DOL

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.

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COVID-19 Disaster Relief Arrives for Private-Sector Retirement Plan Sponsors and Administrators

The Department of Labor (DOL) released guidance for sponsors and administrators of employee benefit plans subject to Title I of the U.S. Employee Retirement Income Security Act of 1974, as amended (ERISA) in response to the COVID-19 outbreak in the United States. EBSA Disaster Relief Notice 2020-01 provides important relief in a various areas over which the DOL has jurisdiction, including, but not limited to, those described below. The guidance reflects the DOL recognition that COVID-19, and the ensuing government response, is likely impairing most, if not all, plan sponsors’ and administrators’ ability to comply with certain requirements and deadlines under ERISA. Here are some of the high-level takeaways, particularly as they relate to retirement plans:

  • The guidance retroactively applies from March 1, 2020, the date President Trump technically declared the COVID-19 National Emergency, and expires 60 days after the cessation of the National Emergency or such other date as the DOL determines. The DOL leaves open the possibility of revising the expiration date of the guidance based on region, a nod to state regional pacts and the White House’s Guidelines for Opening Up America Again.
  • Technical non-compliance with the verification procedures related to plan loans and distributions under the terms of the plan are not considered violations if the failure is solely attributable to the COVID-19 outbreak, the plan administrator makes a good faith diligent effort (under the circumstances) to comply with the required procedures, and the plan administrator makes a reasonable attempt to correct any procedural deficiencies as soon as administratively practicable. This relief would not apply to statutory or regulatory requirements enforced by the U.S. Internal Revenue Service.
  • As we recently described, certain limitations related to participant loans were liberalized under the Coronavirus Aid, Relief and Economic Security Act (CARES Act). Under the DOL’s new guidance, the prohibited transaction relief provided in Section 408(b)(1) of ERISA will not be lost solely because the person made a plan loan to a qualified individual during the loan relief period in compliance with the CARES Act and the provisions of any related IRS notice or other published guidance, or because a qualified individual delayed making a plan loan repayment in compliance with the CARES Act and the provisions of any related IRS notice or other published guidance.
  • The DOL will not, solely on the basis of a failure attributable to the COVID-19 outbreak, take enforcement action with respect to a temporary delay in forwarding contributions or repayments of loans to a plan, provided the employer or service provider, as the case may be, acts reasonably, prudently, and in the interest of employees to end such delay as soon as administratively practicable under the circumstances. These amounts must ordinarily be forwarded to the plan on the earliest date on which such amounts can reasonably be segregated from the employer’s general assets but in no event later than the 15th business day of the month following the month in which the amounts were paid to or withheld by the employer.
  • Under existing regulations, the administrator of an individual account plan is required to provide 30 days’ advance notice to participants and beneficiaries whose rights under the plan will be temporarily suspended, limited, or restricted by a blackout period. Under certain circumstances, these notice requirements are not required due to events beyond the reasonable control of the plan administrator, and a fiduciary makes such a determination in writing. In response to COVID-19, the new guidance provides that the administrator will not violate such requirements if the plan and responsible fiduciary act in good faith and furnish the notice as soon as administratively practicable under the circumstances. For these purposes, “good faith” acts include the use of electronic alternative means of communicating with plan participants (and beneficiaries) who the plan fiduciary reasonably believes have effective access to electronic means of communication, including email, text messages, and continuous access websites. Moreover, the requirement that the fiduciary makes a written determination that such delay is due to events beyond the reasonable control of the plan administrator will not be required, “as pandemics are by definition beyond the plan administrator’s control.”
  • This relief is broad and flexible. Disclosure and notice requirements, including the provision of benefit statements, may be satisfied electronically, as described above.
  • The DOL clearly recognizes that the primary goal at this point is for plans to take reasonable measures to prevent the loss or undue delay in benefits to participants and beneficiaries. Moreover, the guidance acknowledged that service providers are themselves facing headwinds from COVID-19, namely, the various state and local shutdown orders on businesses. To that end, the guidance signals that DOL enforcement in this area will emphasize compliance assistance. The DOL did not rule out additional relief in the future.
  • The DOL separately released COVID-19 FAQs for Participants and Beneficiaries. Also, the DOL and Department of Treasury published a joint notice to address coverage issues under COBRA and to announce an extension for certain deadlines related to health and retirement plans, including additional time to file claims, resulting from the COVID-19 outbreak.

ERISA Excerpt: COVID-19 Checklist & Considerations for Private Fund Advisers

ERISA excerpt from yesterday’s blog post, COVID-19 Checklist & Considerations for Private Fund Advisers:

  • Non-ERISA Funds. Private funds that are structured to avoid being subject to the U.S. Employee Retirement Income Security Act of 1974 (ERISA) by reason of the significant participation/25% exception should carefully monitor to ensure that redemptions out of a fund do not result in “benefit plan investors” (i.e., ERISA plans, individual retirement accounts, and “plan assets” fund-of-funds, etc.) holding 25% or more of any equity class of the fund. For a description of the significant participation test, please see our recent client alert here.
    • The fund sponsor/manager may have contractually committed to preventing the fund from holding “plan assets,” in which case it should refer to, and comply, with such commitments. Amendments to these terms will likely require consent of the ERISA plan, and even potentially governmental plan, investors.
    • If redemptions inadvertently cause the fund to hold “plan assets,” the sponsor/manager may face significant obstacles in terms of ERISA compliance. For example, special care should be taken where the investment manager is newly formed, where a performance fee is paid to the investment manager, and/or where the investment manager enters into transactions with affiliates.
  • ERISA Funds. Sponsors and managers of funds that are structured to operate as “plan assets” vehicles, and, therefore, comply with ERISA, will likely be relying upon the QPAM Exemption. The QPAM Exemption contains multiple technical conditions, some of which may be stressed in volatile times. For example, the QPAM Exemption would not cover transactions otherwise consummated by the investment manager on behalf of the fund if one or more investing plans of an employer (or affiliates of the employer) constitute more than 20% of the total client assets (e., inside and outside of the fund) managed by the investment manager at the time of the transaction. Investment managers that lose numerous, or particularly important, clients could potentially run afoul of this condition, which would mean they would have to rely on some alternative exemption, such as Section 408(b)(17) of ERISA, for its trading. Finally, in terms of significant volatility of pricing, investment managers operating ERISA “plan assets” funds should be careful about using their own valuation methodologies of fund holdings so as to avoid potential self-dealing concerns.

COVID-19 Checklist & Considerations for Private Fund Advisers

With COVID-19 concerns and market volatility, advisers should consider compliance challenges that are likely to arise. This COVID-19 Checklist & Considerations for Private Fund Advisers highlights key compliance issues, questions and considerations with respect to the COVID-19 outbreak and government response. Please note that if an adviser does not document its compliance efforts, the Securities and Exchange Commission (SEC) will assume that such efforts did not occur. This checklist is not exhaustive and does not, for example, cover Commodity Futures Trading Commission considerations, which are discussed in a separate client alert.

Authors:
Nicole Kalajian – Counsel, Chicago
John Hamilton – Counsel, New York
Prufesh Modhera – Chair, Private Funds Group, Washington, DC
Sara Crovitz – Partner, Washington, DC
George Michael Gerstein – Co-Chair, Fiduciary Governance Group, Washington, DC