Default Electronic Disclosure by Employee Pension Benefit Plans Under ERISA, 31884-31924 [2020-10951]

Download as PDF 31884 Federal Register / Vol. 85, No. 102 / Wednesday, May 27, 2020 / Rules and Regulations DEPARTMENT OF LABOR Employee Benefits Security Administration 29 CFR Parts 2520 and 2560 RIN 1210–AB90 Default Electronic Disclosure by Employee Pension Benefit Plans Under ERISA Employee Benefits Security Administration, Department of Labor. ACTION: Final rule. AGENCY: The Department of Labor is adopting in this document a new, additional safe harbor for employee benefit plan administrators to use electronic media, as a default, to furnish information to participants and beneficiaries of plans subject to the Employee Retirement Income Security Act of 1974 (ERISA). The rule allows plan administrators who satisfy specified conditions to provide participants and beneficiaries with a notice that certain disclosures will be made available on a website, or to furnish disclosures via email. Individuals who prefer to receive disclosures on paper can request paper copies of disclosures and opt out of electronic delivery entirely. The Department expects the rule to enhance the effectiveness of ERISA disclosures and significantly reduce the costs and burden associated with furnishing many of the recurring and most costly disclosures. In addition to benefiting workers, this rule will immediately assist employers and the retirement plan industry as they face a number of economic challenges due to the COVID– 19 emergency, including logistical and other impediments to compliance with ERISA’s disclosure requirements. DATES: Effective date: The final rule is effective on July 27, 2020. Applicability date: The final rule is applicable on July 27, 2020. FOR FURTHER INFORMATION CONTACT: Rebecca Davis or Kristen Zarenko, Office of Regulations and Interpretations, Employee Benefits Security Administration, (202) 693– 8500. This is not a toll-free number. SUPPLEMENTARY INFORMATION: SUMMARY: jbell on DSKJLSW7X2PROD with RULES2 A. Background (1) Original Delivery Standards for ERISA Disclosures The Employee Retirement Income Security Act of 1974 (ERISA) and regulations thereunder provide general standards for the delivery of all VerDate Sep<11>2014 19:31 May 26, 2020 Jkt 250001 information required to be furnished to participants, beneficiaries, and other individuals under Title I of ERISA.1 Plan administrators must use delivery methods reasonably calculated to ensure actual receipt of information by participants, beneficiaries, and other individuals.2 For example, in-hand delivery to an employee at his or her workplace is acceptable, as is material sent by first class mail. In response to developing internet, email, and similar technologies, the Department of Labor (Department) first amended ERISA’s delivery standards in 2002 by establishing a safe harbor for the use of electronic media to furnish disclosures (the 2002 safe harbor).3 The 2002 safe harbor was not and is not the exclusive means by which a plan administrator may use electronic media to satisfy the general standard. However, plan administrators who satisfy the conditions of a safe harbor are assured that the general delivery requirements have been satisfied. The 2002 safe harbor, which is set forth in paragraph (c) of § 2520.104b–1, applies only to two categories of participants and beneficiaries: First, employees who are ‘‘wired at work’’— those with the ability to effectively access electronic disclosures at any location where they are reasonably expected to perform their employment duties and for whom access to the employer’s electronic information system is an integral part of those duties; and second, individuals entitled to documents under Title I of ERISA who do not fit into the first category, but who affirmatively consent to receive documents electronically. The 2002 safe harbor also specifies additional requirements that must be satisfied in order to furnish ERISA disclosures electronically. The preamble to the Department’s proposal of this regulation included a comprehensive summary of the 2002 safe harbor’s requirements.4 As explained in detail below, the new, additional safe harbor adopted today does not supersede the 2002 safe harbor; the 2002 safe harbor remains in place as another option for plan administrators. In addition to the 2002 safe harbor, the Department occasionally has issued interpretive guidance allowing different electronic delivery methods in limited circumstances. For example, Field Assistance Bulletin 2006–03 (FAB 2006–03) allows plan administrators who meet specified criteria to provide continuous website access to pension 1 See 29 CFR 2520.104b–1. 29 CFR 2520.104b–1(b)(1). 3 See 29 CFR 2520.104b–1(c). 4 84 FR 56894, 56895 (Oct. 23, 2019). 2 See PO 00000 Frm 00002 Fmt 4701 Sfmt 4700 benefits statement information required by ERISA section 105.5 Similarly, Field Assistance Bulletin 2008–03 (FAB 2008–03), which provides supplementary interpretive guidance on the Department’s qualified default investment alternative (QDIA) regulation,6 allows plan administrators who want to send required QDIA notices electronically to rely on either the Department’s 2002 safe harbor or the regulations issued by the Department of the Treasury (Treasury Department) and the Internal Revenue Service (IRS) at 26 CFR 1.401(a)–21 relating to use of electronic media.7 The impact of this final rule on these Field Assistance Bulletins and other interpretive guidance is discussed below, in the section titled ‘‘Transition Issues.’’ (2) Regulatory Background The Department is issuing a final rule today following an extensive and thorough evaluation not only of the public record for this regulatory initiative, but also of other agencies’ disclosure rules; economic and policy research concerning electronic disclosure; and information submitted by, and recommendations of, a variety of stakeholders. This evaluation has been ongoing, as electronic disclosures and modes of delivery have developed over time and as the Department over the years has released additional disclosure requirements and interpretive guidance following issuance of the 2002 safe harbor. The Department consistently receives feedback about compliance with the 2002 safe harbor and suggestions for how the safe harbor could be improved, sometimes in response to other regulatory projects, sometimes in response to ERISA Advisory Council proceedings, and otherwise. A first formal step, however, was the Department’s 2011 publication of a Request for Information (RFI) Regarding Electronic Disclosure 8 in response to Executive Order 13563, ‘‘Improving Regulation and Regulatory Review,’’ issued on January 18, 2011.9 The RFI asked 30 questions soliciting views, suggestions, and comments from employee benefit plan stakeholders, their representatives, and the general public on whether and how to expand 5 Field Assistance Bulletin No. 2006–03 (Dec. 20, 2006). 6 See generally 29 CFR 2550.404c–5. 7 See Field Assistance Bulletin No. 2008–03, (Q&A7), quoting 72 FR 60458 (Oct. 24, 2007). 8 76 FR 19286 (Apr. 7, 2011). 9 See 76 FR 3821 (Jan. 21, 2011). The Executive Order stresses the importance of achieving regulatory goals through the most innovative and least burdensome tools available. E:\FR\FM\27MYR2.SGM 27MYR2 Federal Register / Vol. 85, No. 102 / Wednesday, May 27, 2020 / Rules and Regulations jbell on DSKJLSW7X2PROD with RULES2 or modify the 2002 safe harbor. The Department carefully evaluated responses to this RFI to better understand the benefits, challenges, and costs of electronic delivery and other disclosure-related issues.10 Since publication of the 2011 RFI, the Department has analyzed whether there are more effective ways to regulate the disclosure and delivery of information to ERISA plan participants and beneficiaries. Stakeholders routinely ask the Department to recognize ongoing changes in technology, as some other federal agencies have done, and to take advantage of those changes by updating and modernizing ERISA’s electronic delivery standards in the 2002 safe harbor. The Department has had numerous discussions with staff of other federal government agencies after reviewing their guidance and standards for electronic delivery of required information, including the Treasury Department, IRS, and the Securities and Exchange Commission (SEC). The preamble to the Department’s proposed regulation discussed at length the Department’s review of these agencies’ guidance, all of which informed the Department in publishing the proposed rule, as did standards and practices of the Social Security Administration, the Comptroller of the Currency, and the Federal Thrift Savings Plan (TSP).11 Commenters agreed that it is important for the Department to continue coordinating with other agencies, especially the Treasury Department, IRS, and SEC.12 Plan administrators and service providers may have to comply with other federal and state requirements in administering their plans, and commenters therefore encouraged as much coordination as possible to limit the regulatory burden that may result from inconsistent standards. The Department also met with stakeholders and reviewed recent studies and policy and economic analyses concerning disclosure practices, as well as changes in internet access and usage across different populations. Entities such as the ERISA 10 The Department received approximately 78 comments on the 2011 RFI, which are available at https://www.dol.gov/agencies/ebsa/laws-andregulations/rules-and-regulations/publiccomments/1210-AB50. 11 84 FR 56894, at 56897 et seq. 12 One commenter recommended that the Department coordinate with the Federal Communications Commission (FCC) to ensure that the use of smartphones to comply with this rule will not conflict with FCC guidance. The FCC was included as part of the Executive Order 12866 review process and raised no objection to the requirements of this final rule. VerDate Sep<11>2014 18:54 May 26, 2020 Jkt 250001 Advisory Council 13 and the U.S. Government Accountability Office 14 also have made recommendations to the Department concerning possible changes to ERISA’s electronic delivery rules to improve participants’ disclosure experience and reduce administrative burdens. And the Department continues to closely monitor Congressional interest in expanding the use of electronic media for ERISA disclosures.15 A final important development, prior to the Department’s issuance of the proposed regulation in October 2019, was the President’s issuance of Executive Order 13847 on August 31, 2018.16 In relevant part, the Order instructed the Department, in consultation with the Treasury Department, to review whether regulatory or other actions could be taken to improve the effectiveness of 13 See, e.g., Mandated Disclosure for Retirement Plans—Enhancing Effectiveness for Participants and Sponsors, ERISA Advisory Council (Nov. 2017); 2009 ERISA Advisory Council Report on Promoting Retirement Literacy and Security by Streamlining Disclosures, at https://www.dol.gov/ agencies/ebsa/about-ebsa/about-us/erisa-advisorycouncil/2009-promoting-retirement-literacy-andsecurity-by-streamlining-disclosures-toparticipants-and-beneficiaries; 2007 ERISA Advisory Council Working Group Report on Participant Benefit Statements, at https:// www.dol.gov/agencies/ebsa/about-ebsa/about-us/ erisa-advisory-council/2007-participant-benefitstatements; and 2006 ERISA Advisory Council Report Working Group on Prudent Investment Process, at https://www.dol.gov/agencies/ebsa/ about-ebsa/about-us/erisa-advisory-council/2006prudent-investment-process. 14 See GAO–14–92, Private Pensions: Clarity of Required Reports and Disclosures Could Be Improved, p. 40, GAO (Nov. 2013), https:// www.gao.gov/assets/660/659211.pdf. 15 For example, the Setting Every Community Up for Retirement Enhancement Act of 2019, enacted December 20, 2019, Public Law 116–94 (‘‘SECURE Act’’), reflects Congressional interest in expanding electronic delivery of ERISA disclosures and other information. Specifically, section 101(c) of the SECURE Act, which amended section 3 of ERISA, requires the terms of a pooled employer plan to provide that certain disclosures and other information may be provided in electronic form. See also Joint Committee on Taxation, Technical Explanation of H.R. 4, the ‘‘Pension Protection Act of 2006,’’ as Passed by the House on July 28, 2006, and as considered by the Senate on Aug. 3, 2006 (JCX–38–06), Aug. 3, 2006 (regulations relating to the furnishing of pension benefit statements, ‘‘could permit current benefit statements to be provided on a continuous basis through a secure plan website for a participant or beneficiary who has access to the website’’); Secretary of Labor’s 2018 Testimony before the Senate Appropriations Subcommittees on Labor, Health and Human Services, Education, Review of the FY 2019 Dept. of Labor Budget Request, Senate, 115th Cong. (April 12, 2018), https://www.appropriations.senate.gov/hearings/ review-of-the-fy2019-dept-of-labor-budget-request; and 2017 and 2018 legislative activity concerning the Receiving Electronic Statements to Improve Retiree Earnings Act (RETIRE) Act, at H.R. 4610 (Dec. 11, 2017) and S. 3795 (Dec. 19, 2018). 16 E.O. 13847, Strengthening Retirement Security in America, 83 FR 45321 (Sept. 6, 2018). PO 00000 Frm 00003 Fmt 4701 Sfmt 4700 31885 required disclosures and ease the costs and regulatory burdens given the number and complexity of ERISA notices. In compliance with the Order, the Department worked with Treasury Department staff throughout the regulatory process and, within the required one-year period, completed a review of actions that could be taken ‘‘to make retirement plan disclosures required under ERISA and the Internal Revenue Code of 1986 more understandable and useful for participants and beneficiaries, while also reducing the costs and burdens they impose on employers and other plan fiduciaries responsible for their production and distribution.’’ 17 The Order directed that the Department consider proposing appropriate regulations or other guidance, if a determination is made that action should be taken. The Department’s proposed regulation, issued October 23, 2019 and finalized herein, directly responds to the mandate set forth in Executive Order 13847.18 In the preamble to the proposal, the Department described in detail the standard of the Treasury Department and the IRS for notices using electronic media, which was issued in 2006 at 26 CFR 1.401(a)–21.19 Affected parties, including the ERISA Advisory Council, had previously encouraged the 17 Id. 18 A few commenters suggested that the proposed regulation inadequately responded to the Executive Order 13847, because the proposal focused on delivery, as opposed to other methods of improving the effectiveness of disclosures. The Department does not agree with these commenters. At the outset, the Executive Order does not require the Department to issue any proposed or final rule, but only to review policies and, if warranted, ‘‘consider proposing appropriate regulations or guidance.’’ Id. section 2(c). The Executive Order also does not create any enforceable rights against the Department. See id. section 3(c). Regardless, the Department is confident that the new safe harbor substantially responds to both prongs of the Executive Order. As discussed in the Regulatory Impact Analysis section of this document, a noticeand-access framework will significantly reduce plan costs. Further, a notice-and-access framework also facilitates, among other things, interactivity, just-intime notifications, layered or nested information, word and number searching, engagement monitoring, anytime or anywhere access, and potentially improved visuals, tutorials, assistive technology for those with disabilities, and translation software, even though this rule does not mandate such practices. These features may be used to improve participants’ and beneficiaries’ disclosure experiences. Further, the RFI (published with the proposed rule) solicited information, data, and ideas on additional measures (beyond the electronic delivery safe harbor in 29 CFR 2520.104b–31) that the Department could take in the future (either as part of finalizing the proposal in this document, or a separate regulatory or appropriate guidance initiative) to improve the effectiveness of ERISA disclosures, especially with respect to design and content of ERISA disclosures. 19 84 FR 56894 at 56897, 56898. E:\FR\FM\27MYR2.SGM 27MYR2 31886 Federal Register / Vol. 85, No. 102 / Wednesday, May 27, 2020 / Rules and Regulations jbell on DSKJLSW7X2PROD with RULES2 Department to allow plan administrators to rely on this standard, which they generally interpret as more flexible than the Department’s 2002 safe harbor, when furnishing ERISA disclosures.20 The Department has, in limited circumstances and pursuant to temporary guidance, allowed plan administrators to rely on the Treasury Department’s electronic media regulation for applicable notices at 26 CFR 1.401(a)–21(c) as an alternative to reliance on the 2002 safe harbor.21 In light of Executive Order 13847 requiring consultation with the Treasury Department, the preamble to the proposal explained that the Department’s new proposed safe harbor was intended to align with the Treasury Department’s electronic media regulation. The Department invited interested parties to share their views on whether this objective is desirable and what other steps might be needed to achieve it. Commenters consistently took the position that it was unclear whether an ‘‘intention to align’’ meant that a plan administrator’s use of the notice-and-access framework in the proposal for Code disclosures would satisfy the applicable Treasury Department electronic media regulations. Commenters encouraged the Department to obtain confirmation of this position from the Treasury Department to eliminate any uncertainty.22 The Department provided these comments to the Treasury Department for its consideration. The Treasury Department and the IRS have indicated that they intend to issue additional guidance relating to the use of electronic delivery for participant notices. This final rule is considered to be an Executive Order 13771 deregulatory action. Details on the estimated cost savings of this final rule can be found in the Regulatory Impact Analysis, below. 20 For example, in comments submitted to the ERISA Advisory Council in 2017, the Department was encouraged to adopt the Treasury Department’s approach. See Groom Law Group, statement to the ERISA Advisory Council, June 7, 2017, p. 4, available at https://www.dol.gov/sites/dolgov/files/ EBSA/about-ebsa/about-us/erisa-advisory-council/ 2017-mandated-disclosure-for-retirement-planslevine-and-winters-written-statement-06-07.pdf. 21 See, e.g., Field Assistance Bulletin No. 2006– 03 (Dec. 20, 2006), providing for ‘‘the furnishing of pension benefit statements in accordance with the provisions of [26 CFR ] 1.401(a)–21, as good faith compliance with the requirement to furnish pension benefit statements to participants and beneficiaries’’ under ERISA. 22 A few commenters suggested that the Treasury Department also should explicitly adopt a noticeand-access framework. The Department provided these comments to the Treasury Department for its consideration. VerDate Sep<11>2014 18:54 May 26, 2020 Jkt 250001 (3) Purpose of Regulatory Action The Department’s principal objective in finalizing this rule is to carefully update, based on a comprehensive public record, ERISA’s electronic delivery rules for required disclosures to better leverage ongoing improvements in online and mobile-based technology and communications and to provide a structure that will be appealing to, and workable for, today’s workers. In doing so, the Department believes the framework of this final rule strikes an appropriate balance between competing policy goals—on the one hand taking advantage of the innovations and reduced costs that may be achieved through enhanced use of electronic communication, and on the other hand ensuring suitable safeguards for participants and beneficiaries who may be less ready to move to electronic communication (or who simply prefer paper). The final rule reflects the Department’s reliance on a wide variety of sources of evidence concerning individuals’ access to, and use of, electronic media in the United States: • A 2019 survey found that 90 percent of U.S. adults use the internet, representing a substantial increase from 2000 when 52 percent of U.S. adults reported using the internet.23 • A 2017 survey by the U.S. Census Bureau estimated that 87 percent of the U.S. population lives in a home with a broadband internet subscription.24 • A 2019 survey found that among non-broadband users, 45 percent cite their smartphone as a reason for not subscribing to high-speed internet service at home.25 • A 2018 study concluded that 93 percent of households owning defined contribution accounts had access to, and used, the internet in 2016.26 23 Monica Anderson, Andrew Perrin, et al, 10% of Americans don’t use the internet. Who are they?, Pew Research Center (Apr. 22, 2019). Available at https://www.pewresearch.org/fact-tank/2019/04/22/ some-americans-dont-use-the-internet-who-arethey/. 24 ‘‘Types of internet Subscriptions by Selected Characteristics,’’ U.S. Census Bureau American Community Survey 1-Year Estimates (Table S2802) (2017). 25 See Monica Anderson, Mobile Technology and Home Broadband 2019, Pew Research Center (June 13, 2019), https://www.pewresearch.org/internet/ wp-content/uploads/sites/9/2019/06/PI_ 2019.06.13_Mobile-Technology-and-HomeBroadband_FINAL2.pdf. 26 Peter Swire and DeBrae Kennedy-May, ‘‘Delivering ERISA Disclosure for Defined Contribution Plans: Why the Time has Come to Prefer Electronic Delivery—2018 Update,’’ (April 2018), p. 19., See Also ICI Research Perspective, ‘‘Ownership of Mutual Funds, Shareholder Sentiment, and Use of the internet, 2018’’ (November 2018), finding among households with defined contribution plans, 92% had access to the internet in 2016 and 93% had access in 2018. PO 00000 Frm 00004 Fmt 4701 Sfmt 4700 • A 2015 survey of retirement plan participants’ online habits indicated that 99 percent reported having internet access at home or work, and 88 percent of respondents reported accessing the internet on a daily basis.27 • A 2015 report observed that smartphones are used for much more than calling, texting, or basic internet browsing. Based on surveys, the report notes that 62 percent of smartphone owners have used their smartphones in the past year to look up information about a health condition; 57 percent, to do online banking; 44 percent, to look up real estate listings; 43 percent, to look up information about a job; 40 percent, to look up government services or information; 30 percent, to take a class or find education content; and 18 percent, to submit a job application.28 The Department believes that these trends have continued to the present and will into the future, increasing the number of individuals for whom electronic delivery of ERISA disclosures is appropriate or preferred. (4) 2019 Proposed Regulation and Request for Information In October 2019, the Department published in the Federal Register a proposed rule and RFI intended to expand the methods by which required ERISA disclosures may be furnished electronically.29 The proposal would allow plan administrators who satisfy certain conditions to notify participants and beneficiaries that certain disclosures will be made available on a website, while preserving the right of these individuals to opt out of electronic delivery and to request paper copies of disclosures. The Department invited interested persons to submit comments on the proposed rule and RFI and, in response to this invitation, the Department received 257 written comments from a variety of parties, including plan sponsors and fiduciaries, plan service and investment providers, and employee benefit plan and participant representatives, as well as 210 submissions in response to a petition. These comments are available for review on the ‘‘Public Comments’’ page under the ‘‘Laws and Regulations’’ tab of the Department’s Employee 27 2015 Telephone Survey Conducted by Greenwald & Associates for the SPARK Institute. Improving Outcomes with Electronic Delivery of Retirement Plan Documents, Quantria Strategies, (June 2015), https://www.sparkinstitute.org/contentfiles/improving_outcomes_with_electronic_ delivery_of_retirement_plan_documents.pdf. 28 Aaron Smith, Smartphone Use in 2015, Pew Research Center, (April 1, 2015), https:// www.pewresearch.org/internet/2015/04/01/ussmartphone-use-in-2015/. 