which must be provided separately from the SPD and pension benefit statement (e.g., the regulations include a sample disclosure form):

   Annual Investment Related Information
   Disclosure	Contents
   	Investment Alternatives With a Fixed Rate of Return	Investment Alternatives Without Fixed Rate of Return
   Performance Data	Return - The fixed or stated annual rate of return Term - The term of the investment	Return - The average annual rate of return for the 1-, 5- and 10-calendar year periods most recently completed
   Benchmarks	Not Required	Index - The name of an appropriate broad-based securities market index and its returns over comparable 1-, 5- and 10-calendar year periods
   Fees and Expenses	Shareholder-Type Fees - Fees charged directly against the investment that are not included in the total annual operating expenses (e.g., sales loads, commissions, sales charges)	Shareholder-Type Fees - (as described) Annual Operating Expenses - Expressed as a percentage and a dollar amount for a $1,000 investment

E-Delivery Options under the Technical Release

Information Provided as Part of the Pension Benefit Statement

The Technical Release makes clear that the disclosures included in the pension benefit statement may be furnished in the same manner as the pension benefit statement - including the ability to deliver that information through a secure continuous-access web site as provided under Field Assistance Bulletin 2006-03. The FAB states:

With regard to pension plans that provide participants continuous access to benefit statement information through one or more secure web sites, the Department will view the availability of pension benefit statement information through such media as good faith compliance with the requirement to furnish benefit statement information, provided that participants and beneficiaries have been furnished notification that explains the availability of the required pension benefit statement information and how such information can be accessed by the participants and beneficiaries. In addition, the notification must apprise participants and beneficiaries of their right to request and obtain, free of charge, a paper version of the pension benefit statement information required under section 105. Such notification should be written in a manner calculated to be understood by the average plan participant, furnished in any manner that a pension benefit statement could be furnished under this Bulletin, and furnished both in advance of the date on which a plan is required to furnish the first pension benefit statement pursuant to section 105(a)(1)(A)(i) and (ii) of ERISA and annually thereafter. [Emphasis added.]

The FAB also allows pension benefit statements to be provided electronically in accordance with the IRS's electronic delivery standards in Treasury Regulation § 1.401(a)-21.

Information Not Provided as Part of the Pension Benefit Statement

Since the FAB only applies to pension benefit statements under ERISA § 105, the Technical Release cautions that the new fiduciary disclosures which are not provided as part of the pension benefit statement may not be furnished under the FAB (e.g., cannot be delivered though a continuous access website). Instead, they can be delivered electronically under the general Labor Department rule — at 29 CFR 2520.104b-1(c) — which allows electronic delivery only to participants: (1) who have the ability to effectively access electronic documents at any location where they are reasonably expected to perform duties as an employee and who access the employer's electronic information system "as an integral part" of their duties as an employee, or (2) who affirmatively consent to receiving ERISA Title 1 disclosures electronically.

Recognizing the limitations of the general rule, the Department also includes in the Technical Release an alternative approach by which the new fiduciary disclosures can be provided electronically. (This approach is available only for providing the new fiduciary-participant disclosures, not other ERISA or plan disclosures — and is temporary and intended to apply only until the Department issues further guidance.) The approach allows electronic delivery of the new fiduciary information if the participant voluntarily provides his or her email address for that purpose. (In addition, an initial notice must be provided, an annual notice must be provided, the transmission of the information must be reasonably calculated to result in actual receipt, reasonable measures must be taken to ensure confidentiality, and the notices must be written in a manner calculated to be understood by the average participant.) The approach is very similar to the general rule — but is broader and includes a "transition provision" that will enable the 2012 disclosures to be disseminated electronically to a "transition group" if certain minimum requirements are met. For email addresses of participants that are on file with the employer, plan sponsor or plan administrator on the date the initial notice is given — which can include an employer-provided address only if it was used by the participant during the prior 12 months for plan purposes (e.g., to log into a secure website, to send the plan an electronic message, to receive and open a message from plan, etc.) — the participants will be treated as voluntarily providing the email address and consenting to its use for delivery of the fiduciary disclosures if the initial notice:

1. describes the new fiduciary disclosures that will be provided electronically and how the participant can access them;
2. states that the participant has the right to request and obtain, free of charge, a paper copy of the disclosures (and explains how to request the paper copy);
3. states that the participant can elect out of electronic delivery at any time (and explains how to make that election); and
4. explains how the participant can update his or her email address.

The initial notice must be given at least 30 but no more than 90 days before the deadline for delivery of the new disclosures. The notice must be given on paper, although it may be delivered electronically to a participant's email address if the address was used by the participant for plan purposes during the prior 12-month period.

The information in this Washington Bulletin is general in nature only and not intended to provide advice or guidance for specific situations. If you have any questions or need additional information about articles appearing in this or previous versions of Washington Bulletin, please contact: Robert Davis 202.879.3094, Elizabeth Drigotas 202.879.4985, Mary Jones 202.378.5067, Stephen LaGarde 202.879-5608, Erinn Madden 202.220.2692, Bart Massey 202.220.2104, Tom Pevarnik 202.879.5314, Sandra Rolitsky 202.220.2025, Deborah Walker 202.879.4955. Copyright 2011, Deloitte.