George Michael Gerstein

George Michael Gerstein advises financial institutions on the fiduciary and prohibited transaction provisions of ERISA. As co-chair of the fiduciary governance group, he assists clients with tracking, and understanding, the numerous fiduciary developments at the federal and state levels, including the rules and regulations of governmental plans. He also advises clients with respect to the fiduciary duty implications of ESG investing.

Cord-Cutting: DOL Embraces Technology with New Retirement Plan Disclosure Safe Harbor

The U.S. Department of Labor (DOL) recently adopted a new optional safe harbor for plan administrators to harness online and mobile-based technology to furnish information to participants and beneficiaries of retirement plans subject to the U.S. Employee Retirement Income Security Act of 1974, as amended (ERISA). The safe harbor permits plan administrators to (i) provide participants and beneficiaries a notice that certain disclosures will be made available on a website or mobile app (a notice of internet availability or NOIA) or (ii) furnish disclosures via email, subject to various conditions. While the DOL has long evaluated ways to modernize disclosure, a critical nudge came in the form of the President’s Executive Order 13847, Strengthening Retirement Security in America, on Aug. 31, 2018, which called for an “exploration of the potential for broader use of electronic delivery as a way to improve the effectiveness of disclosures and to reduce their associated costs and burdens.” The DOL released a proposal of the safe harbor last October in response to the Executive Order.

Here are the key takeaways:

  • The safe harbor only applies to retirement plans (e., employee welfare benefit plans are not covered).
  • The safe harbor’s scope is limited to covered individuals and covered documents.
    • A covered individual is a participant, beneficiary or other person entitled to the covered documents. This individual must provide the plan sponsor or administrator an email address or smartphone number at which the covered individual may receive a NOIA or an email with the attachments. This information could be obtained from the job application, for example. A company-provided email address is generally sufficient; however, the plan administrator must take steps to ascertain a different email address (or smartphone number) should the individual no longer be employed by the plan sponsor. If the administrator is alerted that the email address or cell number is inoperable (g., a bounce-back), then the administrator must promptly take reasonable steps to cure the problem. The DOL indicates that the plan administrator may ultimately have to utilize cell phone carriers’ validator services to distinguish landline numbers from cell numbers.
    • A covered document is any document or information that the plan administrator must provide participants and beneficiaries under Title I of ERISA, such as QDIA notices, summary plan descriptions (SPDs) and summary annual reports. Notably, this does not include documents that have to be provided by the plan upon request.
  • Covered documents must be stored on a website or mobile app. Covered individuals must be provided reasonable access to the website or app. This includes such requirements as:
    • The document is made available no later than the date on which the covered document must otherwise be furnished under ERISA and remain available online for the later of at least one year from the date they were first posted or the date the document is superseded by a subsequent version of the covered document. An SPD, for example, must remain digitally available on the website or the app until superseded by a subsequent version, even if longer than a year from when it was originally made available.
    • The covered document is in a widely-available format that is suitable to be read online and printed clearly on paper. The requirement that the documents be printable may present challenges for certain apps.
    • The covered document is searchable by numbers, letters or words.
    • The administrator takes measures reasonably calculated to ensure that the website or app protects the confidentiality of personal information relating to a covered individual. The safe harbor does not create liability for security breaches.
    • The safe harbor is not lost merely because the covered documents become temporarily unavailable for a reasonable period of time due to technical maintenance or unforeseeable events or circumstances beyond the control of the administrator, provided, among other things, the documents become available again as soon as reasonably practicable.
  • The administrator must furnish to each such individual an initial notification of electronic delivery on paper. This initial notification must include, among other things, the email address or cell number that will be used for the individual, instructions to access the covered documents, and a statement of the right to opt out of electronic delivery and receive a paper version of the document free of charge.
  • A NOIA must be sent by the administrator to the covered individual’s designated email address or cell phone number (e., a text message) each time a covered document becomes available digitally on the website or app. The regulation imposes a number of content-specific requirements for a NOIA, such as a prominent statement (e.g., a subject line) that reads, “Disclosure About Your Retirement Plan,” as well as a statement that reads, “Important information about your retirement plan is now available. Please review this information.”
    • The NOIA must also provide the website address or a hyperlink to the website. The address or hyperlink needs to lead the individual directly to the document (before or after a login page).
    • As with the initial disclosure, the NOIA must include a statement of the right, free of charge, to opt out of electronic delivery and receive only paper versions of covered documents.
    • The regulation permits an administrator to furnish each plan year one aggregate NOIA with respect to certain documents, such as an SPD and QDIA notice. Quarterly benefit statements are not includible in a combined NOIA.
  • An administrator may alternatively email the actual covered documents as attachments or in the body of the email to the covered individual. The subject line would have to read, “Disclosure About Your Retirement Plan.” The regulation imposes content-specific requirements on the email, such as identification or brief description of the covered documents. The document must also be in a widely-available format that is suitable for reading online, as well as printed on paper, as otherwise be searchable. These documents must be furnished no later than the date on which the covered document must be provided under ERISA.
  • Upon request from a covered individual, the administrator must promptly furnish, free of charge, a single paper copy of the covered document. Multiple copies may be furnished for a fee.
  • Covered individuals must also have the right to globally opt-out of electronic delivery of documents.
  • This new safe harbor does not replace the existing 2002 electronic disclosure safe harbor, 29 C.F.R. § 2520.104b-1, which remains available for plan administrators. This means that plan administrators who wish to rely on the 2002 safe harbor (or furnish paper documents by hand or mail) may continue to do so.
  • The safe harbor supersedes the DOL’s prior guidance relating to electronic disclosure, other than the 2002 safe harbor. For example, the DOL issued Field Assistance Bulletins 2006-03 and 2008-03 on this topic. The DOL has provided an 18-month transition period following the new safe harbor’s effective date to allow plan administrators to continue to rely on such prior guidance.
  • The DOL intends for the new safe harbor to align with the Treasury Department’s electronic media regulation, 26 C.F.R. § 1.401(a)-21. The Treasury Department and Internal Revenue Service have indicated that they intend to issue additional guidance relating to the use of electronic delivery for participant notices.
  • The safe harbor becomes effective and applicable on July 27, 2020. The DOL will not, however, take any enforcement action against a plan administrator that relies on the safe harbor before that date.