29 84 FR 56894 (Oct. 23, 2019). E:\FR\FM\27MYR2.SGM 27MYR2 Federal Register / Vol. 85, No. 102 / Wednesday, May 27, 2020 / Rules and Regulations Benefits Security Administration website.30 This Notice includes a detailed discussion of the provisions of the final rule, the public comments received by the Department, and how these comments impacted the Department’s decision-making when adopting the final rule. The Department also issued the RFI on electronic disclosure based on the Department’s conclusion, at the time the proposed rule was published, that further information from stakeholders is necessary before proposing any substantive regulatory additions, deletions, or changes to ERISA’s disclosures themselves, as opposed to changes in the means of delivery for such disclosures. The RFI, which was included in the preamble to the proposed rule (as opposed to being a stand-alone document), contained a series of questions to elicit views from all interested parties on additional ways to improve the usefulness and effectiveness of ERISA disclosures, for example with respect to the design or content of disclosures. The Department is analyzing responses to the RFI to determine whether regulatory or other action, in addition to today’s final rule on electronic delivery of disclosures, should be taken to further enhance the effectiveness of ERISA’s disclosures.31 jbell on DSKJLSW7X2PROD with RULES2 B. Final Rule—Alternative Method for Disclosure Through Electronic Media The Department is amending part 2520 by adding a new section, § 2520.104b–31, entitled ‘‘Alternative method for disclosure through electronic media.’’ This section is a 30 https://www.dol.gov/agencies/ebsa/laws-andregulations/rules-and-regulations/publiccomments/1210-AB90. A few commenters on the proposal requested an extension, arguing that the 30-day comment period for the proposed rule was unreasonable and insufficient to adequately address the many complex issues presented by the proposal. One commenter further requested that the Department hold a hearing on the proposal prior to issuing final guidance. The Department declined these requests, in part because so few commenters raised the objections, and also because most issues relevant to electronic disclosure have been analyzed and reviewed by the Department and the public for many years, especially after the 2011 RFI and temporary guidance issued by the Department. A substantial and comprehensive public record exists, supplemented and updated with comments on the proposed rule. The Department disagrees that a public hearing is necessary to supplement an already comprehensive public record. The scope and depth of the public record that has been developed belies arguments that a 30-day comment period was insufficient. 31 Review of comments on the RFI also is responsive to Executive Order 13847, which directed the Department to improve the effectiveness of plan disclosures, in addition to exploring reductions in employer costs and administrative burden, through expanded use of electronic delivery. See generally E.O. 13847, 83 FR 45321 (Sept. 6, 2018). VerDate Sep<11>2014 18:54 May 26, 2020 Jkt 250001 regulatory safe harbor that provides a new, optional method for compliance with ERISA’s general standard for furnishing or delivering disclosures to participants and beneficiaries. A number of commenters on the proposed rule asked about the relationship between the new safe harbor and the existing 2002 electronic delivery safe harbor. Some commenters indicated satisfaction with the existing safe harbor. The new safe harbor is an additional method of delivery and does not substantively change the 2002 safe harbor.32 Plan administrators, therefore, have additional flexibility with the rule in selecting the electronic delivery method that works best for the plan and its participants and beneficiaries. Plan administrators who wish to continue to rely on the 2002 safe harbor for electronic delivery, or to furnish paper documents by hand-delivery or by mail, can continue doing so. Most commenters on the rule, as a general matter, believe that the new framework is a welcome addition to the 2002 safe harbor, which they argue is difficult for them to satisfy with respect to many participants and beneficiaries. In support of this position, these commenters cited with approval the many prior recommendations of the ERISA Advisory Council, the U.S. Government Accountability Office, and other parties.33 These commenters also argue that electronic disclosure is both feasible and preferred; that paper disclosure is very costly; that participants’ disclosure experiences can be improved online; that data obtained online enables plans to improve disclosures; that online activity may improve participants’ savings rates and retirement outcomes; that participants can access information online at any time; and that web-based disclosures have the capacity to serve diverse populations better than traditional paper disclosures. Commenters who object to the new safe harbor, on the whole, believe that the 2002 safe harbor is sufficient on its own and is a preferable rule because it retains paper delivery as the default.34 32 In response to comments, non-substantive conforming amendments are being made to the 2002 safe harbor to facilitate the new safe harbor. For example, in response to commenters’ requests, the Department is adding a cross reference to the new safe harbor in paragraph (f) of § 2520.104b–1 to improve regulatory clarity. Similar conforming amendments were made to §§ 2520.101–3(b)(3) and 2560.503–1. 33 These recommendations also are set forth in the preamble to the proposed rule. See 84 FR 56899, 56900. 34 One of these commenters requested that, to prevent the misuse of any cost savings attributable to this final rule, the Department require plan PO 00000 Frm 00005 Fmt 4701 Sfmt 4700 31887 The principal argument of these commenters against the proposal is that some participants and beneficiaries lack reasonable access to the internet and others simply prefer paper, and the proposed rule, if finalized, would fail to adequately protect the interests of both categories of individuals. The Department disagrees with this argument. The statistics cited above, under the heading ‘‘Purpose of Regulatory Action,’’ show nearly universal access to the internet among individuals who participate in an ERISA covered plan. These statistics also demonstrate significant and upward trends in both access to, and usage of, the internet by individuals covered by ERISA plans, including for banking, research, and other non-browsing functions. Despite these statistics, however, the Department understands that some people prefer paper documents for a variety of legitimate personal reasons, including improved reading comprehension, distrust of electronic storage solutions, computer illiteracy, difficulty navigating websites, username and password fatigue or forgetfulness, and the cost of computer hardware and establishing and maintaining access to the internet or managing files electronically. The final rule, therefore, honors the preference of these individuals by including several key provisions to ensure that if covered individuals desire paper documents, plans must accommodate these individuals with minimal friction. The first, and perhaps most important, of these conditions in the final rule is the provision that guarantees covered individuals a right to request and receive paper copies of specific covered documents or to globally opt out of electronic delivery altogether. This provision alone addresses commenters’ major concerns with a plan administrator’s decision to change the default mode of delivery from paper to electronic media. Second, not only are plan administrators prohibited from charging covered individuals a fee in connection with their exercise of these rights, plan administrators also are prohibited from having procedurally cumbersome or complex processes for exercising these rights. Thus, a covered individual’s decision to receive paper disclosures must be respected and cannot be met with economic or procedural hindrances. Finally, the final rule mandates that covered individuals administrators to document all savings attributable to their reliance on this safe harbor and apply these savings directly to participants’ accounts or benefits. Such a request is beyond the scope of this safe harbor and ERISA’s disclosure requirements, which are the subject of this rulemaking. E:\FR\FM\27MYR2.SGM 27MYR2 31888 Federal Register / Vol. 85, No. 102 / Wednesday, May 27, 2020 / Rules and Regulations receive multiple reminders, on different mediums, of these rights. Thus, a participant’s initial decision against opting out of electronic delivery is not permanent and can be revisited with each reminder or at any time. Collectively these three provisions protect individuals’ preference for paper by guaranteeing a right to it and by barring plan administrators from imposing unreasonable burdens on exercising this right. The final rule adopted today is fundamentally similar to the proposed rule, although modifications were made to reflect a variety of comments from affected parties. As in the proposal, the final rule establishes a safe harbor for compliance with ERISA’s general standard for delivery of disclosures to participants and beneficiaries.35 The general scope of the safe harbor relief is set forth in paragraph (a) of the final rule. Paragraphs (b) through (k) of the final rule set forth the detailed conditions to receiving the relief, and paragraph (l) contains the effective and applicability date. The detailed conditions are discussed below along with public comments on the proposal. The safe harbor applies only to ‘‘covered individuals’’ and only with respect to ‘‘covered documents.’’ Over 10 years, the new safe harbor will save plans approximately $3.2 billion net, annualized to $349 million per year (using a 3 percent discount rate).36 jbell on DSKJLSW7X2PROD with RULES2 (1) Covered Individual Paragraph (b) of the final safe harbor defines a ‘‘covered individual’’ for purposes of the rule as a participant, beneficiary, or other individual entitled to covered documents and who—when he or she begins participating in the plan, as a condition of employment, or otherwise—provides the ‘‘employer, plan sponsor, or administrator (or an appropriate designee of any of the foregoing)’’ with an electronic address. This includes an email address or internet-connected mobile- computingdevice (e.g., smartphone) number, and is intended to be broad enough to encompass new and changing technology. The existence of an electronic address for notification to a covered individual 35 Commenters have asked about the application of ERISA’s fiduciary standards and other statutory requirements to electronic disclosure in varying contexts. This safe harbor addresses only a plan administrator’s compliance with ERISA’s standard for the furnishing of covered documents to covered individuals. It neither addresses nor supplants more general fiduciary or other statutory obligations under ERISA. 36 See the Regulatory Impact Analysis in Section D of this preamble for a fuller discussion of net cost savings. VerDate Sep<11>2014 18:54 May 26, 2020 Jkt 250001 is critical to the effective implementation of a notice-and-access framework, much like a mailing address is critical to delivery of a paper document. The existence of a valid email address is similarly essential for a plan administrator who will deliver ERISA disclosures by complying with the requirements of new paragraph (k) of this final rule, which allows plan administrators to send documents via email. The final rule continues to require, as a condition of reliance on the safe harbor, including the new paragraph (k), that a plan administrator possess an electronic address that enables electronic communication with a covered individual. The final rule offers plan administrators a variety of ways to comply with the condition to obtain an electronic address for each covered individual. This provision, for example, is satisfied if the company provides plan participants an electronic address because of their employment. This requirement also is satisfied if an employee provides a personal electronic address to the plan administrator or plan sponsor, for example, as part of the job application process or on other human resource documents. In addition, a plan administrator or service provider can request an electronic address in plan enrollment paperwork or to establish a plan participant’s online access to plan documents and account information. A few commenters raised a pragmatic concern with the use of electronic addresses that are phone numbers (as opposed to an email, for instance). They asked what would happen if a notice of internet availability (hereinafter ‘‘NOIA’’) inadvertently is sent to a landline number, rather than a smartphone or similar number. It is not always readily apparent, given a tendigit phone number, whether the number belongs to a landline or not. Exacerbating this potential problem, a plan administrator who sends an NOIA to a landline may not receive a bounceback or any other notification that the recipient’s phone address is a landline that cannot receive text messages. If the plan administrator did receive such a notification, it would trigger the substantive protections in paragraph (f)(4) of the safe harbor, which require a plan administrator to take curative steps if the electronic address of a covered individual is invalid or inoperable. The inability of an electronic address to receive, for example, a text message that is intended to be an NOIA, would mean that the address is in fact inoperable for purposes of the rule. Some phone PO 00000 Frm 00006 Fmt 4701 Sfmt 4700 carriers offer a landline service that converts a text message into a voice message, instead of returning a bounceback notification. ERISA generally mandates that disclosures be in writing. Thus, the Department does not consider receipt of a voice-based message to be operable for purposes of this rule; the electronic address must be able to accept text (rather than audio) messaging. To address this concern, the final rule clarifies that an electronic address that will be used to satisfy paragraph (b) for a covered individual must be an address at which the individual may receive and inspect a written NOIA. Plan administrators who use internet-connected mobile computing device numbers, as opposed to email addresses, for example, will have to take steps to confirm with plan participants and beneficiaries, or through other reasonable means, such as using mobile phone carriers’ validator services, to distinguish landline numbers from mobile or similar numbers that enable the receipt and inspection of written messages. The final rule continues to recognize the validity of employer-assigned electronic addresses. Paragraph (b) of the proposal, in relevant part, provides that ‘‘if an electronic address is assigned by an employer to an employee for this purpose, the employee is treated as if he or she provided the electronic address.’’ The proposal specifically solicited comments on whether this provision of the proposal, as distinguished from the provision authorizing participants to affirmatively provide a personal electronic address to receive covered documents, should impose additional or different conditions to ensure that participants receive their disclosures. Many commenters supported the proposal’s recognition of the validity of employer-assigned electronic addresses. These commenters believe the provision is a common-sense technique to facilitate default electronic delivery: Employers routinely assign employees electronic addresses as part of their employment, for a variety of business purposes including human resource management, work-related assignments, and routine communications. Commenters also noted that the Department’s 2002 safe harbor allows for electronic delivery of disclosures to employer-assigned electronic addresses without the affirmative consent of participants, and called attention to the lack of reported problems or harm to participants caused by or attributable to that provision in the 2002 safe harbor. Other commenters, however, raised objections to the proposal’s recognition of the validity of employer-assigned E:\FR\FM\27MYR2.SGM 27MYR2 jbell on DSKJLSW7X2PROD with RULES2 Federal Register / Vol. 85, No. 102 / Wednesday, May 27, 2020 / Rules and Regulations electronic addresses. These commenters were particularly concerned about the language in the proposal that permitted an employer-assigned address to be created solely for purposes of using the proposed safe harbor. These commenters were concerned that ineffective disclosure will result if employers, or service providers or thirdparty technology firms hired by employers, create and assign electronic addresses with unclear or unfamiliar URL components solely to comply with the new safe harbor. In these circumstances, such attenuated or ambiguous electronic addresses (e.g., email accounts) may be unfamiliar to, ignored, overlooked, or forgotten by covered individuals. One commenter asserted that an employer-assigned electronic address for purposes of this rule could, in some jurisdictions, constitute a breach of fiduciary duty. Based on these concerns, the Department eliminated the phrase ‘‘for this purpose’’ from the final rule. Paragraph (b) now provides that participants will be treated as if they provided an electronic address to an employer if the electronic address is assigned by an employer to an employee ‘‘for employment-related purposes that include but are not limited to the delivery of covered documents.’’ Thus, to satisfy the rule’s definition of a covered individual, the electronic address assigned by an employer for an employee must be assigned for some employment-related purpose other than the delivery of covered documents under the new safe harbor. An employer could not, for example, establish for an employee a personal electronic address (e.g., a Google or Yahoo email account) that will be used by the plan’s administrator only to send notices required by this safe harbor. The employer-assigned address must have an employment-related purpose other than to comply with the safe harbor. Whether such an assignment meets ERISA’s furnishing standard is a matter to be determined based on the facts and circumstances of the particular situation. Although the safe harbor recognizes the validity of employer-assigned electronic addresses, it does not permit plan administrators to assign them. A few commenters explicitly agreed with the Department’s concern, expressed in the preamble to the proposal, about the assignment of electronic addresses by plan administrators and third-party service providers. These believe that misuse could result from allowing these individuals and entities to assign electronic addresses, for example, citing a practice under which a plan’s service VerDate Sep<11>2014 18:54 May 26, 2020 Jkt 250001 provider would use commercial locator services or similar people-finder tools to acquire electronic addresses of plan participants. The Department agrees, and paragraph (b) of the final rule continues to prohibit plan administrators or their service providers from assigning electronic addresses under the new safe harbor. To ensure effective access to electronic media, paragraph (b) confers this authority only on an employer with respect to its employees. Accordingly, in response to one commenter’s request for clarification, a plan administrator could not use a commercial locator service to acquire, and then use, personal electronic addresses under this safe harbor. Similarly, a few commenters raised concerns about application of the proposed safe harbor to spouses, divorced spouses, and other beneficiaries who may be entitled to disclosures under ERISA. Specifically, these commenters believe that it would be inappropriate for employers to assign electronic addresses for disclosure of covered documents to these individuals, because, unlike employees participating in an employer’s plan, spouses and other beneficiaries may not have any real relationship with the employer. The Department agrees with this concern. Although paragraph (b) of the final rule allows employers to assign electronic addresses for their employees, employers cannot assign electronic addresses for non-employee spouses or other beneficiaries of their plans’ participants. For a spouse or other beneficiary that is entitled to ERISA disclosures to be a covered individual for purposes of the final rule, the spouse or other beneficiary must affirmatively provide (or must have provided) the employer, plan sponsor, or administrator (or appropriate designee) with an electronic address; otherwise the plan administrator cannot furnish disclosures to these individuals pursuant to this rule. The definition of ‘‘covered individual’’ in the final rule does not exclude participants in multiemployer plans. Commenters representing multiemployer plans requested confirmation that these individuals could be covered individuals for purposes of paragraph (b) of the rule. Their concern stemmed from the proposal’s use of the phrase ‘‘as a condition of employment,’’ as a predicate for providing the plan administrator an electronic address because, according to the commenters, multiemployer plan sponsors do not have the ability to establish employment conditions, unlike plan sponsors PO 00000 Frm 00007 Fmt 4701 Sfmt 4700 31889 generally. In this regard, they argue, multiemployer plans are very different from single-employer plans. The Department confirms for affected parties that the final rule’s definition of covered individual in paragraph (b) is intended to include multiemployer plan participants. This necessarily follows from paragraph (c) of the final rule, which defines the scope of ‘‘covered documents’’ to include all pension benefit plans under ERISA. If the Department had intended to exclude from this safe harbor a subset of pension plans, such as multiemployer plans, the exclusion would have been set forth in paragraph (c) of the final rule. Nevertheless, the Department has slightly rephrased paragraph (b) to clarify that providing an electronic address as a condition of employment is only one way that an individual might supply an electronic address. The individual might supply it as part of their initial participation in the plan, or they might supply it otherwise: Through other means and for other reasons. In addition, in response to one commenter’s question regarding the source of an electronic address, the definition of ‘‘covered individual’’ includes multiemployer plan participants who provide their electronic addresses directly to the plan administrator, as well as plan participants whose personal or employer-assigned electronic address is provided to the plan administrator by an employer. (2) Covered Documents (i) Employee Pension Benefit Plans Paragraph (c) of the proposal defined the ‘‘covered documents’’ to which the rule would apply. It provided that the safe harbor may be used by the administrator of a pension benefit plan, as defined in ERISA section 3(2), to furnish any document that the administrator is required to furnish to participants and beneficiaries pursuant to Title I of ERISA, except for any document that must be furnished only upon request. The proposal clarified that a plan administrator would not be required to furnish all of these documents, as applicable for a particular plan, pursuant to the safe harbor if the plan administrator prefers a different method of furnishing for some of the documents. The Department requested comments generally as to whether the scope of covered documents is appropriate, and specifically whether certain employee pension benefit plan disclosures are better suited for such electronic disclosure. E:\FR\FM\27MYR2.SGM 27MYR2 31890 Federal Register / Vol. 85, No. 102 / Wednesday, May 27, 2020 / Rules and Regulations jbell on DSKJLSW7X2PROD with RULES2 Commenters generally supported the scope of the definition of covered documents as including disclosures for pension benefit plans. The final rule does, however, include two minor revisions. First, in response to numerous commenters, the Department added the words ‘‘or information’’ to this paragraph to clarify that certain ‘‘information’’ required to be disclosed pursuant to 29 CFR 2550.404a–5, the Department’s participant-level fee disclosure regulation, is covered by the final rule. Second, the Department added the word ‘‘only’’ to this paragraph to clarify the scope of the definition’s exception for documents that must be furnished upon request (the exception now applies to documents ‘‘that must be furnished only upon request,’’ emphasis added). Commenters disagreed about this exception. Some commenters argued that the final rule should not exempt documents that are available upon request by a covered individual, particularly if the individual agrees or has not objected to the rule’s method for delivery. Other commenters did not object to the exception, but requested that it be revised to ensure that the safe harbor’s exclusion from covered documents is limited to documents that are available only upon request. Under ERISA, some documents must be furnished automatically and others only upon request by an eligible person.37 However, these commenters point out that in certain cases (including pursuant to this safe harbor) participants may request copies of many different documents—even documents that must be furnished automatically, such as the summary plan description (SPD). The Department’s intention, as reflected in the preamble to the proposed regulation and unchanged for purposes of the final rule, is that the exception applies to documents that are furnished only upon request (i.e., the exception