Employee benefit plan sponsors, fiduciaries, insurers and service providers’ use and interest in expanded use of electronic media to distribute summary plan descriptions and conduct other required employee benefit communications and disclosures has exploded over the past decade in response to the expanding comfort with use of electronic communications; rising mail, printing and distribution costs; administrative convenience; green initiatives and other factors.
Employee benefit plan sponsors, fiduciaries and administrators that are using or interested in expanding the use of e-mail, automated phone systems, websites or other electronic media to communicate with plan participants and beneficiaries should review and share their input with the U.S. Department of Labor’s Employee Benefit Security Administration (EBSA) in response to its Request for Information regarding electronic disclosure. The deadline is June 6.
In the meantime, plan sponsors, fiduciaries, administrators and others involved in the sponsorship or operation of employee benefit plans should review their existing notice, disclosure and other communications to maintain compliance with existing and impending regulatory changes and manage other risks arising from these communications.
With regulators increasingly dictating that plans or their sponsors, fiduciaries, insurers, administrators or business associates make certain electronic postings or distributions of certain materials, substitution of electronic distribution for traditional paper might seem a no-brainer to many. However, currently applicable Labor Department and Treasury Department regulations restrict the circumstances when employee benefit plans can use electronic distribution as a substitute for distribution in paper or other traditional format (via mail, hand delivery or other traditionally approved means) for purposes of meeting applicable requirements of the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code.
In the case of communications containing protected health information or providing notifications required to comply with the privacy and security requirements of the Health Insurance Portability and Accountability Act of 1996 (HIPAA), health plans also must comply with the applicable requirements issued by the Department of Health & Human Services.
Plan administrators or other fiduciaries must use “measures reasonably calculated to ensure actual receipt of the material by plan participants, beneficiaries and other specified individuals” when sending summary plan descriptions, reports, statements, notices and other documents required by under Title I of ERISA or its regulations. When making distributions of materials required to be sent to all participants and beneficiaries, the regulation also requires that the method of delivery used must be “likely to result in full distribution.”
In response to evolving technologies and practices, the Labor Department amended the regulation in 2002 to include a safe harbor under which plans could use electronic media to deliver plan notices, disclosures and other communications required by ERISA. Although government and private use of electronic communications has expanded significantly since this regulation took effect, the Labor Department has not updated these rules since their issuance in 2002.
The RFI indicates that the Labor Department is considering and inviting public input on whether the department should update the requirements of this safe harbor. The department is considering whether, and possibly how, to expand or modify the safe harbor in response to current technology, best practices and the need to protect the rights and interests of participants and beneficiaries. In connection with this review, the RFI invites employers and other plan sponsors, plan administrators, service providers, insurers, members of the financial community, plan participants, beneficiaries and other interested persons to share their input.
Since the Labor Department published the safe harbor rule, many plans, their sponsors, fiduciaries, administrators, insurers and service providers have felt changes to the safe harbor are needed and justified. While the use of electronic communications has expanded significantly since 2002, the conditions that must be met to fall under the safe harbor provisions make the safe harbor of limited benefit to many plans, administrators and fiduciaries.
Currently, for instance, the safe harbor requires that plan administrators take a number of steps to verify that the electronic distribution system operates in a manner that reasonably ensures actual delivery, notify participants and beneficiaries of the opportunity to request a paper copy, and provide paper copies when requested. Except in limited circumstances involving electronic transmissions to active employees through a qualifying company-provided system used by the employee in the workplace, the safe harbor also requires that plans obtain prior authorization from a participant or beneficiary after complying with specific notice and other requirements before electronic transmission will meet the safe harbor conditions.
Meeting all of the applicable requirements can be challenging for most plans. Even where the plan can meet the conditions for participants who are active employees, plans rarely can ensure that they can reliably meet all of the required conditions to fall under the safe harbor when the plan has notification or disclosure obligations owed to retirees, employees that do not have access to or use computers in the workplace, dependents or other beneficiaries.
These practical challenges in meeting these conditions, coupled with the need to continue to disseminate some or all notices electronically to other participants or beneficiaries, leads most employers to continue to distribute most ERISA-required plan notices and communications through mail or other more traditional (and typically more expensive) means, even if they also send electronic communications.
Plan sponsors, fiduciaries, administrators, insurers and service providers interested in promoting greater ability to distribute ERISA notices and other communications to participants and beneficiaries or with other concerns about the current provisions of the safe harbor should act promptly to prepare and submit comments to the Labor Department.
In addition to meeting the Labor Department’s requirements for the distribution of ERISA-required notices and communications, plans, their sponsors and fiduciaries, administrators, insurers and service providers also should take steps to ensure that their notices and communications meet the minimum mandates of otherwise applicable Labor Department, IRS and HHS requirements and that their plan-related communications are designed, drafted and communicated to manage other plan-related exposures.
In addition to the Labor Department rules governing electronic distribution of employee benefit plan notices and communications, the use of electronic media to disseminate plan-related communications may be subject to separately imposed requirements of the IRS, HHS, the Securities and Exchange Commissions or other agencies, depending on the nature of the plan, the communication and the issuer.
Plan sponsors, administrators, fiduciaries, insurers, and service providers also should review the adequacy of their existing employee benefit notices and communications to ensure that their current practices comply with all applicable requirements. Recent changes in laws and regulations over the past months and years have significantly changed the notices and communications that federal law requires for most employee benefit plans, the required content of these disclosures or both.
In addition to staying on top of the evolving mandates, most plan sponsors, fiduciaries, insurers and service providers also will want to consider the advisability of tailoring their existing plan-related notices, disclosures, documents and other communications to mitigate fiduciary and other risks in light of emerging judicial and administrative precedent highlighting the advisability of greater prudence and risk management.
A white paper summary of current Labor Department electronic disclosure rules is available here.
Stamer can be reached at email@example.com.
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