The new safe harbor contains numerous other conditions. We encourage plan sponsors and administrators to review the regulation carefully.

The Thrift Savings Plan/China Controversy – A Fiduciary Governance Perspective

The federal Thrift Savings Plan had planned to change the benchmark for its I Fund. This change would have resulted in federal employee-participants gaining exposure to Chinese equities. This proposal was not without controversy. Last Fall, for example, U.S. Senators Marco Rubio (R-FL) and Jeanne Shaheen (D-NH) complained that the planned move by the Federal Retirement Thrift Investment Board, the government agency that oversees the plan, “will effectively fund companies that engage in human rights abuses and support China’s efforts to undermine America. It exposes nearly $50 billion in assets to severe and undisclosed material risks associated with many Chinese companies listed on the index.”

The multi-year planned implementation of the change in benchmark was set to be complete in early June until the recent and ongoing geopolitical headwinds ultimately led to the White House getting involved, as we noted here, here and here. As reported, the White House penned a May 11 letter to DOL Secretary Eugene Scalia, which stated, in pertinent part, that the change in benchmark “would expose the retirement funds to significant and unnecessary economic risk, and it would channel federal employees’ money to companies that present significant national security and humanitarian concerns because they operate in violation of U.S. sanctions law….” Secretary Scalia, in turn, wrote to the chair of the Federal Retirement Thrift Investment Board, stating, in part: “At the direction of President Trump, the Board is to immediately halt all steps associated with investing the I Fund according to the MSCI ACWI ex USA IMI, and to reverse its decision to invest Plan assets on the basis of that international equities index.”

In response, the Board halted the change in index.

The plan is established under FERSA and the assets of each participant are held in trust. The Board is bound by fiduciary duties in managing the plan. The question becomes, is there fiduciary duty risk for a fiduciary to change course after a decision has been made but before formal implementation? This question is relevant to all fiduciaries, even those who operate under ERISA.

I was recently quoted in the article, Politics pressuring TSP to halt investments that include China, in the May 18 edition of Pensions & Investments.  While political pressure on a plan fiduciary may raise fiduciary duty concerns, I stated, in part, the following: “A fiduciary that re-evaluates a prior decision, in light of significant geopolitical, public health and macroeconomic developments, is likely following a prudent process.”