does not apply to, and therefore the final rule includes as covered documents, documents for which the plan administrator has an affirmative obligation to furnish but that are also, for various reasons, requested by 37 See, e.g., 29 U.S.C. 1024(b)(4) for the general requirement that upon written request of any participant or beneficiary, plan administrators must furnish plan documents including the latest updated SPD, latest annual report, any terminal report, the bargaining agreement, trust agreement, contract, or other instruments under which the plan is established or operated. See also 29 U.S.C. 1021(k) with respect to multiemployer plan information provided to participants and beneficiaries upon written request. VerDate Sep<11>2014 18:54 May 26, 2020 Jkt 250001 covered individuals).38 The 2002 safe harbor, if satisfied, remains available for plan administrators to furnish ERISA disclosures that are excluded from this safe harbor. (ii) Employee Welfare Benefit Plans The proposed safe harbor did not apply to employee welfare benefit plans, as defined in section 3(1) of ERISA, such as plans providing disability benefits or group health plans. The Department instead reserved paragraph (c)(2) of the proposal so that it could continue to study the future application of the new safe harbor to documents that must be furnished to participants and beneficiaries of employee welfare benefit plans. In the proposal, the Department noted that this reservation accords with Executive Order 13847, which focuses the Department’s review on retirement plan disclosures. The Department further explained that it does not interpret the Order’s directive as limiting the Department’s ability to take future action with respect to employee welfare benefit plans, especially to the extent similar policy goals, including the reduction of plan administrative costs and improvement of disclosures’ effectiveness, may be achieved. The Department noted in the preamble of the proposal that welfare plan disclosures, such as group health plan disclosures, may raise different considerations, such as pre-service claims review and access to emergency and urgent health care. Moreover, the Department shares interpretive jurisdiction over many group health plan disclosures with the Treasury Department and the Department of Health and Human Services. In considering any possible new electronic delivery safe harbor for group health plan disclosures in the future, the Department would consult with these other Departments. Many commenters agreed with the Department’s reasoning as set forth in the preamble to the proposed rule. These commenters urged the Department not to include welfare plans in the final rule, the most common reason being that welfare plans present unique issues as compared to other types of employee benefit plans. These commenters also acknowledged the necessity of the tri-agency consultation process for any such rule. Other commenters, by contrast, encouraged the Department to expand the final rule to apply to disclosures for welfare plans or begin immediately the 38 84 FR 56894, 56901 n. 63 (‘‘The proposed safe harbor does not apply to documents that are furnished only upon request.’’). PO 00000 Frm 00008 Fmt 4701 Sfmt 4700 formal process of doing so. These commenters argued that there is no sound legal or policy basis for excluding welfare plans, and that significant additional reductions in regulatory costs and burdens would follow if the safe harbor were expanded to cover welfare benefit plans, especially group health plans. A few of these commenters estimated that even extending the safe harbor only to routine health care denials (e.g., ‘‘Explanation of Benefits’’ or ‘‘EOBs’’) would save millions of dollars annually for health plan administration. The Department understands that there could be significant cost savings if the safe harbor were extended to cover welfare plan disclosures. At the same time, such an extension warrants careful consideration and analysis that goes beyond the scope of this final rule. The Department, therefore, has decided not to expand the scope of the final rule to cover welfare benefit plans at this time. The Department will continue exploring whether, and under what circumstances, to extend the safe harbor in the final rule to welfare benefit plans, and may undertake rulemaking in the future. (3) Notice of Internet Availability As a general rule, the proposal required that plan administrators furnish to each covered individual an NOIA for each covered document in accordance with the requirements of this section. A special rule, in paragraph (i) and discussed below, allowed plan administrators to combine the content of the required notices for certain covered documents. Paragraph (d) of the final rule, as in the proposal, continues to require that plan administrators furnish an NOIA and sets forth the conditions for satisfying this requirement, as modified to reflect the Department’s response to commenters’ views on the notice requirement. (i) Timing of Notice of Internet Availability Paragraph (d)(2) of the final rule continues to provide that the plan administrator must furnish an NOIA at the time the covered document is made available on the website described in paragraph (e). One commenter argued that, due to the flexibility of online posting, covered documents should be posted earlier than required by law, for example that any disclosures affecting covered individuals’ benefits should be posted as soon as reasonably possible after the decision affecting benefits is made. The Department disagrees that it would be appropriate, in a rule focused on the acceptable methods for E:\FR\FM\27MYR2.SGM 27MYR2 jbell on DSKJLSW7X2PROD with RULES2 Federal Register / Vol. 85, No. 102 / Wednesday, May 27, 2020 / Rules and Regulations delivering required ERISA disclosures, to alter the timing requirements for the disclosures themselves. As set forth in the preamble to the proposal, the rule is not intended to alter the substance or timing of any of ERISA’s required disclosures. The rule merely expands the possible delivery methods for disclosures. ERISA and the regulations thereunder include thoughtfully prescribed timelines for each required disclosure; the Department maintains that any changes to those substantive, legal standards would have to be made on a disclosure-by-disclosure basis, subject to the regulatory process, including public notice and comment. The Department does agree with this commenter, however, that, for similar reasons, it would not be necessary or appropriate to include any extensions to the timing requirements for covered documents that are posted online. As in the proposal, the final rule continues to allow plan administrators to furnish a combined NOIA each plan year for more than one covered document. If a combined NOIA was furnished in the prior plan year, the next plan year’s combined NOIA must be furnished no more than 14 months later. As discussed below, however, the covered documents that may be combined pursuant to paragraph (i) of the final rule have changed. The final rule continues to provide plan administrators with a 14-month period to comply with the annual NOIA requirement. The Department does not want plan administrators to have to push back the date of furnishing from year to year to avoid the risk that they run afoul of a strict 12-month requirement, and the Department acknowledges that actual disclosure dates can vary slightly from year to year. The two-month grace period should offer sufficient flexibility without compromising individuals’ receipt of an NOIA on a periodic, essentially annual, basis. The Department did not receive any comments disagreeing with this approach or arguing that different timing requirements would be preferable. The Department also reminds plan administrators that if they choose to furnish a consolidated NOIA once a year under paragraph (i) of the rule, doing so will not change the date on which the covered documents must be made available on the website. Each covered document described in the consolidated NOIA must be made available on the website no later than the date it must be furnished to participants and beneficiaries by law. VerDate Sep<11>2014 18:54 May 26, 2020 Jkt 250001 (ii) Content of Notice of Internet Availability Paragraph (d)(3)(i) through (vii) of the proposal listed the content requirements for the NOIA. Paragraph (d)(3)(i) of the proposal required a prominent statement, for example as a title, legend, or subject line that reads, ‘‘Disclosure About Your Retirement Plan.’’ Paragraph (d)(3)(ii) required this statement: ‘‘Important information about your retirement plan is available at the website address below. Please review this information.’’ Paragraph (d)(3)(iii) required a brief description of the covered document. Paragraph (d)(3)(iv) required ‘‘the internet website address where the covered document is available.’’ Paragraph (d)(3)(v) required a statement of the right to request and obtain a paper version of the covered document, free of charge, and an explanation of how to exercise this right. Paragraph (d)(3)(vi) required a statement of the right to opt out of receiving covered documents electronically, and an explanation of how to exercise this right. Finally, paragraph (d)(3)(vii) required a telephone number to contact the plan administrator or other designated representative of the plan. The Department requested comments on these content requirements and whether the NOIA would adequately serve its intended purpose, which is to provide very concise and clear notification to covered individuals about covered documents available on the website. As a general matter, some commenters believe that the content requirements are excessive, while others merely stated that the Department should be less prescriptive about the content requirements, and allow plan administrators greater flexibility for innovation. Commenters also provided significant feedback on specific content provisions in the proposal. Although not all of these suggestions were implemented in the final rule, the Department is persuaded by commenters that its intention for the NOIA may be better achieved by adopting some revisions to the NOIA’s content requirements. Due to these revisions, the Department also restructured paragraph (d)(3), making non-substantive changes to the lettering and numbering of subsections. The following paragraphs set forth commenters’ views with respect to each of the specific NOIA content provisions and, where applicable, changes that have been made for purposes of the final rule. The Department has adopted the first two content requirements today with PO 00000 Frm 00009 Fmt 4701 Sfmt 4700 31891 only minor revision from the proposed rule. As in paragraph (d)(3)(i) of the proposal, now (d)(3)(i)(A) in the final rule, the NOIA must include a prominent statement—for example as a title, legend, or subject line—that reads: ‘‘Disclosure About Your Retirement Plan.’’ Commenters did not object to this statement or its prominence. The statement required by paragraph (d)(3)(ii) of the proposal, now (d)(3)(i)(B) in the final rule, has been revised to be technologically neutral. As finalized, the NOIA must include the following statement: ‘‘Important information about your retirement plan is now available. Please review this information.’’ A few commenters disagreed with the use of the word ‘‘Important’’ and the Department’s provision of required language for this statement. As one commenter explained, the word ‘‘important’’ may become meaningless as NOIAs are regularly received. The Department disagrees that the use of the word ‘‘Important’’ is problematic. Even as covered individuals become accustomed to this framework for disclosure and receive notices over time, there is no harm in highlighting what the Department believes to be ‘‘important’’ retirement plan information; federal law, after all, does require disclosure of this information for a reason. The Department also is not persuaded that the rule’s required language for the statement in (d)(3)(i)(B) is problematic, especially as revised to more broadly apply to different electronic delivery methods. Very few commenters objected to this language, and a number of commenters expressly stated that they would not object to model language for some of the safe harbor’s notice requirements. The statement is brief and straightforward, and plan administrators often prefer to have specific guidance when making such statements to reduce risk that language drafted at their discretion will be insufficient. The Department has decided to make a few revisions to paragraph (d)(3)(iii) of the proposal, now (d)(3)(i)(C), in response to public comments. An NOIA, under the final rule, must include ‘‘[a]n identification of the covered document by name (for example, a statement that reads: ‘your Quarterly Benefit Statement is now available’) and a brief description of the covered document if identification only by name would not reasonably convey the nature of the covered document.’’ Many commenters on the proposal requested additional guidance on what would be expected as a ‘‘brief description’’ of a covered document and worried that this E:\FR\FM\27MYR2.SGM 27MYR2 jbell on DSKJLSW7X2PROD with RULES2 31892 Federal Register / Vol. 85, No. 102 / Wednesday, May 27, 2020 / Rules and Regulations requirement could result in too much information on what is supposed to be a very short notice. Suggestions included requiring that the brief description be limited to no more than a sentence or two, or even consolidating the first few content requirements and merely requiring identification of the covered document. The Department agrees that it may not always be necessary, to the extent the nature of a covered document is clear by its name, to include a brief description and that inconsistent application of the standard could result in longer, and more complex, NOIAs. The final rule requires a brief description only when identifying a covered document by name would not reasonably convey the nature of the covered document. Otherwise, only identification of the covered document by name is required. For example, an NOIA for a quarterly benefit statement ordinarily would not need a brief description. Quarterly benefit statements are furnished every three months and their content, which includes periodic personalized benefit account information for a covered individual, generally is well understood by individuals. Alternatively, the Department expects that a plan administrator furnishing an NOIA for a blackout notice would need to include a brief description to comply with this requirement. Blackout notices typically are not furnished on a recurring basis, and the circumstances surrounding the provision of a blackout notice may not be clear to many covered individuals. It is not unlikely, for example, that some covered individuals will have never before received a blackout notice. The Department believes that these modifications are responsive to commenters’ concerns without undercutting the important message NOIAs are intended to convey. Paragraph (d)(3)(iv) of the proposal, now (d)(3)(i)(D) in the final rule, also reflects limited revision in response to commenters’ questions about whether plan administrators could use a hyperlink on an NOIA, rather than simply a website address. The Department did not intend to limit NOIAs to including only website address citations: Plan administrators are encouraged to use hyperlinks that take covered individuals directly to a website address. The rule has been revised explicitly to include hyperlinks.39 39 The Department did not adopt one commenter’s recommendation that final guidance require hyperlinks or the ability to hover over words that previously have been defined. Although the rule now explicitly includes hyperlinks in addition to website addresses, the Department is VerDate Sep<11>2014 18:54 May 26, 2020 Jkt 250001 A few commenters addressed the standard in paragraph (d)(3)(iv) of the proposal, now (d)(3)(i)(D), that the required internet website address must be ‘‘sufficiently specific’’ to provide ready access to the covered document (or, in the case of a combined NOIA, covered documents).40 A website address (or hyperlink) will satisfy this requirement if it leads the covered individual directly to the covered document. A website address (or hyperlink) also will satisfy the ‘‘sufficiently specific’’ standard if the address leads the covered individual to a login page that provides, or immediately after a covered individual logs on provides, a prominent link to the covered document. Most commenters did not respond with suggestions for how to improve the ‘‘sufficiently specific’’ standard, except for requesting minor clarifications. The very few commenters that did address the standard disagreed with each other on the problem; for example, one commenter believed that the ‘‘sufficiently specific’’ standard is too prescriptive and should allow more flexibility, especially to accommodate future technology, whereas another commenter argued that the standard is not sufficiently protective of covered individuals and that the notice should take individuals straight to the disclosure (following a secure login, as applicable). Similarly, very few commenters addressed whether additional or different security procedures or information about login or similar procedures should be included in the notice. Most believe this additional information will only further clutter the notice and detract from key information, and that security procedures and protocols may become quickly outdated. One commenter asked the Department to require a separate notice including login and security not persuaded that hyperlinks should be mandatory; further, it is unclear whether the commenter’s suggestion that covered individuals must be able to hover over defined terms is meant to apply to notices (which are intended to be concise, clear documents notifying of internet availability, rather than substance) or more likely to the covered documents themselves. This rule is not intended to change substantive requirements of covered documents, such as the use of (and hyperlink capabilities associated with) defined terms. 40 See, e.g., 29 CFR 2550.404a–5(d)(v), which similarly requires disclosure of specified information at ‘‘[a]n internet website address that is sufficiently specific to provide participants and beneficiaries access to’’ such information (emphasis added). The Department is not aware of any evidence that plan administrators need further clarification or that this standard is ineffective. The proposal nonetheless included, and the final rule continues to include, two non-exclusive methods for website access that satisfy this standard. PO 00000 Frm 00010 Fmt 4701 Sfmt 4700 information, but did not offer specific commentary on security or privacy language that should be required. Following its review of commenters’ views, the Department decided to retain the ‘‘sufficiently specific’’ standard, which now applies whether the notice includes a website address or a hyperlink to such address, and made other non-substantive revisions to simplify the paragraph. The next two content requirements proposed in paragraphs (d)(3)(v) and (vi), which are now contained in paragraphs (d)(3)(i)(E) and (F) of the final rule, have been adopted with only minor amendment to clarify that requests for a specific paper version, and requests to opt out are both fulfilled free of charge. An NOIA must include a statement of the right to request and obtain a paper version of the covered document, free of charge, and an explanation of how to exercise this right (under (d)(3)(i)(E)); and a statement of the right, free of charge, to opt out of electronic delivery and receive only paper versions of covered documents, and an explanation of how to exercise this right (under (d)(3)(i)(F)). Commenters overall did not object to requiring that the notice explain covered individuals’ rights to request paper or opt out of electronic delivery. The Department continues to believe these are vitally important and protective rights for covered individuals and is not persuaded by the one commenter who requested that these statements be removed. A couple of commenters suggested that these rights should be ‘‘prominently’’ displayed and that the notice should include detailed instructions about how to opt out and any timelines for doing so. The Department did not adopt these suggestions. Given the very limited content of the NOIA, nearly everything arguably is ‘‘prominent,’’ and adding more and more content and specifications would only undermine the intended brevity and simplicity of the notice. The final rule includes one additional content requirement, in paragraph (d)(3)(i)(G), to respond to several commenters’ suggestion that covered individuals should be made aware that covered documents may not always be available online. The Department agrees that covered individuals would benefit from such a warning or reminder, so that they can take any desired action to print or save covered documents, or possibly request a paper copy of a covered document. As discussed below in detail, plan administrators are not required to maintain covered documents online indefinitely for purposes of E:\FR\FM\27MYR2.SGM 27MYR2 Federal Register / Vol. 85, No. 102 / Wednesday, May 27, 2020 / Rules and Regulations satisfying this electronic delivery safe harbor. Thus the final rule now requires an NOIA to include a cautionary statement that the covered 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 of the covered document. This requirement will ensure that covered individuals understand that covered documents will not be available online indefinitely. Plan administrators could, for example, draft the cautionary statement in a manner that encourages covered individuals to print, save, or otherwise preserve covered documents. A few commenters found paragraph (d)(3)(vii) of the proposal, now (d)(3)(i)(H), requiring a contact telephone number to be deficient, for example suggesting that the rule should mandate toll-free telephone numbers both for the employer or plan administrator and for the Department. The Department did not adopt a requirement that the telephone number must be toll-free, because such a requirement would place a costly and unnecessary burden on plan sponsors, particularly for sponsors of small plans that might be located in the vicinity of most of their participants without the need for any long-distance calling. Further, the Department is unaware of any problems or objections from plan participants with the telephone number that is required as contact information in the participant-level fee disclosure regulation (which similarly does not require a toll-free number).41 In any event, the safe harbor does not preclude plan administrators from providing (and including on the NOIA) a toll-free number. The Department was not persuaded that this final content requirement from the proposal should be revised. Paragraph (d)(3)(i)(H) of the final rule continues to require a telephone number to contact the plan administrator or other designated representative of the plan. The Department declined to adopt a number of additional content requirements suggested by some commenters.42 For example, one 41 See 29 CFR 2550.404a–5(d)(2)(i)(A). of additional statements that commenters suggested for the NOIA include that it is the covered individual’s responsibility to notify the plan administrator of a new electronic address; where historical versions of documents can be obtained; the significance of the covered document and what has changed since the last version; that there will be no retaliation for choosing paper; that notices and covered documents should be printed and saved for personal records; the right to print covered documents at an employer’s place of business; and the availability of the plan administrator to assist with passwords. jbell on DSKJLSW7X2PROD with RULES2 42 Examples VerDate Sep<11>2014 18:54 May 26, 2020 Jkt 250001 commenter on paragraph (d)(3)(vii) of the proposal, now (d)(3)(i)(H), argued that the notice’s content should be expanded to include an explanation that the number may be used for paper and opt-out requests as well as other questions, with a required response time of no more than 72 hours. Covered individuals will not necessarily be better informed by, and are more likely to ignore, a long and detailed notice that they receive repeatedly. The purpose of the NOIA is to highlight for covered individuals that a retirement plan document is available online, not to become a new and comprehensive disclosure of ERISA rights and responsibilities in itself. Based on additional feedback from commenters and analysis of the circumstances that may in fact warrant additional content on an NOIA, however, the Department adopted one more provision to the final safe harbor in paragraph (d)(3)(ii). As opposed to the preceding content requirements for the notice in paragraph (d)(3)(i), the information described in paragraph (d)(3)(ii) (ii) is not required. An NOIA furnished pursuant to the safe harbor may (but is not required to) contain a statement as to whether action by the covered individual is invited