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Q&A on Electronic Disclosure

Practice Management
On May 21, the Department of Labor (DOL) finalized a new safe harbor for electronic disclosures. A July 9 Plan Sponsor Council of America (PSCA) webcast discussed the new safe harbor, the scope of the rules and what it all means.

Panelists in “The New Electronic Disclosure Rule Is Here!” included PSCA Executive Director Will Hansen, who served as moderator; John Doyle, Senior Vice President, Capital Group;  Katie Hockenmaier, CIPM, Partner, Mercer; and Andrew Liazos, Partner, McDermott Will & Emery LLP.
 
“It is “inevitable we’re going to see movement to this regime,” said Liazos. Doyle noted that the 2002 rule was very limited regarding what could be disclosed electronically, and that the new rule gives broader access to a wider number of qualified participants. He said that 90% use electronic disclosure now and that plan sponsors’ and administrators’ comfort level is increasing, but there will still be some plans comfortable with the 2002 rules. Hockenmaier was even more positive, remarking: “It’s a very exciting time and a long time coming.”
 
Panelists pointed out that:
 
  • the new notice and access, and direct email safe harbors, expand electronic notification;
  • employers may continue to rely on the safe harbor in the 2002 DOL regulations;
  • the new rule supersedes earlier DOL sub-regulatory guidance subject to the 18-month transition rule, which concerned pension statements, QDIA notices and participant fee and investment disclosures; and
  • the rule applies only to retirement plans when complying with mandatory ERISA disclosures.
Panelists also observed that the rule requires providing notice of internet availability (NOIA) and online access to documents. More specifically, the NOIA:
 
  • must be sent to a participant-provided electronic address (email/smartphone number) or employment email address;
  • generally must be sent every time a document is posted to the website;
  • can be done in consolidated form once every 14 months for documents that must be disclosed annually—e.g., SPDs, SARs, annual funding notice, QDIAs—but not quarterly benefit statements;
  • must contain specific content, including opt-out option for paper documents;
  • must be announced by a one-time paper notice concerning the shift to the new safe harbor.
The panel examined the new rule in a question-and-answer format:
 
What caused the delay in providing a safe harbor?
 
Panelists indicated that access to electronic information is one of the reasons for the delay. Doyle noted that some participants miss emails, and remarked that “There is legitimate reason to worry about those who have no access right now.” Hansen noted that there are interest groups that have kept the Department of Labor “at bay” regarding access, as well as delays in Congress, and older Americans who have a preference for paper.
 
What are the administrative roadblocks to implementation for recordkeepers and plan sponsors?
 
Doyle argued that implementation needs to be personalized to an individual when paper is used. He further said that new employees must receive disclosures too, and that “I do think that will slow down implementation of the safe harbor.” He added that he thinks there also needs to be a process for maintaining the accuracy of email addresses. Liazos said that some employers are not as timely as others regarding electronic disclosures.
 
Hansen asked panelists if there is anecdotal evidence about employers not focusing on it yet. Hockenmaier responded that most plan sponsors are taking the same timeline that their recordkeepers and administrators are taking. For his part, Doyle said that he thinks implementation will be driven by recordkeepers going to administrators, but to start with, it’s going to be administrators going to clients.
 
Doyle expressed optimism that “roadblocks will be overcome” concerning implementation.
 
Do we expect clarification on the document retention rules, specifically around conversions where there is a change in recordkeeper/administrator?
 
Hockenmaier responded that the matter is heavily dependent on how employers set up the electronic system. Liazos expects that the market is going to determine this activity, adding that he thinks employers will want to find a way to transfer responsibility for data. Doyle remarked that in the long run, he expects transfer of documents to the administrators.
 
Many plan sponsors expect recordkeepers to provide the vehicle for administering the e-disclosures. How can plan sponsors help facilitate this quickly and efficiently?
 
“If I’m a plan sponsor, I’m going to look to my recordkeeper to do this,” said Doyle; Liazos told attendees that “It is reasonable to expect recordkeepers to have provisions added to contracts stating that they are not responsible or email addresses and accuracy” and that contractual provisions will be “something to closely watch.” Doyle added that he hopes plan sponsors will help with collection of email addresses.
 
What steps should be taken to protect participant privacy? Do state law privacy restrictions apply in addition to DOL safe harbor requirements—is there ERISA preemption? 
 
Doyle said that one needs specific language in contracts regarding cybersecurity and personally identifiable information (PII). “There’s a really hard look” in some states based in state law,” he said, adding that one should not “assume that one can use ERISA preemption to get out of this.”
 
Whose responsibility is it to update contact information?
 
Doyle and Liazos stressed that there needs to be a process in order to do this. “There should be a process in place for updates,” said Liazos; Doyle agreed, remarking, “There has to be a way for the fiduciary to update the information. There should be some sort of written process.” He added, “You must have a process in place for what is to be done when one discovers that an email address is inaccurate.”