In “The New Electronic Disclosure Rule Is Here!,” Kelsey Mayo, J.D., Lead Partner, Employee Benefits Group at Poyner Spruill LLP, and ASPPA President-elect W. Frank Porter, APA, QKA, QPA, Head of Institutional Business Development for Empower Institutional, offered their insights.
What May Be Disclosed Electronically
Under the final rule the DOL issued in May, documents that may be disclosed electronically include:
- Annual disclosures, such as safe harbor announcements, QDIAs, plan fees, etc.
- Summary Plan Descriptions (SPDs)
- Summaries of Material Modifications (SMMs)
- Summary Annual Reports (SARs)
- Blackout notices
- Notices relating to qualified domestic relations orders (QDROs)
- Individual pension benefit statements
- Information about plan loans
The rules do not apply to any document that must be furnished only if it is requested.
Who Can Receive Disclosures Electronically?
The persons to whom electronic disclosures may be made include:
- participants (employees or former employees covered by the plan);
- beneficiaries (e.g., spouses and dependents covered by the plan); and
- other persons entitled to documents under Title I of ERISA.
More specifically, electronic disclosures may be made to participants who have effective access to electronic documents as part of their employment duties at any location where they are expected to perform their employment duties—for example, an employee who works in an office and has a computer. They also may be made to participants for whom access to the employer's electronic information is an integral part of these duties. Such participants do not have to affirmatively consent to receiving electronic disclosures.
The DOL says that participants with electronic duties do not include individuals who:
- are an assigned electronic address if not required to access system to perform employment duties;
- use kiosks; and
- use computer stations in a common area.
Electronic disclosures may be made to other participants, beneficiaries or other persons, but they must affirmatively consent to receive covered disclosures electronically.
There’s More
But simply following the rules regarding what can be provided electronically and to whom is only part of the battle. Even the 2002 rule, Porter noted, required that “measures also be taken to make sure electronic distribution results in actual receipt.”
As Mayo and Porter explained, the final rule says that measures must be taken to ensure that the electronic disclosure system:
- results in actual receipt;
- protects confidential information;
- meets style, format and content requirements;
- notifies recipients of the significance of the document; and
- advises of right to receive a paper version.
In addition, the party that is making disclosures electronically must ensure that:
- initial notice is provided;
- availability notice is provided regarding content and system requirements;
- the website meets requirements, if information is posted (if posting);
- confidentiality is respected;
- there are procedures to opt out; and
- it is possible to receive disclosures in paper format.
Some of these requirements should be fulfilled before the first electronic disclosures in the initial notice about them. Mayo and Porter said these include notifying participants in paper form that some or all disclosures will be furnished electronically to an electronic address and that they have the right to:
- request and obtain a paper version of a covered document, free of charge, and receive an explanation of how to go about doing that; and
- opt out of receiving electronically, and an explanation of how to do that.
In addition, the final rule requires that before electronic disclosures are made, the plan obtain the electronic addresses to which notices will be delivered and access instructions be provided. It also requires that if website posting will be used for electronic disclosures, a cautionary statement be made that a document is not required to be available on website for more than one year or, if applicable, after it is superseded by a subsequent version.
Notice of Internet Availability
Mayo and Porter stressed the importance of the notice of internet availability. One “must pay really close attention” to these requirements, Mayo cautioned.
What to Include. “They were very specific about what has to be in the document,” remarked Porter. The notice of internet availability for each disclosure should include:
- a prominent statement of purpose;
- a statement that important information about your retirement plan is now available, and should be reviewed;
- the name of document;
- a brief description of the disclosure if the name of the document would not reasonably convey its nature;
- mention of the right to request and obtain a paper version, free of charge, and how to exercise this right;
- mention of the right to opt out of receiving documents electronically, and an explanation of how to exercise this right; and
- the telephone number by which a participant can contact the administrator or other designated representative of the plan.
Style. Regarding style, format and content, notices of internet availability are to contain only the content specified and be:
- furnished electronically to the provided address, not on paper;
- provided separately from any other documents, except as specifically permitted; and
- written in a manner calculated to be understood by the average plan participant.
Mayo noted that the final rule eliminated specifics such as Flesch testing. “People were really concerned that this would be required,” she said, adding that the DOL listened to those concerns, and did not include it.
Timing. Combined notices must be furnished each plan year. If they were furnished in the prior plan year, a new combined notice must be provided no later than 14 months following the date that the prior year’s combined notice was furnished. Other notices of internet availability are to be provided by the deadline for furnishing the notice.
Action by Participants. The final rule also says that notices of internet availability may include a statement regarding whether action by the covered individual is invited or required, or that no action is required, in response to the disclosure and how to take action. However, such statements cannot be inaccurate or misleading.
Website Posting. If a document is posted on a website, the website address or hyperlink where it is available are to be provided. In addition, there must be a cautionary statement that the document is not required to be available on the website for more than one year or, if later, after it is superseded by a subsequent version.
Email. Notice of internet availability requirements still apply if disclosures are attached to an email.
More than the Minimum
The means of electronic communication must be more than something quick and easy. Mayo told attendees that under the final rule, the means of electronic communication “can’t be a device that simply converts information into a text or an email. This is an important extra step,” she said. “Essentially, it means that you need more than a cell phone number,” Mayo added.
IRS Too
Mayo and Porter reminded attendees that the DOL is not the only agency with rules regarding electronic disclosures; for instance, the IRS also has such regulations concerning:
- notices of the ability to make a cash or deferred election;
- safe harbor notices;
- EACA notices;
- 402(f) rollover notices; and
- notices to interested parties.
The IRS rules apply to notices required by the Internal Revenue Code, Mayo and Porter said, and notices over which IRS has interpretive authority. Porter observed that the IRS rules are similar to, but more limited than, those the DOL issued; he added that it is unclear when the IRS might issue guidance.
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