or required in response to the covered document and how to take such action, or that no action is required, provided that such statement is not inaccurate or misleading. The Department included this new provision because it was persuaded by commenters that covered individuals may find it advantageous to be notified whether some action on their part is (or is not) invited or required in response to the notice. The rule does not preclude plan administrators’ discretion to include this information, although it is not required. Plan administrators, however, must ensure that any statement about action that may or must be taken, or that no action is needed, is not inaccurate or misleading. For example, in the Department’s view, it would ordinarily be inaccurate and misleading for a plan administrator to state on an NOIA for a benefits claim denial under section 503 of ERISA that no action is invited or required. Even if a covered individual chooses to ignore the NOIA and not initiate an appeal, a benefits claim denial, by its very nature, is an invitation to take action, and requires such action within a specific timeframe or else the claimant may forfeit a right to a benefit. Finally, as to the content required for the NOIA, the Department requested comments on whether affected parties believed that a model NOIA would be useful, and asked that parties submit PO 00000 Frm 00011 Fmt 4701 Sfmt 4700 31893 sample models for the Department’s consideration. Although a few commenters stated that they did not necessarily object to the provision of a model NOIA, many commenters responded that a model is not necessary, for example because the NOIA content and other requirements are sufficiently clear, or more explicitly that the Department should not adopt a model, because, given the large variety in retirement plan features and designs, a model could be insufficiently flexible and ultimately interfere with the ability of plan administrators to appropriately prepare NOIAs for their plans.43 The public record, therefore, did not demonstrate a meaningful level of interest in having a model NOIA published with the final rule. The Department also did not receive any sample models from commenters. Given this overall lack of interest, and in light of changes made to improve the required content of the NOIA in response to commenters’ concerns, the Department has not included a model NOIA in the final rule.44 (iii) Form and Manner of Furnishing Notice of Internet Availability The Department intends the NOIA to be a succinct, understandable disclosure that will convey its importance and easily call the recipient’s attention to the availability of a covered document. With this goal in mind, paragraphs (d)(4)(i) through (iv) of the proposed rule set forth standards for the form and manner of furnishing the notice. As proposed, an NOIA had to first, be furnished electronically to the address referred to in paragraph (b) of the proposal; second, contain only the content specified in paragraph (d)(3) of the proposal, except that the plan administrator could include pictures, logos, or similar design elements, so long as the design was not inaccurate or misleading; third, be furnished separately from any other documents or disclosures furnished to covered individuals, except as permitted under paragraph (i) of the proposal (which addressed the consolidation of certain notices of internet availability on an annual basis); and fourth, be written in a manner calculated to be understood by 43 One commenter supported the Department’s development of a model notice, and explained that to do so properly would require as long as six months. For the reasons stated herein, however, the Department has declined to adopt a model NOIA at this time. 44 The Department similarly did not adopt a model for the initial notification required under paragraph (i) of the rule, discussed in detail below. As with the NOIA, commenters did not necessarily object to a model, but there was not consistent or strong support for a model for either notice. E:\FR\FM\27MYR2.SGM 27MYR2 jbell on DSKJLSW7X2PROD with RULES2 31894 Federal Register / Vol. 85, No. 102 / Wednesday, May 27, 2020 / Rules and Regulations the average plan participant. The proposal elaborated on this fourth condition, explaining that a notice that uses short sentences without double negatives, everyday words rather than technical and legal terminology, active voice, and language that results in a Flesch Reading Ease test score of at least 60 would satisfy the fourth requirement.45 The proposal required that the NOIA be furnished by itself. The NOIA contains important information alerting covered individuals that retirement plan disclosures are available online. This information should not be obscured by commercial advertisements or even other ERISA-required disclosures. The second and third requirements in paragraph (d)(4) of the proposal were intended to achieve this objective. Any additional information or content had to be limited; to permit otherwise would have frustrated the Department’s goal of a clear, concise notice. To the extent design elements could enhance the appearance of the NOIA and possibly increase the likelihood that it would draw the desired attention of covered individuals, however, the proposal did not exclude the use of pictures, logos, and similar design elements, so long as the design was not inaccurate or misleading and the required content was clear. Plan administrators must write clear and understandable notices of internet availability, and to that end the proposal relied on the standard measure for readability of ERISA disclosures—that the annual notice be ‘‘written in a manner calculated to be understood by the average plan participant.’’ Due to the concise nature of the NOIA, however, paragraph (d)(4)(iv) of the proposal included additional guidelines for plan administrators to satisfy the readability requirement, and plan administrators were encouraged to apply the plain language concepts described above (including the Flesch Reading Ease test). The Department incorporated these concepts to further improve individuals’ comprehension of the information on the NOIA and to provide plan administrators a safe harbor, essentially, to satisfy the readability standard for purposes of the proposed safe harbor. Commenters had a variety of general observations about the form and manner by which an NOIA must be furnished. For example, some commenters asked the Department to provide flexibility in how the notice may be furnished, not 45 See, e.g., general information about this formula for writing in plain English, at https:// web.archive.org/web/20160712094308/http:// www.mang.canterbury.ac.nz/writing_guide/writing/ flesch.shtml (Rudolf Flesch). VerDate Sep<11>2014 18:54 May 26, 2020 Jkt 250001 just by email but by text messages, mobile application notifications, and future innovations. Alternatively, some commenters requested that the rule be revised to allow plan administrators to furnish the NOIA in paper form, or electronic form, based on a determination by the plan administrator. Allowing paper disclosure would, these commenters explained, somewhat alleviate their concerns about the revocation of FAB 2006–03, discussed below in the section titled ‘‘Transition Issues.’’ Other commenters argued that allowing paper would reduce their concern that disclosures may not be received by covered individuals, winding up in a spam folder or otherwise buried. The Department notes that, similar to the discussion below with respect to the concept of a ‘‘website,’’ the final rule is intended to apply to a broad range of technologies in addition to emails and internet browser websites. Indeed, the Department specifically designed the rule to accommodate future technological innovations that can be used in compliance with the standards of the safe harbor. By its terms, the rule does not limit furnishing of the NOIA to email; the notice could, for example, be sent by text message. The Department did not, however, adopt certain commenters’ suggestion that plan administrators should be able to furnish the NOIA in paper form.46 One of the goals in adopting this safe harbor is to advance the use of electronic tools to enhance the effectiveness of, and reduce the costs associated with, ERISA disclosures. The Department maintains that it is important for covered individuals to receive an initial notice, on paper, alerting them that disclosures will be furnished using different procedures. But after that, the safe harbor will create consistency by requiring plan administrators to communicate electronically. As to ensuring the receipt of electronic notices, the rule includes a specific provision in paragraph (f)(4) requiring that action be taken in response to invalid or inoperable electronic addresses. Accordingly, paragraph 46 The Department believes that commenters’ support for paper NOIAs was due, in part, to the fact that some plan administrators currently rely on Field Assistance Bulletin 2006–03, which permits a paper notice, to furnish pension benefit statements. The Department understands that for these administrators, reliance on this final rule will require them to modify their procedures with respect to notices for benefit statements and consequently is providing an 18-month transition period during which plan administrators can implement such modifications. FAB 2006–03 and the transition period are discussed further below, under the heading ‘‘Transition Issues.’’ PO 00000 Frm 00012 Fmt 4701 Sfmt 4700 (d)(4)(i) of the final rule adopts the proposal’s requirement that an NOIA must be furnished electronically to the address referred to in paragraph (b) of the safe harbor. The Department also received more specific comments on the requirements of section (d)(4) of the proposal. In response to paragraph (d)(4)(ii) of the proposal, limiting the content of the NOIA but permitting specified design elements, a few commenters requested clarification that covered individuals will not be forced to wade through what are essentially marketing communications as purported ‘‘design’’ elements that could overtake the actual content of the notice. And more importantly to these commenters, covered individuals should not be confused by suggestible endorsements and advertising. The Department appreciates commenters’ concern that the content of the required NOIA must be clear and direct, and that the NOIA should not be used as marketing or sales material to the extent the NOIA is prepared by a plan service provider. However, the Department believes that these concerns are mitigated by the requirement in paragraph (d)(4)(ii) that design elements not be inaccurate or misleading and that the required content be clear. The purpose of the notice is to communicate the availability of an online disclosure, and plan administrators are responsible for ensuring that this purpose is not obscured. Paragraph (d)(4)(iii) of the final rule requires that an NOIA must be furnished separately from any other documents or disclosures except as permitted, and discussed below, by paragraph (i) of the final rule. Some commenters questioned whether the NOIA must be furnished separately if it accompanies the covered document (e.g., an email notice with an attached PDF version of the covered document); this matter is addressed by the addition to the final rule of paragraph (k), discussed below, permitting such direct delivery of covered documents. The Department received significant commentary on the readability standard in paragraph (d)(4)(iv) of the proposal with its references to short sentences, active voice, and the Flesch reading ease score. Most commenters strenuously objected to the inclusion of these additional, more specific measurements to assess the readability of NOIAs. These commenters argued that the Department’s existing standard, ‘‘written in a manner calculated to be understood by the average plan participant,’’ is sufficient and well understood. They asserted that, in their E:\FR\FM\27MYR2.SGM 27MYR2 jbell on DSKJLSW7X2PROD with RULES2 Federal Register / Vol. 85, No. 102 / Wednesday, May 27, 2020 / Rules and Regulations view, including additional standards, particularly standards based on the application of a Flesch reading ease score, would increase the costs of compliance with the safe harbor without obvious benefits. Even though the new standards were proposed as examples of compliance with the general standard, rather than as independent requirements, the commenters argued that there is a good chance the standards would be interpreted as a new legal standard, not only for this final rule’s notices but for other ERISA disclosures, such as the SPD. The Flesch reading ease score was especially problematic for commenters, who suggested that perhaps it could be used as a goal, but is not appropriate as a required score.47 If the Department retained this standard, they argued, it would have to be clear that it applied only in the context of this safe harbor, even though such a statement would not necessarily preclude its expected application in other contexts. Only one commenter supported these additional criteria, and that commenter suggested that their inclusion should only be a first step and that additional standards, including for the design and layout of notices, should be included. The same commenter cautioned that the Department should also test NOIAs to ensure they are understandable. In response to commenters’ concerns, the Department has removed from paragraph (d)(4)(iv) the more detailed guidelines for meeting the general readability standard. The final rule requires that the NOIA must be written in a manner calculated to be understood by the average plan participant. Although those additional guidelines may be helpful tools suitable for drafting clear and simple notices under this rule, the Department agrees with commenters that it would not be desirable to imply that these guidelines are mandatory for ERISA disclosures or notices in general. The Department also acknowledges some of the more specific objections that commenters raised. For example, it may not be possible to consistently achieve a Flesch reading ease test score of at least 60, especially for NOIAs that consolidate content for more than one covered document, as permitted by paragraph (i) of the rule. Some experts posited that using ‘‘onesize-fits-all’’ scoring programs does not always result in effective 47 One commenter suggested that, if the Department wishes to include additional standards for plan administrators to achieve ‘‘readability,’’ the final rule should include only the Flesch reading ease score, an objective standard. VerDate Sep<11>2014 18:54 May 26, 2020 Jkt 250001 communications.48 Although the Department has declined to include the proposal’s specific guidelines in the final rule, it will continue to analyze readability and other measures in connection with the responses to the RFI on general disclosure issues that was published with the proposed rule. In the meantime, plan administrators may look to the Department’s SPD regulations for guidance on the meaning of ‘‘written in a manner calculated to be understood by the average plan participant.’’ 49 (iv) Standards for Internet Website The proposed safe harbor included minimum standards concerning the availability of covered documents on a website, which were set forth in paragraphs (e)(1) through (3) of the proposal. Generally these standards remain intact. The principal changes, discussed below, include revisions to the website retention requirement, in paragraph (e)(2)(ii) of the final rule, and a new provision, in paragraph (e)(4), to address the application of the safe harbor to mobile apps. Paragraph (e)(1) of the proposal stated the general requirement that plan administrators must ensure the existence of an internet website at which covered individuals are able to access covered documents. This provision is adopted without change. This paragraph holds the plan administrator responsible for ensuring the establishment and maintenance of the website. The Department understands that, in many cases, some or all of the responsibilities associated 48 See, e.g., Janan, D., Wray, D., ‘‘Readability: The limitations of an approach through formulae’’ (2012) (readability formulae found to be inadequate), at http://www.leeds.ac.uk/educol/ documents/213296.pdf. See also Crossley, S.A., Allen, D., & McNamara, D. S., ‘‘Text readability and intuitive simplification: A comparison of readability formulas’’ (Apr. 2011, Vol. 21, No. 1, pp. 84–101) (traditional readability formulas weak due to reliance on overly simplistic mechanisms), at http://nflrc.hawaii.edu/rfl. But compare Federal Plain Language Guidelines, (March 2011, Rev. 1, May 2011) (federal agencies should apply user testing techniques to aid compliance with The Plain Writing Act of 2010 (P.L. 111–274) (Oct. 13, 2010),)), at https://plainlanguage.gov/guidelines/. 49 See 29 CFR 2520.102–2(a) (‘‘The summary plan description shall be written in a manner calculated to be understood by the average plan participant and shall be sufficiently comprehensive to apprise the plan’s participants and beneficiaries of their rights and obligations under the plan. In fulfilling these requirements, the plan administrator shall exercise considered judgment and discretion by taking into account such factors as the level of comprehension and education of typical participants in the plan and the complexity of the terms of the plan. Consideration of these factors will usually require the limitation or elimination of technical jargon and of long, complex sentences, the use of clarifying examples and illustrations, the use of clear cross references and a table of contents.’’). PO 00000 Frm 00013 Fmt 4701 Sfmt 4700 31895 with the website may be delegated to plan service or investment providers or other third parties, as frequently occurs now for other aspects of plan administration. Any such delegation is subject to the plan administrator’s compliance with paragraph (j) of the safe harbor, ‘‘Reasonable procedures for compliance,’’ discussed below, and the plan administrator’s general obligation as a plan fiduciary under ERISA section 404 to prudently select and monitor such parties.50 A few commenters argued that paragraph (e)(1) of the proposal sets a higher, strict liability, standard for plan administrators that is not appropriate. The Department disagrees with these commenters. The existence of an internet website is integral to the successful execution of the notice-andaccess framework adopted in the final rule. Without an accessible website that includes the covered document, the plan administrator has not effectively ‘‘furnished’’ the document under the notice-and-access portion of this safe harbor.51 Consequently, the Department cannot accept a lesser standard, for example that the plan administrator must ‘‘take measures reasonably calculated’’ to ensure the website’s existence, as was suggested by a few commenters. The Department also disagrees that this standard results in strict liability. The final rule explicitly provides relief in paragraph (j), discussed below, for reasonable events that may interrupt the availability of covered documents on the website. Temporary interruptions due to internet connectivity problems, routine maintenance, or network disturbances do not necessarily mean that the plan administrator failed to ensure the existence of the website pursuant to this safe harbor. One commenter requested that the Department modify paragraph (e)(1) of the proposal to prohibit website addresses from changing for at least 50 One commenter specifically expressed concern about service providers’ potential misuse of plan and account information, for example covered individuals’ personal financial information, that is obtained in connection with their provision of plan services, including furnishing information and disclosures, or maintaining a website, to comply with this rule. The commenter suggested that the Department should prohibit the use of any such information to market or sell non-plan products and services to covered individuals. This commenter’s concern is beyond the scope of this safe harbor, which addresses only a plan administrator’s compliance with ERISA’s standard for the furnishing of covered documents to covered individuals. 51 Other methods of furnishing covered documents electronically do not require the existence of a website. See paragraph (k) of the final rule. E:\FR\FM\27MYR2.SGM 27MYR2 jbell on DSKJLSW7X2PROD with RULES2 31896 Federal Register / Vol. 85, No. 102 / Wednesday, May 27, 2020 / Rules and Regulations some specified period of time, because website addresses can shift over time. The Department declines to adopt this suggestion. The final rule, in paragraph (e), relating to minimum standards for the website, contains a new provision requiring that covered documents remain available on the website for a specified time. In addition, paragraph (d)(3)(i)(D) of the final rule requires each NOIA to contain a sufficiently specific website address or hyperlink to provide ready access to the covered document. Collectively, these two provisions provide for easily locatable content available for a long enough time. At this time, the Department therefore declines to establish additional prescriptive mandates on website management or website maintenance, such as hyperlink redirects or hyperlink expiration rules, in response to this comment. Paragraph (e)(2) of the proposal contained six paragraphs. Paragraph (e)(2)(i) of the proposal provided that the covered document must be available on the website no later than the date on which the covered document must be furnished under ERISA. Paragraph (e)(2)(ii) required that a covered document remain available on the website until it is superseded by a subsequent version of the covered document. Paragraph (e)(2)(iii) required that a covered document be presented on the website in a manner calculated to be understood by the average plan participant. Paragraph (e)(2)(iv) of the proposal provided that the covered document must be presented on the website in a widely-available format or formats that are suitable to be both read online and printed clearly on paper. Paragraph (e)(2)(v) provided that the covered document must be searchable electronically by numbers, letters, or words. Finally, under paragraph (e)(2)(vi) of the proposal, the covered document must be presented on the website in a widely-available format or formats that allow the covered document to be permanently retained in an electronic format that satisfies the requirements of paragraph (e)(2)(iv) (requiring a format that can be read online and printed clearly on paper). Paragraph (e)(2)(vi) of the proposal was included to enable covered individuals to keep a copy of the covered document, for example, by saving it to a file in electronic format, on a personal computer. A significant number of commenters focused on the requirement, in paragraph (e)(2)(ii) of the proposal, relating to how long covered documents must remain available on the website. This provision in the proposal required that a document must remain available VerDate Sep<11>2014 18:54 May 26, 2020 Jkt 250001 until ‘‘it is superseded by a subsequent version of the covered document.’’ This provision was intended to ensure that covered individuals have readily available the information they need to protect and enforce their rights under ERISA and the plan, especially the SPD for example. The Department requested comments as to whether there are circumstances when a superseded document may still be relevant to a covered individual’s claims or rights under the plan and, if so, whether additional or different conditions are needed to address such circumstances. The Department also invited comments on whether a final rule should explicitly address the category of covered documents that technically do not become superseded by reason of a subsequent version of the covered document, but instead cease to have continued relevance to covered individuals (e.g., a blackout notice). The Department received a wide range of comments on paragraph (e)(2)(ii) of the proposal. A few commenters, who were generally opposed to the new safe harbor, argued that all covered documents should be retained on the website indefinitely, regardless of continued relevance. Many more commenters, however, supported the proposed retention provision, but even these commenters suggested a need for a clearer standard for the category of covered documents that technically do not become superseded by reason of a subsequent version of the covered document, such as blackout notices under section 101(i) of ERISA or notices of the right to divest employer securities under section 101(m) of ERISA. For this subset of covered documents, commenters offered a variety of suggestions for how long such documents should be retained on the website. A number of commenters, for example, suggested that such documents should be retained on the website ‘‘until they cease to have relevance,’’ leaving it to the plan administrator to determine whether and when a document ceases to be relevant. Other commenters, however, strongly preferred that the Department set a defined length of time, with comments ranging from one to three years. These commenters emphasize that there is a benefit to having a bright line standard for compliance purposes. After considering the comments received, the Department has decided a one-year posting requirement strikes the appropriate balance between ensuring participants have reasonable electronic access to current documents and the appropriate scope of this regulation, which provides a safe harbor for PO 00000 Frm 00014 Fmt 4701 Sfmt 4700 furnishing requirements, not underlying retention requirements. The one-year period in paragraph (e)(2)(ii) of the final rule is responsive to both of the principal observations by most commenters: First, by specifically addressing the fact that not all covered documents are in fact superseded by another version; and second, by providing clear time limits for website retention of these covered documents. Affected parties will benefit from the administrative simplicity and consistency of a bright-line test to follow when managing, or accessing, covered documents on a website. Accordingly, paragraph (e)(2)(ii) of the final rule now provides that a covered document must remain available on the website until it is superseded by a subsequent version of the covered document, if applicable, but in no event less than one year after the date the covered document is made available on the website pursuant to paragraph (e)(2)(i) of the rule.52 Under this standard, all covered documents must remain on the website for at least one year from the date they were first posted on a website. This will protect participants from confusion and uncertainty about how long their documents will be available on a website. Some covered documents, for example, the SPD, must remain on a website until they are superseded by a subsequent version of themselves, even if longer than one year from the date they were originally posted on a website. The following examples illustrate how paragraph (e)(2)(ii) of the final rule applies to several different covered documents. Example 1. A plan’s SPD is furnished under the new safe harbor on January 1, 2025 (‘‘2025 SPD’’). Thus, it is first posted on the website on the same date. The plan is materially amended in 2026, and a summary of material modifications (SMM) was timely furnished. A new SPD is furnished via posting on the website on January 1, 2030 (‘‘2030 SPD’’), reflecting the 2026 amendment. The 2025 SPD must remain on the website at least until January 1, 2030, the date the updated 2030 SPD is furnished superseding the 2025 SPD. In this example, the 2025 SPD is superseded by a subsequent covered document more than one year after the 52 These safe harbor requirements are not retroactive. Plan administrators are not required to go back and post historical versions of covered documents, dated prior to the effectiveness of this final rule, on the website. The Department intends these website retention provisions to be prospective in nature. E:\FR\FM\27MYR2.SGM 27MYR2 jbell on DSKJLSW7X2PROD with RULES2 Federal Register / Vol. 85, No. 102 / Wednesday, May 27, 2020 / Rules and Regulations date it was first made available on the website. Example 2. A pension benefit statement for a participant in a defined benefit pension plan is furnished on January 1, 2030 (‘‘2030 PBS’’), via posting it on the website on the same date. Subsequently, the plan furnished the same participant the next pension benefit statement on January 1, 2033 (‘‘2033 PBS’’), via posting it on the website on the same date. The 2030 PBS must remain on the website until January 1, 2033, when it is superseded by the 2033 PBS. In this example, the 2030 PBS was superseded by a subsequent covered document more than one year after the date it was first made available on the website. Example 3. A pension benefit statement for a participant in a participant-directed defined contribution pension plan was furnished on January 1, 2030, via posting it on the website on the same date (‘‘Q1 Benefit Statement’’). Subsequently, the plan furnishes the same participant the next pension benefit statement on April 1, 2030, via posting it on the website on the same date (‘‘Q2 Benefit Statement’’). The Q1 Benefit Statement must remain on the website until January 1, 2031, one year after it was first posted to the website. In this example, even though the Q1 Benefit Statement was superseded on April 1, 2030, the date on which the Q2 Benefit Statement is posted, the Q1 Benefit Statement must remain on the website for at least one year, i.e., at least until January 1, 2031. Example 4. A blackout notice is furnished to all plan participants on January 1, 2029, via posting it on the website. The blackout notice, among other things, announced an upcoming 30-day blackout period ending on March 15, 2029. The blackout notice must remain on the website until at least January 1, 2030. In this example, even though the blackout period ended on March 15, 2029, the blackout notice must remain on the website for at least one year, i.e., at least until January 1, 2030. The Department does not agree that covered documents must be available online indefinitely, as suggested by several commenters, but paragraph (e)(2)(ii) of the final rule reflects the Department’s determination that covered documents must, at a minimum, be available on the website for at least one year. Covered individuals will benefit from having covered documents available to them for a reasonable period of time. For example, participants in a participantdirected individual account plan will, at VerDate Sep<11>2014 18:54 May 26, 2020 Jkt 250001 any time, have access to at least a year’s worth of quarterly pension benefit statements, which may be accessed throughout the year for a variety of reasons, including to verify contributions, review and revise asset allocations, or otherwise manage their retirement assets. This also provides ample time for covered individuals who wish to print or download covered documents to do so. The new website retention provision in paragraph (e)(2)(ii) of the final rule does not preclude the ability of plan administrators to retain historical documents on the website longer than the minimum term required, if they choose.53 Plan administrators may prefer to archive or similarly preserve prior covered documents on the website for a longer period of time than is required by paragraph (e)(2)(ii). Nor do these new website retention requirements alter a plan administrator’s general recordkeeping requirements under ERISA. For example, ERISA sections 107 (retention of records) and 209 (recordkeeping and reporting requirements) separately specify retention periods.54 Thus, participants may continue to request covered documents that are older than one year. Plan terminations, benefit determinations, and many other circumstances and events naturally will arise during, and following, an employer’s sponsorship of a pension benefit plan that require special attention to the proper management and retention of documents.55 Plan administrators’ (and other plan fiduciaries’) responsibilities with respect to retaining plan records and documents and responding to participant requests are unchanged from existing law. The new safe harbor adopted today is not meant to alter ERISA obligations with respect to the maintenance of plan records or otherwise. This is an optional safe harbor available to plan administrators 53 One commenter argued that including numerous historical documents on the website could create unnecessary confusion. The Department disagrees. Any such confusion should be minimal to the extent that the current version of any covered document must be presented on the website in a manner calculated to be understood by the average plan participants pursuant to paragraph (e)(2)(iii) of the final rule. A covered document that is buried or obscured on the website is not, in the Department’s view, presented on the website in a manner that satisfies this standard. 54 29 U.S.C. 1027, 1059. 55 As one commenter pointed out, maintaining historical versions of covered documents not only is necessary for plan administrators to satisfy their ERISA recordkeeping obligations and this final rule, but may be in plan sponsors’ own interest to the extent they wish to rely on such covered documents in later litigation or enforcement matters. PO 00000 Frm 00015 Fmt 4701 Sfmt 4700 31897 that provides a new method for plan administrators to furnish covered documents to plan participants. Some commenters asked the Department to include standards for the design of the website, such as requiring that information be presented in a simple and direct form, and that the rule should prevent covered individuals from having to click through various levels to find documents. The Department disagrees that any changes to the rule are necessary to manage these concerns. The rule already requires, in paragraph (e)(2)(iii), that covered documents must be presented on the website in a manner calculated to be understood by the average plan participant. Further, the rule requires, in paragraph (d)(3)(i)(D), that a website address or hyperlink must be ‘‘sufficiently specific’’ to provide ready access to a covered document. A link that requires a covered individual to click through an unreasonable number of web pages to find a covered document would not satisfy the standard. The Department also believes that plan administrators and their service providers, rather than the Department, are better equipped to address the technicalities involved in designing websites to disclose required information. Paragraph (e)(3) of the proposal required that the plan administrator take measures reasonably calculated to ensure that the website protects the confidentiality of personal information that could be included in covered documents. The Department explained that given the industry’s increasing reliance on and use of electronic technology, many plans already have secure systems in place to protect covered individuals’ personal information, as is generally required by section 404 of ERISA. The Department requested comments on whether this standard is sufficient to protect covered individuals’ personally identifiable information. Commenters disagreed on the sufficiency of this standard. Some commenters asserted that the proposal adequately addressed information privacy and security concerns and that the approach taken in the proposal, which included a principles-based standard, is preferable to specific standards, requirements, and certifications, which can quickly become obsolete with rapidly-changing technology. Other commenters do not believe the Department sufficiently addressed privacy concerns in the proposal, especially for inactive or unused electronic addresses, which, in the view of some commenters, are likely to result for participants who are E:\FR\FM\27MYR2.SGM 27MYR2 jbell on DSKJLSW7X2PROD with RULES2 31898 Federal Register / Vol. 85, No. 102 / Wednesday, May 27, 2020 / Rules and Regulations assigned an electronic address by their employer. These commenters suggested that the more devices on which the Department allows electronic delivery of information, the more complex security issues become, and that security requirements may need to vary from covered document to covered document. The Department in the final rule has maintained the principles-based standard included in the proposal, agreeing with commenters that efforts to establish specific, technical requirements would be difficult to achieve, given the variety of technologies, software, and data used in the retirement plan marketplace. The commenters requesting more specific standards themselves point to this difficulty, insofar as these issues become more complex as innovations occur and the same standards may not be appropriate for all covered documents, all systems, or in all circumstances. Therefore, the final rule continues to require that the plan administrator, possibly in coordination with plan service providers, take measures reasonably calculated to protect the security and privacy of covered individuals’ information.56 Paragraph (e)(4) of the final rule is new. It was added in response to a range of questions from commenters about what constitutes a ‘‘website’’ for purposes of the safe harbor. In the preamble to the proposed rule, the Department explicitly asked for commenters’ views on whether, and how, the rule should be modified to include other web-based mechanisms, such as messaging and mobile ‘‘apps.’’ Although some commenters recommended a narrow application of the rule to traditional websites accessed with a browser, most commenters on this issue encouraged the Department to broadly define what constitutes a website, or at least to clarify that the term covers any appropriate electronic source for accessing information. These commenters want to ensure that the rule accommodates advances in technology and permits the use of mobile applications, texting, and other internetbased mechanisms and, in some cases, these commenters suggested specific language for the rule or that the Department adopt a good faith or similar standard in the rule to allow plan administrators to use new technology without having to revisit the regulatory 56 Some commenters raised issues regarding liability for security breaches. This safe harbor only establishes an optional method for delivery of covered documents. Issues pertaining to liability for security breaches are beyond the scope of this safe harbor. VerDate Sep<11>2014 18:54 May 26, 2020 Jkt 250001 process. The Department agrees that the rule should more clearly state its inclusion of additional and new technologies, as long as those technologies are not inconsistent with a plan administrator’s ability to satisfy the requirements of the safe harbor. The Department does not want to inhibit innovation in the delivery of required ERISA disclosures, especially as forms of communication improve and expand. Thus, for purposes of the safe harbor, the term ‘‘website’’ means an internet website, or other internet or electronicbased information repository, such as a mobile application, to which covered individuals have been provided reasonable access. (4) Right to Copies of Paper Documents or To Globally Opt Out of Electronic Delivery The Department believes that it is essential that any enhanced use of electronic disclosure permitted under ERISA respects the preferences of covered individuals who want to receive covered documents on paper, mailed or delivered to them. To that end, the proposal contained two safeguards, in paragraph (f), for these covered individuals. The first safeguard, in paragraph (f)(1) of the proposal, provided that upon request from a covered individual, the plan administrator must promptly furnish to such individual, free of charge, a paper copy of a covered document. Commenters overwhelmingly supported protecting covered individuals’ rights to request a free paper copy of a required ERISA disclosure. A few commenters focused on the number of paper copies a covered individual could request, and receive, free of charge. These commenters were concerned about potentially abusive practices in which a covered individual makes several requests for different covered documents. The Department is not persuaded that this is a legitimate concern. The 2002 safe harbor permits paper copies, free of charge, and the Department is unaware of abusive practices of this nature. The final rule allows covered individuals to request more than one covered document pursuant to this provision. For instance, a participant could contact the plan administrator for a participant-directed individual account plan and request paper copies of the plan’s comparative investment chart required by 29 CFR 2550.404a–5(d)(2) as well as a copy of the participant’s most recent quarterly pension benefit statement. In response to commenters concerns about repeated requests for the same version of the covered document, however, paragraph PO 00000 Frm 00016 Fmt 4701 Sfmt 4700 (f)(1) of the final rule clarifies that only one paper copy of any specific covered document must be provided free of charge under this safe harbor. Beyond that, whether the plan charges for additional copies of the same covered document depends on the terms of the particular plan and other applicable provisions of ERISA and regulations thereunder, and is outside the scope of this regulation. A few commenters focused on how quickly plan administrators must respond to requests under the safe harbor. Some suggested time limits for responses, like those adopted by the SEC for shareholder reports, i.e., within three business days.57 The Department is not persuaded that strict time limits are needed. The 2002 safe harbor does not contain time limits for responses and the Department is unaware of harm or exploitation in this area. The safe harbor requirement to respond to requests rests with the ERISA plan administrator. The Department expects that the plan administrator will furnish the copy to the covered individual as soon as reasonably practicable after receiving the request. This overarching standard of reasonableness is sufficient to protect covered individuals’ right to paper. The statute itself also provides a civil enforcement remedy, when appropriate.58 The second safeguard, in paragraph (f)(2) of the proposal, provided covered individuals with the right to opt out of electronic delivery and receive some or all covered documents in paper form. Commenters overwhelmingly supported this provision and, thus, it was adopted with only two minor changes. As proposed, this provision allowed covered individuals to ‘‘globally’’ opt out, in the sense that individuals would be able to opt out of electronic delivery entirely. In addition, the provision granted covered individuals the right to opt out of electronic delivery on a document-by-document, a` la carte basis. Commenters universally supported the right of covered individuals to globally opt out of electronic delivery. Many commenters, however, objected to requiring plan administrators to offer a document-by-document opt-out right. Current recordkeeping systems, they explained, generally apply an ‘‘all or nothing’’ approach to paper versus electronic delivery. An a` la carte system, by contrast, would require difficult and costly system modifications to keep track of paper preferences on a document-by-document basis for each covered individual. Commenters 57 17 58 29 E:\FR\FM\27MYR2.SGM CFR 270.30e–3(e). U.S.C. 1132(c)(1). 27MYR2 jbell on DSKJLSW7X2PROD with RULES2 Federal Register / Vol. 85, No. 102 / Wednesday, May 27, 2020 / Rules and Regulations explained that it is highly atypical for plan administrators to offer a ‘‘pick-andchoose’’ approach to opting out of electronic delivery. It would be rather cumbersome and complicated for plan administrators to track opt-outs participant-by-participant, and document-by-document, over time, they added. In addition, the fact that the rule permits plan administrators to provide a combined annual NOIA for multiple covered documents would exacerbate this problem, and potentially create confusion for covered individuals. For example, the commenters question whether an NOIA would have to include an explanation that a covered individual can opt out for one, more than one, or all of the combined covered documents and a detailed explanation of how to do so for each possible optout variation. Commenters also pointed out that even if the rule were limited to a global opt out, covered individuals under the rule always may request a paper copy of any specific covered document. Thus, according to these commenters, accommodating an a` la carte opt-out right would be burdensome and result in costs that could deter plan administrators from using the safe harbor. At least one comment letter can be interpreted as support for requiring plan administrators to offer a document-bydocument opt out right, in that it identifies practices showing that some participants might prefer a combination of paper and electronic communications. The Department is persuaded that the critical protection for covered individuals is the right to globally opt out of electronic delivery. Therefore, the final rule strikes the phrase ‘‘some or all’’ from paragraph (f)(2), retaining (and making clearer by adding the term ‘‘globally’’) only the global opt-out as a requirement. This global opt-out requirement in paragraph (f)(2) of the final rule is the minimum; plan administrators may offer additional optout election options, such as a document-by-document opt out or one based on categories or classifications of covered documents. For example, some participants might be comfortable knowing that certain documents, such as the SPD, are available on the website, but prefer to receive paper versions of other documents, such as their quarterly pension benefit statements. This provision also was revised to include the words ‘‘free of charge,’’ clarifying that covered individuals may not be charged an opt-out fee. Paragraph (f)(3) of the proposal required that the plan administrator establish and maintain reasonable VerDate Sep<11>2014 18:54 May 26, 2020 Jkt 250001 procedures governing requests or elections under paragraphs (f)(1) and (2) of the safe harbor. This provision also provided that the procedures are not reasonable if they contain any provision, or are administered in a way, that unduly inhibits or hampers the initiation or processing of a request or election. This paragraph is adopted without change in the final rule, although a few commenters raised concerns with this provision. The principal concerns related to the provision’s lack of specificity, lack of prescriptiveness, and level of discretion afforded plan administrators. These commenters were worried that the provision would not adequately protect covered individuals who prefer paper documents, either because plan administrators would establish onerous procedures designed to frustrate requests or because covered individuals would find it difficult to follow such procedures. The suggested solution, according to these commenters, would be the establishment of required, uniform procedures for all plans. Ideas for elements of such procedures included, among other things, mandatory written procedures for tracking opt-outs; and a requirement that plan administrators permit covered individuals to submit opt-out elections either electronically or in writing. These ideas may be perfectly reasonable with respect to certain plans, and the Department does not wish to discourage the establishment of such procedures under this safe harbor. The Department does not believe, however, that it is appropriate to set forth a single set of procedures to govern all requests or elections for all plans, in all circumstances. The general, principlebased approach in paragraph (f)(3) of the final rule provides stringent and protective guardrails to protect covered individuals’ rights, while avoiding the pitfalls of adopting strict one-size-fits-all procedural requirements that must be applied by all plans in all circumstances, and that might inhibit innovation in the implementation of this notice-and-access framework. Finally, the Department finds unpersuasive the assertions that some covered individuals may be unaware of their plan’s procedures for making requests or elections. Paragraph (g) of the final rule, discussed in more detail below, requires these procedures to be set out in writing in an initial paper notice to all individuals to whom the plan administrator intends the safe harbor to apply, before the safe harbor can be used. A couple of commenters also asked for confirmation that paragraph (f)(3) of PO 00000 Frm 00017 Fmt 4701 Sfmt 4700 31899 the safe harbor does not preclude plan administrators from continuing to make online information available to covered individuals who globally opt out of electronic delivery under the safe harbor. One commenter, for example, noted that some plan administrators may post covered documents online and continue to send NOIAs to covered individuals that have decided to opt out of electronic delivery. The safe harbor provides plan administrators with an optional method of furnishing covered documents through electronic media, and paragraph (f)(3) provides a mechanism for individuals to override a plan’s decision and select paper delivery. When an individual makes an election under paragraph (f)(2) of the safe harbor, the plan administrator must return that individual to paper delivery, at which point the conditions of the safe harbor no longer apply with respect to that individual. Once a plan respects the individual’s election and satisfies its obligation to furnish paper documents, the plan may continue to provide online access to covered documents that are available as well. The safe harbor has no effect on optional action in this context by plan administrators. Finally, paragraph (f)(4) of the proposal is adopted in the final rule with one minor change for clarification. This paragraph requires that the system for furnishing the NOIA must be designed to alert the plan administrator of an invalid or inoperable electronic address. If a plan administrator learns of an invalid or inoperable electronic address (e.g., the email is returned as undeliverable or ‘‘bounces back’’ and the problem is not promptly cured), the plan administrator must treat the covered individual as if he or she had elected to opt out of electronic delivery under paragraph (f)(2). One way to cure the problem would be to furnish the NOIA to a valid and operable secondary electronic address that had been provided by the covered individual when alerted of the invalidity or inoperability of the primary electronic address. Another way to cure the problem would be to promptly obtain a new electronic address for the covered individual. Some commenters offered additional remedies for promptly curing an invalid electronic address. The Department agrees that other acceptable cures exist depending on the particular facts and circumstances surrounding an NOIA that cannot be delivered. Regardless of the procedures that a plan administrator implements to cure an invalid electronic address, if the problem is not promptly cured, the deemed election of paper delivery will E:\FR\FM\27MYR2.SGM 27MYR2 jbell on DSKJLSW7X2PROD with RULES2 31900 Federal Register / Vol. 85, No. 102 / Wednesday, May 27, 2020 / Rules and Regulations persist until the plan administrator is able to obtain a valid and operable electronic address for the covered individual. Paragraph (f)(4) is solely a safeguard to ensure that covered individuals actually receive their pension plan disclosures by requiring different treatment of a covered individual when his or her electronic address is invalid or inoperable. As long as the plan administrator is not alerted to such a problem, and the other conditions of the safe harbor are satisfied, the plan administrator is considered to have furnished the covered documents required under Title I of ERISA. This provision does not address issues such as whether a covered individual read, understood, or had actual knowledge of the contents of the covered documents accessed.59 Nor does this provision impose an affirmative obligation on the plan administrator to monitor whether covered individuals visit the specified website or login at the website. Some commenters recommended that paragraph (f)(4) should include additional safeguards, such as a requirement that plan administrators monitor, using electronic tracking tools, whether covered individuals actually receive, open, read, or access online the NOIA or covered documents. These commenters argued that without a monitoring requirement, NOIAs could end up in a spam folder or be buried or otherwise misfiled, resulting in a covered individual never actually accessing a covered document online. A few commenters questioned whether application of the safe harbor would adequately result in covered documents actually being received and whether the conditions of this rule are sufficient to satisfy the general standard for furnishing documents under ERISA. Other commenters strongly opposed the imposition of tracking or monitoring obligations on plan administrators. These commenters did not necessarily challenge the existence of tracking or monitoring technology to learn about participants’ electronic engagement; indeed some commenters pointed to tracking capabilities when citing the benefits of electronic delivery, possibly even correlating to higher deferral rates. Rather, these commenters opposed a tracking or monitoring obligation on the grounds of economic burdens. One commenter, for example, stated that ‘‘requiring employers to ensure that a required document is received and read—when this has not been required for paper documents—would surely 59 See Intel Corp. Inv. Policy Cmte. v. Sulyma, 140 S. Ct. 768 (2020). VerDate Sep<11>2014 18:54 May 26, 2020 Jkt 250001 substantially increase cost, time and liability for plan fiduciaries.’’ In support of this position, they maintained that the safeguards in paragraph (f)(4) of the proposal are reasonably crafted and sufficient to resolve potential electronic delivery failures, and that any additional obligations would be unnecessary and unsupported from a cost-benefit perspective. These commenters also opposed a tracking or monitoring obligation on policy grounds, arguing that it would be inconsistent for the Department to impose a tracking or monitoring requirement on plan administrators using electronic delivery when they currently are unable to determine if individuals open and read paper disclosures sent by U.S. mail. In this regard, they asserted that it would be poor and inconsistent policy to regulate electronic delivery more stringently than traditional paper delivery methods. The Department disagrees that compliance with this final rule, which includes a variety of protections and safeguards for covered individuals, in addition to this paragraph (f)(4), fails to satisfy ERISA’s standard for delivery. The Department does agree, however, that imposition of a monitoring requirement could be very expensive, especially for small plans, to the extent technological systems have to be replaced or altered significantly, or additional, potentially costly, plan services have to be procured. Even the most basic requirement for website monitoring, for example tracking the instances of users visiting a particular page on a website or views of a screen on an app, would require a web analytics tool, according to the commenters. Even for plan administrators that already, as suggested by a few commenters, engage in some level of monitoring, transitioning their systems and procedures to comply with a specific, technical requirement in this safe harbor would not be without some burden and cost. It is unlikely in all cases that the capabilities or functioning of existing monitoring systems would align precisely with a new regulatory requirement. Further, the Department believes that the rule’s protections for covered individuals, not only paragraph (f)(4) but, for example, the clear and timely communication of website activity and paper and opt-out rights to preserve individuals’ delivery preferences, taken together, provide a method of furnishing documents that is more than reasonably calculated to ensure actual receipt of covered documents. Thus, the Department does not see a compelling reason to establish PO 00000 Frm 00018 Fmt 4701 Sfmt 4700 a stricter standard for monitoring covered individuals’ use of disclosures furnished electronically than for paper deliveries. The practical effect of paragraph (f)(4) of the final rule is analogous to the circumstances that arise when a plan is alerted to an invalid physical mailing address when a letter is returned as undeliverable. Of course, this final rule does not prevent plan administrators who already engage in some level of monitoring from continuing to do so. (5) Initial Notification of Default Electronic Delivery and Right To Opt Out Paragraph (g) of the proposal provided that the plan administrator must furnish to each individual, prior to the plan administrator’s reliance on this section with respect to such individual, a notification on paper that some or all covered documents will be furnished electronically to an electronic address, a statement of the right to request and obtain a paper version of a covered document, free of charge, and of the right to opt out of receiving covered documents electronically, and an explanation of how to exercise these rights. The Department is adopting paragraph (g) with a few modifications in response to commenters’ suggestions, which are explained below. The final rule continues to require that each individual with respect to whom a plan administrator intends to rely on the new safe harbor, be furnished a notification, on paper, that some or all of the plan’s covered documents will be furnished electronically to an electronic address. The initial notice, as proposed, also required a statement of the right to request and obtain a paper version of covered documents and of the right to opt out of receiving covered documents electronically, free of charge, and an explanation of how to exercise these rights. The Department continues to believe that it is important for all participants and beneficiaries, who are accustomed to the current ERISA delivery rules, to be notified, on paper, that the plan administrator is adopting a new method of electronic delivery. If the plan administrator does not intend to rely on this new safe harbor for one or more employees, however, the plan administrator does not need to send these employees an initial notification. To illustrate, assume that an existing defined contribution plan covers three participants, only one of whom is covered under the 2002 safe harbor as an employee who is ‘‘wired at work.’’ This plan could take advantage of the new safe harbor for all three E:\FR\FM\27MYR2.SGM 27MYR2 jbell on DSKJLSW7X2PROD with RULES2 Federal Register / Vol. 85, No. 102 / Wednesday, May 27, 2020 / Rules and Regulations participants, in which case each participant would have to be furnished the initial notification, even the employee who is ‘‘wired at work.’’ Alternatively, this plan could take advantage of this safe harbor only with respect to the two participants who are not covered under the 2002 safe harbor, in which case the plan would furnish the initial notification only to these two participants. Many commenters requested an exception to the requirement that the initial notice must be furnished on paper for individuals who already receive disclosures electronically under the 2002 safe harbor. Commenters were concerned that, in this context, participants and beneficiaries who are accustomed to receiving electronic disclosures may be confused by a paper notice, or might ignore it altogether. Some of these commenters suggested that individuals covered by the 2002 safe harbor should not be required to receive an initial notice at all. On the other hand, the Department received comments supporting the requirement that an initial notice must be furnished on paper to all intended covered individuals, without exception. The Department believes that commenters’ concern about potential confusion on the part of individuals receiving an initial notice is speculative at best. Further, even if an individual has been receiving electronic disclosures pursuant to the 2002 safe harbor, the logistics of electronic disclosure likely will work differently under the new safe harbor, for example with respect to the right to globally opt out. Therefore, the Department continues to believe that application of this new safe harbor warrants an initial notification, in paper, advising participants at the outset how covered documents will be furnished and their rights under the new electronic delivery framework and that confusion or other harm is highly unlikely. To that end, a plan administrator may not rely on the 2002 safe harbor to furnish the initial notice electronically to any participant or beneficiary that will be a covered individual under the new safe harbor. A few commenters questioned the sufficiency of providing only one initial notice to warn participants and beneficiaries about the transition from paper to electronic delivery. Commenters made various suggestions, including that the Department require plan administrators to send two such notices before relying on the safe harbor, and that additional notices should be provided annually and at termination of employment. The Department declines to adopt these suggestions. These VerDate Sep<11>2014 18:54 May 26, 2020 Jkt 250001 commenters offered no basis to conclude additional paper notices would be significantly more effective, particularly in light of the additional costs such a requirement would entail. In addition, the Department notes that the initial notice is not the only protection for participants and beneficiaries who will be transitioned to notice-and-access electronic disclosure. The specific purpose of the initial notice is to alert covered individuals to the coming change and of their rights under the new disclosure framework. Covered individuals, however, will continue to be informed of these rights in all future NOIAs. The Department drafted this safe harbor mindful of important periods of transition for covered individuals, not only requiring an initial notice before electronic delivery begins for a particular individual, but also requiring all future NOIAs thereafter to contain similar information, and a special rule to address the time at which covered individuals sever from employment. Although a number of commenters supported the proposed content requirements, without modification, other commenters recommended a variety of additional content requirements for the initial notice required under paragraph (g) of the proposal. For example, commenters suggested that it would benefit covered individuals if the initial notice included instructions for how to access covered documents and the electronic address that will be used to furnish NOIAs under the safe harbor. Commenters point out that a covered individual’s electronic address plays a crucial role under the new safe harbor, especially with respect to situations in which the employer will assign an electronic address (and here, especially if an employer assigned a commercial electronic address, such as a Google email account (or ‘‘gmail.com’’)). Additional suggestions for required content included a list of disclosures the plan intends to provide electronically, a statement that individuals who request paper will be protected from retaliation, the right of individuals to print covered documents at the employer’s office, and a toll-free number to contact the plan for password and other assistance. Although the Department disagrees with the appropriateness and necessity of each item on the broad list of additions offered by these commenters, the Department was persuaded by commenters that the initial notification could be improved, and the transition to electronic delivery made smoother, by requiring certain additional items of information. First, the final rule now PO 00000 Frm 00019 Fmt 4701 Sfmt 4700 31901 provides, in paragraph (g), that plan administrators identify the electronic address that will be used for a particular individual and any instructions necessary to access the covered documents. The Department agrees that it would be helpful for a plan administrator to identify the specific electronic address that will be used to furnish covered documents to a covered individual and that the additional burden, if any, of including this personalized information will be more than offset by the benefit to both the plan administrator and covered individuals of stating, up front, the electronic address that will be used. This requirement will help to identify and rectify potential mistakes for an individual’s preferred electronic address and to clearly identify electronic addresses assigned by the employer. Second, the Department agrees that individuals will benefit from the inclusion of any instructions that will be necessary to access covered documents, for example whether individuals will have to use passwords, download a mobile application, or set up an online account to view secure documents. Third, the Department added to the final rule a requirement that the initial notice include a cautionary statement that the covered document is not required to be available on the website for more than one year; or, if applicable, after it is superseded by a subsequent version of the covered document. This addition is to make sure that covered individuals are put on notice as they transition to a notice-andaccess disclosure framework that covered documents may not be available online indefinitely. The Department did not adopt, as requirements, any of the other content suggested by commenters; the Department notes, however, that the content requirements for initial notices in the final rule, unlike for NOIAs, are not limiting. As long as additional content on the initial notice is relevant and not inaccurate or misleading, plan administrators may personalize and further enhance the initial notice to better communicate the plan’s transition to electronic disclosure under the safe harbor. Finally, the Department added one additional, non-content, requirement to paragraph (g), that the initial notice must be written in a manner calculated to be understood by the average plan participant; this change is intended merely to confirm that the initial notice must satisfy the same general readability standard as the NOIA and other required ERISA disclosures. E:\FR\FM\27MYR2.SGM 27MYR2 31902 Federal Register / Vol. 85, No. 102 / Wednesday, May 27, 2020 / Rules and Regulations One commenter raised an issue with respect to the prominence of the initial notification required by paragraph (g) of the proposal. This commenter was concerned that initial notifications might be packaged or combined with other disclosures, including non-ERISA employment materials, distributed during the onboarding process and that newly hired individuals might lose track of them. This commenter requested that the final rule include a requirement that an initial notice be furnished alone and not, for example, with enrollment or other materials. Others disagreed with this commenter and believed that initial notices should be contained in plan enrollment materials, or for instance in a new employee packet or with other onboarding human resource documents. The Department understands the concerns of the former commenter, but believes it may be impractical to mandate that the initial notice be furnished alone. The Department agrees with the latter commenter that it makes common sense for plan administrators to distribute initial notices with standard enrollment materials. It is customary for plan administrators to consolidate or package different documents or disclosures into a single enrollment package for organizational purposes and for the sake of efficiency. The requirement in paragraph (g) that the initial notification be in writing is sufficient protection against the possibility that covered individuals will overlook such notices. Accordingly, no change to paragraph (g) of the proposal is made in response to this comment. jbell on DSKJLSW7X2PROD with RULES2 (6) Special Rule for Severance From Employment With Plan Sponsor Paragraph (h) of the final rule continues, as proposed, to include a special requirement for plan administrators who wish to use the safe harbor for furnishing ERISA pension plan disclosures to employees who have severed from employment.60 As explained in the proposal, this special rule focuses on circumstances when there is a heightened concern about the accuracy of electronic contact information in connection with an 60 As explained in the preamble to the proposal, the phrase ‘‘severance from employment’’ in paragraph (h) is intended to have its ordinary meaning. A severance from employment occurs when an employee dies, retires, is dismissed, or otherwise terminates employment with the employer that maintains the plan, including when the employee continues on the same job for a different employer as a result of a liquidation, merger, consolidation or other similar corporate transaction. Whether a severance from employment has occurred is determined based on the facts and circumstances of the particular situation. VerDate Sep<11>2014 18:54 May 26, 2020 Jkt 250001 employee’s severance from employment. As proposed, paragraph (h) provided that, at the time a covered individual who is an employee severs from employment with the employer, the plan administrator must take measures reasonably calculated to ensure the continued accuracy of the electronic address described in paragraph (b) of the rule or to obtain a new electronic address that enables receipt of covered documents following the employee’s severance from service. Many commenters suggested eliminating this provision in its entirety, arguing that it is unnecessary and duplicative, because paragraph (f) of the proposal, which required a plan administrator to take curative steps if the electronic address of a covered individual becomes invalid or inoperable (i.e., the ‘‘bounce back’’ provision) will remedy problems with electronic addresses of former employees. The Department intends to ensure a seamless transition for the dissemination of ERISA pension plan information when an employee leaves employment. And as such, the Department disagrees that paragraph (f) will address every circumstance in which an electronic address becomes inoperable or no longer associated with a covered employee who severs from employment. For example, emails sent to employer-provided email addresses of employees who have severed employment will not necessarily bounce back in a timely fashion, or ever, as would be necessary to give the plan administrator time to furnish documents within applicable timeframes. As a result, the Department is retaining the ‘‘severance from employment’’ rule, subject to a few revisions. Other commenters recommended limiting the rule to severing employees who are receiving covered documents through an employer-provided electronic address, not a personal electronic address. These commenters argued that a special provision for severance is necessary only for employees who have an employerassigned electronic address. If the electronic address being used by a terminated employee is not one that has been assigned by their employer, these commenters argued, there is no obvious reason that the address would cease to be valid or used by the individual merely because of cessation of employment. That is not the case with employer-provided addresses, which are likely to cease working at termination of employment or at some point thereafter, either because the employer deletes the email account or the severing employee no longer uses or has access to the PO 00000 Frm 00020 Fmt 4701 Sfmt 4700 employer-provided email account. The Department agrees that the special severance provision is not necessary when a personal electronic address is being used to provide covered documents to a covered individual. Therefore, the Department has revised paragraph (h) to read as follows: ‘‘At the time a covered individual who is an employee, and for whom an electronic address assigned by an employer pursuant to paragraph (b) of this section is used to furnish covered documents, severs from employment with the employer, the plan administrator must take measures reasonably calculated to ensure the continued accuracy and availability of such electronic address or to obtain a new electronic address that enables receipt of covered documents following the individual’s severance from employment.’’ This revision also addresses concerns raised by representatives of multiemployer plans. These representatives stated that the Department should adjust paragraph (h) to better reflect and accommodate the experiences of individuals covered by a multiemployer plan, who may work for multiple different employers in the same year, if not the same month. These representatives also stated that it is not typically the case that employees are provided email addresses through their employers in the multiemployer sector and that those multiemployer plans who do deliver notices electronically, do not typically use employer-provided emails. Thus, this revision in practice will usually exclude plan administrators of multiemployer plans from the requirements of paragraph (h) of the final rule. The special rule for ‘‘severance from employment’’ requires a plan administrator to take measures reasonably calculated to ensure the continued accuracy of the electronic address following a severance from employment, or to obtain a new address that enables receipt of covered documents following the severance. Many commenters requested clarification on what types of procedures would constitute such reasonable measures. One commenter suggested that the Department should require plan administrators to furnish, on paper, an additional, posttermination notice, with content similar to the NOIA. Covered individuals terminating their employment should already be familiar with their plan’s notice-and-access framework for delivery, so the Department disagrees that the rule should include an additional notice requirement at termination. Requiring another notice, E:\FR\FM\27MYR2.SGM 27MYR2 Federal Register / Vol. 85, No. 102 / Wednesday, May 27, 2020 / Rules and Regulations especially in paper form, would increase the costs of compliance with the safe harbor overall, and, in the Department’s view, unnecessarily. Employees separating from service are sufficiently protected under this provision to the extent the rule requires plan administrators to have procedures in place to ensure they have a correct electronic address to which notices will be furnished. As an example, procedures that include requesting and receiving an updated personal email address for future notifications as part of a company’s standard off-boarding process ordinarily would be sufficient to meet this standard. If these measures fail, the participant or beneficiary is no longer a ‘‘covered individual’’ under paragraph (b) of the final rule. (7) Special Rule for Annual Combined Notices of Internet Availability Although the proposal generally required, in paragraph (d)(1), that a plan administrator furnish an NOIA for each covered document, a special rule in paragraph (i) of the proposal allowed a plan administrator to furnish one annual combined NOIA (combined NOIA), subject to the timing requirements in paragraph (d)(2), that incorporates or combines the content required by paragraph (d)(3) with respect to one or more of a subset of covered documents. These documents included, as applicable (1) a SPD; (2) a SMM; (3) a summary annual report (SAR); (4) an annual funding notice; (5) an investment-related disclosure under 29 CFR 2550.404a–5(d); (6) a QDIA notice; and (7) a pension benefit statement. The Department proposed a special rule for these covered documents because they represent the most common and recurring disclosures that are made to pension plan participants, and are triggered by no event other than the passage of time.61 The Department excluded other required ERISA disclosures from this special rule, because, for example, they are event-specific disclosures and might communicate information that requires or invites specific and timely action on jbell on DSKJLSW7X2PROD with RULES2 61 The proposal included the SMM even though it does not technically fit under the passage-of-time descriptor. An SMM’s timing requirement sets it apart from, and warrants different treatment than, other event-triggering disclosures, the timing for which more closely corresponds to the particular event. See 29 CFR 2520.104b–3(a) (requiring the plan administrator to furnish the SMM ‘‘not later than 210 days after the close of the plan year in which the modification or change was adopted’’). In response to negative commentary on its inclusion in this paragraph, the SMM is excluded from the special rule in paragraph (i) of the final rule. Despite this exclusion, the SMM remains a covered document and may be furnished under the safe harbor, but it must have its own NOIA. VerDate Sep<11>2014 18:54 May 26, 2020 Jkt 250001 behalf of a participant or beneficiary. The special rule excluded contingent or irregular documents that are furnished based on an individual transaction or plan-status basis, or that are not regularly furnished to participants and beneficiaries. For example, a participant who receives notice of a blackout period, as required by ERISA section 101(i), may consider changing their investment directions and, if so, must do so within the timeline specified. Similarly, a participant who receives notice of an adverse benefit claim determination, as required by ERISA section 503(1), may wish to appeal or take other action following such determination, in which case they similarly must act within defined periods of time. In either example, the timing of the annual combined NOIA may not align with, and may even post date, the timing of the specific act required or invited by the covered document. Additional examples include a qualified domestic relations order determination under ERISA section 206(d)(3)(G)(i)(II), and a notice of failure to meet minimum funding standards under ERISA section 101(d). In short, the Department excluded documents that it believes do not lend themselves, primarily because of their timing, irregularity, or requirement of potentially timely action by a covered individual, to a framework that permits combination into one annual NOIA. The Department solicited comments on whether, and why, the subset of covered documents eligible for paragraph (i) should be expanded or narrowed, and the criteria that would justify an expansion or narrowing. In addition, the Department asked for commenters’ views on whether, instead of an explicit list of the covered documents to which paragraph (i) applies, any final safe harbor should adopt a principles-based or categorical approach, describing the type or nature of covered documents that may be combined. Paragraph (d)(2), as proposed, required that a combined NOIA for more than one covered document under paragraph (i) be furnished at least once each plan year, and, if the combined NOIA was used for the prior plan year, no more than 14 months following the prior year’s notice. The Department intended this combined NOIA to be an annual disclosure; to provide flexibility to plan administrators and avoid potential compliance issues associated with a strict 12-month standard, however, the proposal provided that an ‘‘annual’’ combined NOIA may be furnished up to 14 months following the prior ‘‘annual’’ combined NOIA. Commenters did not object to the timing PO 00000 Frm 00021 Fmt 4701 Sfmt 4700 31903 standard for this notice, and paragraph (d)(2) has been adopted as proposed to provide for this ‘‘annual’’ combined NOIA. The special rule in paragraph (i) of the proposal elicited a large number of comments. Some of the commenters opposed paragraph (i) and argued that permitting consolidation is insufficient because it fails to provide notice to participants about important documents that are due at different times. Without an NOIA each time a document is posted online, these commenters worry that covered individuals will have no reason to go to the website. One commenter pointed out that the very documents that may be consolidated are the documents that are most critical to covered individuals understanding their most basic retirement plan rights and benefits. Another commenter asserted that this concern is heightened for covered individuals in a participantdirected individual account plan who would receive only one notice per year that covers all four of their quarterly pension benefit statements. This commenter argued that this framework may not, as a legal matter, constitute adequate ‘‘furnishing’’ of the quarterly pension benefit statements. Further, since the cost of sending an NOIA by email, for example, is or should be insignificant, argued one commenter, plans will realize very little savings under the proposed special rule. Other commenters, however, not only supported the consolidation of notices permitted by paragraph (i) of the proposal, but in some cases requested that the Department expand the consolidation permitted for the final rule to include additional disclosures. Commenters offered a variety of suggestions, including any information that must be furnished annually (e.g., the general plan information required by paragraph (c) of the Department’s 404a– 5 participant-level fee disclosure regulation 62) or any covered documents that would be furnished at the same time, such as disclosures based on plan events.63 Several commenters also 62 29 CFR 2550.404a–5, ‘‘Fiduciary requirements for disclosure in participant-directed individual account plans’’ (Oct. 20, 2010). 63 For example, one commenter suggested if a plan administrator changes investment providers, a required blackout notice, pursuant to 29 CFR 2520.101–3, and the disclosure of changes to plan investment options, pursuant to 29 CFR 2550.404a– 5(c)(1)(ii), should be permitted to be announced in a combined NOIA. The Department did not accept this suggestion. The final safe harbor’s special rule generally is intended to apply to routine disclosures that are furnished on a regular basis and that do not invite action in response to the disclosure. The blackout notice and disclosure of changes to plan investment options do not satisfy these criteria; in E:\FR\FM\27MYR2.SGM Continued 27MYR2 jbell on DSKJLSW7X2PROD with RULES2 31904 Federal Register / Vol. 85, No. 102 / Wednesday, May 27, 2020 / Rules and Regulations requested inclusion of specified planrelated notices required by the Internal Revenue Code, such as the Code automatic contribution arrangement notices that currently may be furnished with the Department’s QDIA notice.64 Other commenters responded favorably to the concept of a principlesbased category of documents that may be consolidated, beyond the seven included in the proposal, and that might be flexible enough to accommodate future disclosure requirements. A different commenter argued that a principles-based standard for covered documents that may be consolidated is not workable, because plan administrators may interpret the language differently creating unnecessary confusion, including for covered individuals. Commenters also disagreed on whether plan administrators should be able to consolidate notices of more than one plan when offered by a plan sponsor and asked for clarification on this point. In this connection, the Department notes that the final rule applies to ‘‘an’’ employee benefit plan, and its requirements must be satisfied with respect to each such plan, even if sponsored by the same employer. Allowing covered documents for more than one plan to be included on a combined NOIA could create confusion for covered individuals and would result in an even longer, less concise notice, especially to the extent notices for multiple covered documents for each plan already may be consolidated. Paragraph (i) of the final rule is appreciably different than the paragraph as proposed, based on the Department’s reevaluation of the combined NOIA concept in light of commenters’ many ideas and points of view. Paragraph (i) continues to provide that plan administrators can furnish one annual NOIA that incorporates or combines the content required by paragraph (d)(3) of the rule with respect to more than one document. As opposed to the proposed list of seven covered documents, though, the group of documents for which a single annual combined NOIA is permitted has been revised. As revised, paragraph (i) of the final rule permits one annual combined NOIA that incorporates the content required by paragraph (d)(3) with respect to four categories of documents and information. The first category is the SPD, as required pursuant to section the Department’s view these disclosures warrant separate notice. 64 See Code sections 401(k)(13)(E), 414(w)(4), and 401(k)(12)(D); see also FAB 2008–03 as to furnishing the Code notices with the Department’s QDIA notice. VerDate Sep<11>2014 18:54 May 26, 2020 Jkt 250001 104(a) of ERISA. The second category is any covered document or information that must be furnished annually, rather than upon the occurrence of a particular event, and does not require action by a covered individual by a particular deadline. The third category is any covered document, not in the first and second categories, if authorized in writing by the Secretary of Labor, by regulation or otherwise, in compliance with section 110 of ERISA. The fourth category is any applicable notice required by the Code if authorized in writing by the Secretary of the Treasury. Paragraph (i)(1) of the final rule deals with the first category of permissible documents, which consists solely of the SPD. The Department finds that the SPD lends itself to inclusion on an annual, combined NOIA, especially because its inclusion generally will remind covered individuals as to its availability more often than it otherwise would have to be furnished. Most commenters supported inclusion of this document. Paragraph (i)(2) of the final rule deals with the second category of permissible documents and information. This category includes certain annual disclosures meeting certain conditions. Rather than listing the covered documents, however, the final rule describes this category as ‘‘any covered document or information that must be furnished annually, rather than upon the occurrence of a particular event, and that does not require action by a covered individual by a particular deadline.’’ The NOIA for any covered document meeting this description may be consolidated onto an annual combined NOIA. This category includes many of the covered documents that were listed in the proposal, for example, an SAR, an annual funding notice, a QDIA notice, an annual (but not quarterly) pension benefit statement, and annual investment-related information required by paragraph (d)(2) of the Department’s § 2550.404a–5 regulation. In response to public comments, this new category also includes information that must be furnished annually to comply with paragraph (c) of the 404a–5 regulation, for example the general plan information in paragraph (c)(1)(i) or the description of fees for plan administrative services in paragraph (c)(2)(i)(A). Paragraph (i)(3) of the final rule deals with the third category of permissible documents. This category includes any covered document ‘‘if authorized in writing by the Secretary of Labor, by regulation or otherwise, in compliance with section 110 of the Act.’’ This category is intended to provide the Department with flexibility to PO 00000 Frm 00022 Fmt 4701 Sfmt 4700 accommodate additional or future covered documents that do not fit in the second category in paragraph (i)(2), but that may be beneficial to include, for example to reduce administrative burdens on plans and improve the effectiveness of disclosures to covered individuals.65 The fourth category, in paragraph (i)(4) of the final rule, deals with applicable notices required by the Internal Revenue Code if authorized in writing by the Secretary of the Treasury. This category was added in response to the many commenters who requested a safe harbor that aligns with the Treasury Department’s electronic media regulation for applicable notices at 26 CFR 1.401(a)–21(c), especially for disclosing Code automatic contribution arrangement notices and ERISA QDIA notices. Unlike the proposal, the special rule no longer permits an annual NOIA to cover quarterly benefit statements within the meaning of section 105(a)(1)(A)(i) of ERISA. The Department was persuaded by commenters that an annual NOIA, for example furnished on January 15 of a given year, may be insufficient to adequately alert covered individuals as to the availability of subsequent benefit statements furnished later in that same year, for example, on April 15, July 15, and October 15. That view was not unanimous among the commenters, however, with many commenters suggesting that a single annual notice of availability is likely a very common practice, if not the norm, for plan administrators relying on FAB 2006–03. Given the lack of consensus among the commenters, and the Department’s concern that an annual NOIA may not effectively promote covered individuals’ access to and review of covered documents that will not be posted until months later, it makes sense to treat these recurring covered documents differently than other recurring documents. Accordingly, a separate NOIA must be furnished for each of 65 Section 110 of ERISA permits the Secretary to prescribe for pension plans alternative methods of complying with any of the reporting and disclosure requirements if the Secretary finds that (1) The use of the alternative method is consistent with the purposes of Title I of ERISA, provides adequate disclosure to plan participants and beneficiaries, and provides adequate reporting to the Secretary; (2) application of the statutory reporting and disclosure requirements would increase costs to the plan or impose unreasonable administrative burdens with respect to the operation of the plan; and (3) the application of the statutory reporting and disclosure requirements would be adverse to the interests of plan participants in the aggregate. Section 110 provides both procedural and substantive requirements that the Department incorporates by reference. E:\FR\FM\27MYR2.SGM 27MYR2 Federal Register / Vol. 85, No. 102 / Wednesday, May 27, 2020 / Rules and Regulations jbell on DSKJLSW7X2PROD with RULES2 these covered documents. The Department intends, however, to give further consideration to this issue in the future, and reserves the ability to take action pursuant to paragraph (i)(3) of the final rule, discussed above. (8) Reasonable Procedures for Compliance The Department included a provision in the proposal to ensure that plan administrators would not violate their disclosure obligations under ERISA when, for a variety of reasons beyond the control of the plan administrator, there may be temporary interruptions in the availability of covered documents on a website. Paragraph (j) of the proposal explained that, if certain requirements are satisfied, the conditions of the safe harbor are also satisfied, notwithstanding the fact that covered documents are temporarily unavailable for a period of time in the manner required by § 2520.104b–31 due to unforeseeable events or circumstances beyond the control of the plan administrator. The plan administrator must have reasonable procedures in place to ensure that the covered documents are available in the manner required by § 2520.104b–31. In the event that covered documents are temporarily unavailable, the plan administrator must take prompt action to ensure that the documents become available in the manner required by § 2520.104b–31 as soon as practicable following the earlier of the time at which the plan administrator knows or reasonably should know that the documents are temporarily unavailable. Commenters generally agreed that, by including this relief from potential liability, the Department fairly recognized the practical reality of temporary technical disruptions in modern times while at the same time including sufficiently rigorous standards to make sure that, as a general matter, important ERISA information is available to participants and beneficiaries when they need it. A few commenters nonetheless made practical suggestions relating to the circumstances under which this relief should be triggered, and for how long the relief should be available. One commenter pointed out that covered documents also may periodically be offline for technical maintenance, upgrades, or similar activities to maintain or improve the website. The Department agrees that plan administrators should not fail the safe harbor during such times, and added the concept of ‘‘technical maintenance’’ to paragraph (j) to address these reasonable situations in which systems staff and VerDate Sep<11>2014 18:54 May 26, 2020 Jkt 250001 other providers perform tasks necessary to maintain and improve the website on which covered documents are posted. These situations for the most part will be foreseeable, however, so plan administrators should take care to ensure that resulting service disruptions are reasonable. Another commenter suggested that the Department include a more specific parameter for how long the documents may be ‘‘temporarily’’ unavailable; for example, what if the problems occur during a blackout or similarly critical timeframe? The Department agrees that consideration should be given to facts and circumstances surrounding failure and that covered documents may be unavailable for only a ‘‘reasonable’’ period of time. The final rule has been modified accordingly. (9) Direct Delivery Via Electronic Mail In response to a considerable amount of commentary on the proposal, the Department is persuaded that the proposed framework for disclosure would be enhanced by allowing the delivery of covered documents to covered individuals via email, with the covered document attached, in addition to allowing plan administrators to furnish covered documents on an internet website. As proposed, the safe harbor required that covered documents be posted on a website; the proposal did not specifically provide for (and its requirements did not accommodate), for example, the furnishing of an email to a covered individual that includes an attached PDF or similar version of a covered document. Providing covered individuals with an email that includes an attached covered document is, however, functionally similar to providing covered individuals with an email that includes a website link to a covered document. For the reasons discussed below, the Department has decided that direct delivery will provide covered individuals with comparable access to covered documents. A large number of commenters asked the Department to clarify, in the final rule, that the safe harbor also applies to the direct furnishing of documents in electronic form. These commenters believe the rule would be improved if plan administrators are not limited to sending to covered individuals an email with a website address or a hyperlink to a covered document that is posted on a website, but instead could also send an email to covered individuals with covered documents in the body of or as an attachment to the email. Commenters believe that this form of delivery is equally effective, and, for some individuals, perhaps preferable to PO 00000 Frm 00023 Fmt 4701 Sfmt 4700 31905 hyperlinks and website postings. In fact, even commenters who generally oppose electronic disclosure as a default, nonetheless argue that directly sending covered documents is preferable to, and more protective than, a notice-andaccess framework. According to these commenters, direct delivery is preferable because website access may require multiple steps (logons, passwords, opening hyperlinks, etc.) which, in their opinion, could result in a burdensome process that some individuals may not pursue. A significant benefit of direct delivery is immediate access to covered documents, while avoiding accessibility issues such as firewalls and forgotten passwords. Further, some plan administrators also may want to provide electronic delivery but cannot support, or have logistical concerns with supporting, a website. The Department is persuaded by the broad range of commenters supporting the direct delivery of covered documents. Therefore, the final rule includes a new provision, in paragraph (k), which allows plan administrators to furnish covered documents directly to covered individuals using email, in contrast to the proposal, which permitted emails to covered individuals with links to covered documents. As explained below, although it is set forth in paragraph (k), the direct delivery provision relies on cross-references to other provisions of the final rule to ensure that it maintains the applicable requirements and protections of the notice-and-access framework.66 The Department believes that this new provision better addresses commenters’ requests for a direct delivery alternative, while ensuring that there are sufficient safeguards and other requirements necessary for application of the final rule when a plan administrator prefers delivery by email of the actual covered documents (as opposed to delivery by email of hyperlinks to a website that includes the covered documents). Paragraph (k) provides that, notwithstanding any other provision of the safe harbor, a plan administrator will satisfy ERISA’s general furnishing obligation by using an email address to furnish a covered document to a covered individual provided that the 66 The final rule’s website accessibility, maintenance, and other requirements do not apply to direct delivery by email. Paragraph (k) does, however, incorporate the relevant substantive requirements of paragraph (d), as well as the requirements of paragraphs (f), (g) (except the cautionary statement), and (h). Paragraph (k)(3) also includes formatting and searchability requirements similar to those imposed by paragraph (e). These cross-references are discussed in greater detail in this section. E:\FR\FM\27MYR2.SGM 27MYR2 jbell on DSKJLSW7X2PROD with RULES2 31906 Federal Register / Vol. 85, No. 102 / Wednesday, May 27, 2020 / Rules and Regulations requirements of paragraph (k) are satisfied. Although an electronic address for purposes of defining a ‘‘covered individual’’ in paragraph (b) of the rule is broader, for example encompassing mobile telephone numbers, paragraph (k) is limited to delivery to an electronic address that is an email address. Specifically, paragraph (k)(1) requires that the covered document be sent to a covered individual’s email address no later than the date on which the covered document must be furnished under ERISA. Paragraph (k)(2) clarifies that, because the covered document will be furnished directly, the plan administrator does not need to comply with paragraph (d) and send an NOIA. Rather, the plan administrator must send an email that (i) includes the covered document in the body of the email or as an attachment; (ii) includes a subject line that reads: ‘‘Disclosure About Your Retirement Plan’’; (iii) includes the information described in paragraph (d)(3)(i)(C) if the covered document is an attachment (identification or brief description of the covered document), paragraph (d)(3)(i)(E) (statement of right to paper copy of covered document), paragraph (d)(3)(i)(F) (statement of right to opt out of electronic delivery), and paragraph (d)(3)(i)(G) (a telephone number); and (iv) complies with paragraph (d)(4)(iv) (relating to readability). Paragraph (k)(2) ensures that the substantive information required by paragraph (d) is provided in a clear manner to those covered individuals who receive disclosures directly under paragraph (k). Similar to paragraph (e)’s requirements for covered documents posted on a website, paragraph (k)(3) requires that the covered document be (i) written in a manner reasonably calculated to be understood by the average plan participant; (ii) presented in a widely-available format or formats that are suitable to be read online, printed clearly on paper, and permanently retained in electronic format that satisfies the preceding requirements in this sentence; and (iii) searchable electronically by number, letters, or words. Finally, paragraph (k)(4) mandates that the plan administrator (i) take measures reasonably calculated to protect the confidentiality of personal information relating to the covered individual; and (ii) comply with paragraphs (f) (relating to copies of paper documents or the right to opt out); (g) (relating to the initial notification of default electronic delivery), except for the cautionary statement; and (h) (relating to severance VerDate Sep<11>2014 18:54 May 26, 2020 Jkt 250001 from employment) of the rule. Administrators who use direct email delivery pursuant to paragraph (k) are not required to include the cautionary statement required in paragraph (g) (i.e., a statement that the covered 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 of the covered document), because plan administrators who use paragraph (k) are not required to maintain a website that would retain the covered documents that are delivered directly via email. The Department notes that because this method of delivery does not require that plan administrators furnish an NOIA, the corresponding provision of the rule in paragraph (i) does not apply either. Paragraph (i), discussed above, allows the combination of content of certain covered documents on one, annual NOIA. The Department anticipates that, although the annual NOIA concept does not apply when covered documents are delivered directly, plan administrators may wonder whether more than one covered document can be attached to one email, especially for annually required or other covered documents that the plan administrator wishes to send at the same time. Plan administrators should apply the same standard in this case that would apply if documents were to be furnished on paper. In some cases documents must be furnished separately, the required timing for different documents does not align, or the content of a particular document may not be combined with other documents. But the Department often permits plan administrators to furnish required disclosures at the same time (e.g., in the same envelope, the ‘‘envelope rule’’). In that case, plan administrators may treat the email to the covered individual as the ‘‘envelope’’ and attach more than one document, as would otherwise be permitted. (10) Dates; Severability The Department proposed in paragraph (k)(1) of the rule that the new alternative method for disclosure through electronic media, as finalized, would be effective 60 days following publication of a final rule in the Federal Register. The proposal included a separate applicability date in paragraph (k)(2), providing that the new safe harbor would apply to employee benefit plans on the first day of the first calendar year following the publication of the final rule in the Federal Register. The Department requested comments on the extent to which this applicability date should be sooner, given that the PO 00000 Frm 00024 Fmt 4701 Sfmt 4700 provision is optional, or later, if necessary to safeguard plan participants and beneficiaries from potential harm if plan administrators rely on the safe harbor too soon. Nearly all commenters on this provision asked the Department to allow plan administrators to rely on the safe harbor as soon as possible. Further, since publication of the proposal, governments, industries, and workers globally have had to respond to the coronavirus disease 2019 (COVID–19) outbreak, which President Donald J. Trump declared a National Emergency on March 13, 2020. The ability of plan administrators to use this rule will greatly assist employers, workers, and the retirement plan industry in managing the effects of COVID–19. Specifically, enhanced electronic delivery will immediately alleviate some of the current disclosure-related problems being reported by a great many retirement plans. Many retirement plan representatives and their service providers, for example, have indicated to the Department that they are experiencing increased difficulties and, in some cases, an inability to furnish ERISA disclosures in paper form. The reported problems, which are likely to persist for the foreseeable future, include temporary or permanent closure of printing and mailing centers, and disruptions in paper supply chains, among others. The infrastructure necessary to deliver information electronically in this country, however, remains largely intact. Given that it is a safe harbor, and that plan administrators must be in compliance with all requirements before relying on the safe harbor, there is no harm, and considerable benefits, associated with moving up the applicability date, especially for employers and plan service providers as they work toward economic recovery from COVID–19. To the extent reliance on the rule results in cost savings and other benefits, the Department should not delay these benefits. Commenters on the proposal suggested that the rule be applicable on the same day that the final rule becomes effective: Sixty days after its publication in the Federal Register. Only one commenter explicitly requested a delay in the application of the safe harbor, suggesting that a more appropriate timeline would be January 1 of the second year, rather than the first year, following the final rule’s publication. The Department is persuaded that there is no sound reason to delay the anticipated benefits of this rule, especially because it is a safe harbor, rather than a requirement, and it has E:\FR\FM\27MYR2.SGM 27MYR2 Federal Register / Vol. 85, No. 102 / Wednesday, May 27, 2020 / Rules and Regulations jbell on DSKJLSW7X2PROD with RULES2 now been revised based on rigorous analysis and thoughtful stakeholder input to ensure that it adequately addresses appropriate policy goals and concerns. Therefore, the Department has aligned the effective and applicability dates to be 60 days following today’s publication in the Federal Register. This has been done in paragraph (l)(1), rather than paragraph (k), due to the addition of a new provision in paragraph (k). Further, although the rule is not effective or applicable until 60 days after its publication, the Department, as an enforcement policy, will not take any enforcement action against a plan administrator that relies on this safe harbor before that date. The Department’s decision to provide this non-enforcement policy supports the Federal government’s broader effort to respond to COVID–19. The Department understands the far-reaching effects of COVID–19, and the non-enforcement policy provides flexibility and may reduce administrative burden on employers and pension plan service providers during this unprecedented time. The final rule also includes, in paragraph (l)(2), a severability provision, which provides that if any provision in the final rule is found to be invalid or unenforceable by its terms, or as applied to any person or circumstance, or stayed pending further agency action, such provision shall be severable and the remaining portions of the rule would remain operative and available to plan administrators. Thus, if a federal court were to find a specific provision, for example one of the NOIA content requirements, to be legally insufficient, then the remaining content requirements of the NOIA would remain applicable and in place. (11) Changing Recordkeepers Several commenters representing recordkeepers and plan administrators raised questions about whether and how certain provisions of the final rule would apply when a plan changes its recordkeeper, plan administrator, or both. For example, a number of commenters asked whether the safe harbor allows a new recordkeeper to rely on a list of electronic addresses and opt-out elections that are transferred from the old recordkeeper, or whether the new recordkeeper must independently solicit or verify electronic addresses and furnish new initial notifications under paragraph (g) of the rule. Correspondingly, would covered individuals have to resubmit an opt-out request? Commenters also asked whether a plan’s safe harbor status is lost if there are changes in business VerDate Sep<11>2014 18:54 May 26, 2020 Jkt 250001 structure (e.g., mergers, consolidations, closings, acquisitions) of the plan sponsor, plan administrator, or plan recordkeeper, in any case resulting in a new recordkeeper. These commenters requested guidance on how plan administrators and other plan fiduciaries could navigate these issues under ERISA and maintain compliance with the new safe harbor. A change in recordkeeper or plan administrator is a rather common and very fact-specific event that may raise a variety of issues under ERISA, including record retention, fiduciary, reporting, and disclosure issues, that are generally beyond the scope of this safe harbor regulation, which addresses only a plan administrator’s obligation under ERISA to furnish required disclosures. This becomes apparent when one considers that these questions apply upon a change in recordkeepers regardless of whether the disclosures are furnished to a physical address (in paper copy) or to an electronic address (in electronic copy). The same ERISA fiduciary obligations that apply when changing recordkeepers responsible for furnishing paper disclosures will apply when changing recordkeepers responsible for furnishing electronic disclosures. Accordingly, the Department in this document declines to render an opinion on the impact that changing a recordkeeper or plan administrator could have, as a general matter, on the status of a plan under ERISA and the safe harbor. Nothing in this safe harbor, however, prohibits a plan administrator from relying on the safe harbor in circumstances when the plan’s recordkeeper transfers accumulated lists of electronic addresses and opt-out elections to a successor recordkeeper. This makes sense because changing a recordkeeper would seem to have little or no effect on the validity or operability of a covered individual’s electronic address, in much the same way that changing recordkeepers would have no effect on a participant’s physical mailing address or other contact information. To the contrary, it is the Department’s belief that confusion to covered individuals, as well as economic inefficiencies, are likely results if participants lose their status as covered individuals, resulting in a return to paper delivery, solely because of the plan’s decision to change its recordkeeper.67 Similarly, the 67 The Department nonetheless cautions that, to the extent a plan administrator changes the plan’s recordkeeper based on incompetence, negligence, or fraud on the part of the current recordkeeper, a plan administrator (or other responsible plan fiduciary supervising the change in recordkeeper) may, as a fiduciary matter, have to intervene and take PO 00000 Frm 00025 Fmt 4701 Sfmt 4700 31907 Department is of the general view that, to the extent a plan participant or beneficiary is a ‘‘covered individual’’ who already is receiving disclosures electronically pursuant to the safe harbor (and therefore already received an initial notice and is accustomed to the notice-and-access delivery method permitted by this safe harbor), a new initial notice is not necessary. (12) Transition Issues (i) Delay in Superseding Prior Subregulatory Guidance Although the 2002 safe harbor remains in effect, the Department occasionally has issued guidance in limited circumstances allowing, as a non-enforcement policy or otherwise, the use of electronic delivery methods other than the 2002 safe harbor. In the preamble to the proposed rule, the Department stated that although the new safe harbor would have no impact on the current electronic delivery rule at 29 CFR 2520.104b–1(c), the new safe harbor would, if finalized, supersede the relevant portions of this prior interpretive guidance. Specifically, the relevant documents are FAB 2006–03, FAB 2008–03 (Q&A 7), and Technical Release 2011–03R (Dec. 8, 2011) (TR 2011–03R).68 The Department issued FAB 2006–03 to help plan administrators comply with amendments to ERISA’s pension benefit statement requirements made by the Pension Protection Act of 2006. In relevant part, FAB 2006–03 provides that plan administrators may satisfy their obligation to furnish pension benefit statements by providing continuous access to benefit statement information through one or more secure websites. FAB 2006–03 included a variety of conditions, including notification to participants and beneficiaries explaining how to access their statements online. FAB 2008–03 later provided interpretive guidance on the Department’s final QDIA regulation, which includes an initial and annual notice requirement. The QDIA notice may be combined with the Code’s notice requirement for automatic contribution arrangements in Code sections 401(k)(13)(E) and 414(w)(4). This FAB 2008–03 allows plan administrators that wish to furnish QDIA notices electronically to rely on either the Department’s 2002 safe harbor or the Treasury Department’s rule at 26 CFR 1.401(a)–21(c), relating to use of reasonable steps to ensure that the transfer of all plan records (not limited to electronic addresses and opt-out records for purposes of this safe harbor) adheres to the duties set forth in ERISA section 404. 68 84 FR 56894, at 56900, footnote 60. E:\FR\FM\27MYR2.SGM 27MYR2 jbell on DSKJLSW7X2PROD with RULES2 31908 Federal Register / Vol. 85, No. 102 / Wednesday, May 27, 2020 / Rules and Regulations electronic media. Finally, TR 2011–03R sets forth an interim enforcement policy regarding the use of electronic media to satisfy the disclosure requirements under 29 CFR 2550.404a–5, the participant-level disclosure regulation. TR 2011–03R allows plan administrators to furnish this information through electronic media (including through a continuous access website) if participants voluntarily provide an email address and other conditions are satisfied. Many commenters objected to the Department’s statement that this prior guidance would be superseded. They argued that the Department should codify and permanently preserve the guidance to avoid unnecessary disruptions to systems already in place in reliance on such guidance. Further, commenters urged, if the Department is not willing to codify and permanently preserve the guidance, then the Department should, at a minimum, provide a transition period during which plan administrators could continue to rely on this prior guidance, while they adjust to the terms of the new safe harbor. A transition period would provide more time for plan administrators and plan service providers to make necessary systems and other changes and thereby reduce the costs and administrative burden that would result from having to do so immediately. The Department disagrees that this prior guidance should be maintained permanently. In the interest of creating uniformity in the delivery of ERISA disclosures electronically, the Department believes that, rather than a piecemeal approach permitting different standards for different documents in a variety of subregulatory documents, a sounder approach is to require that, over time, plan administrators who wish to disclose information electronically follow a consistent standard. The final rule is intended to be such a standard, which, unlike the prior guidance, benefits from the regulatory process in which the Department engaged, including public notice and comment. The Department is persuaded, however, that it may be unnecessarily disruptive and costly, as well as harmful, or at least confusing, to participants and beneficiaries, if established disclosure procedures are suddenly invalid as of the applicability date of the final rule. The Department agrees with commenters that a reasonable transition period, during which plan administrators may continue to rely on prior guidance as they make necessary system changes and acquire electronic addresses to comply with the final rule, VerDate Sep<11>2014 18:54 May 26, 2020 Jkt 250001 is appropriate. Accordingly, for 18 months following the effective date of this final rule, plan administrators may continue to rely on the guidance set forth above. Thereafter, the relevant portions of such guidance are superseded. Commenters suggested transition periods generally ranging from one to two years. It makes sense that a transition period should be greater than one year, because many plan and participant communication cycles are annual; allowing one full communication cycle will enable plan administrators to rely on their general communication cycle to solicit electronic addresses from plan participants and beneficiaries. An 18month extension accommodates this cycle and adds a reasonable cushion for unanticipated events. The Department will take no enforcement action against plan administrators who comply with the requirements of such guidance to satisfy their delivery obligations for the specified disclosures during this transition period. (ii) Electronic Addresses Obtained Prior to the Effective Date of This Final Rule Some commenters raised an additional issue as to whether and how plan administrators may use electronic addresses already in the plan’s possession before transitioning to the new safe harbor. These commenters explained that plan administrators and sponsors in many cases already have extensive lists of email addresses, which they have compiled over time for various employment-related reasons and in the normal course of business operations. These addresses most likely were provided to the plan administrator or sponsor directly by the employee, or assigned by the plan administrator or sponsor for employment purposes. However, prior to this new safe harbor, plan sponsors and administrators have had no reason, at least in the context of ERISA disclosure requirements, to document the precise source of any particular electronic address. Commenters were concerned that paragraph (b) of the proposal, which required that an electronic address be provided by the individual, would prevent plan administrators from using such electronic addresses if they do not have records that definitively indicate where or from whom the plan obtained the electronic address. These commenters asked whether a plan administrator may treat electronic addresses already obtained as having been provided by the participant, beneficiary, or other individual entitled to covered documents for purposes of treating such person as a covered PO 00000 Frm 00026 Fmt 4701 Sfmt 4700 individual under the safe harbor, even in the absence of documentation that such previously attained address was, in fact, provided by such person to the employer, plan sponsor, or plan administrator. The requirement in paragraph (b) of the final rule is intended to prevent plan administrators from obtaining and using unreliable electronic addresses from sources that are too far removed from the covered individual. The Department nonetheless appreciates the concern raised by commenters as to the potential challenge of verifying the source of electronic addresses that a plan administrator already has in a plan’s records. For transition purposes, therefore, a plan administrator may rely on these electronic addresses, provided that the plan administrator acts reasonably, in good faith, and otherwise complies with the requirements of the safe harbor. This includes compliance with the new provision in paragraph (g) of the final rule, which requires the initial notice to identify the electronic address to which NOIAs (or emails pursuant to paragraph (k)) will be furnished under the safe harbor. The plan administrator also would have to comply with the protections in paragraph (f)(4) of the safe harbor, which require a system to alert the plan administrator of an invalid or inoperable electronic address. Absent compliance with these provisions, the Department has less assurance of the reliability of the electronic addresses at issue, in which case the Department may have a different view about relying on such addresses. Under these circumstances, and only as a transition matter, a plan administrator may rely on a preexisting list of electronic addresses that is in existence on the effective date of this final rule. A plan administrator would not satisfy the good faith condition of this transition policy with respect to the use of any particular electronic address from such a list if the plan administrator has reason to know that such address is or may be invalid, inoperable, or obtained from a person or entity other than the participant, beneficiary, or employer, or acquired outside of the employment context in which the plan exists. For example, many commercial entities with diversified lines of business and affiliations serve as recordkeepers and plan administrators, within the meaning of section 3(16) of ERISA, for multiple retirement plans. These entities may acquire an electronic address for a person, who is plan participant, in the routine course of a business transaction unrelated to his or her retirement plan participation. The person for instance E:\FR\FM\27MYR2.SGM 27MYR2 Federal Register / Vol. 85, No. 102 / Wednesday, May 27, 2020 / Rules and Regulations jbell on DSKJLSW7X2PROD with RULES2 may have purchased an investment or insurance product in his or her personal capacity. Although the address may be valid and operable, it was not provided to the entity in the entity’s capacity as a plan administrator under section 3(16) of ERISA. Therefore, this address may not be used under this transition policy. Commenters also explained that these commercial entities sometimes use one or more locator services or technologies to find and obtain electronic addresses for individuals. Although addresses located through these services may be valid and operable, they were obtained from a person other than the participant, beneficiary, or employer, and perhaps without the participant’s knowledge. In these examples, the electronic addresses were obtained in a manner or from a source that is too far removed from the covered individual and the employment relationship to be sufficiently reliable for use under the safe harbor. C. E-SIGN Act For the reasons discussed below, covered documents for purposes of this final rule are exempt from the consumer consent requirements of the Electronic Signatures in Global and National Commerce Act, Public Law 106–229 (114 Stat. 464) (2000) (E-SIGN Act), and this rule provides an alternative method of complying with the requirement that covered documents be furnished in writing. Section 101(c) of the E-SIGN Act sets forth special protections that apply when a statute, regulation, or other rule of law requires that information relating to a transaction be provided or made available to a consumer in writing. Section 101(e) of the E-SIGN Act provides that if a statute, regulation, or other rule of law requires that a contract or other record relating to a transaction in or affecting interstate or foreign commerce be in writing, the legal effect, validity, or enforceability of an electronic record of the contract or other record may be denied if the contract or other record is not in a form that is capable of being retained and accurately reproduced for later reference by all parties or persons who are entitled to retain the contract or other record. Under section 104(d)(1) of the E-SIGN Act, a federal regulatory agency may exempt, without condition, a specified category or type of record from the consumer consent requirements in section 101(c) if the exemption is necessary to eliminate a substantial burden on electronic commerce and will not increase the material risk of harm to consumers. The final rule published today is an alternative method of compliance which would satisfy section VerDate Sep<11>2014 18:54 May 26, 2020 Jkt 250001 104(d)(1) of the E-SIGN Act and, in accordance with section 104 of the ESIGN Act, the Department has determined that there is substantial justification for this regulatory exemption from the consent requirements of the E-SIGN Act because the rule is necessary to eliminate a substantial burden on electronic commerce and the rule will not pose a material risk of harm to consumers. In the preamble to the proposed rule, the Department requested comments as to whether there are additional, or different, steps it could take to ensure that these proposal was consistent with the requirements of section 104(d)(1) of the E-SIGN Act. The Department stated that it was particularly interested in receiving comments that provided suggestions or evidence related to whether the proposed rules would (or would not) impose unreasonable costs on the acceptance and use of electronic records. The Department did not receive substantive commentary on these questions in response to the proposed rule. The Department has determined that this final rule will not require (or accord greater legal status, or effect to) the use of any specific technology and that the rule is exempt from the consent requirements of the E-SIGN Act. D. Regulatory Impact Analysis (1) Relevant Executive Orders for Regulatory Impact Analyses Executive Orders 12866 69 and 13563 70 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects; distributive impacts; and equity). Executive Order 13563 emphasizes the importance of quantifying costs and benefits, reducing costs, harmonizing rules, and promoting flexibility. Under Executive Order 12866, ‘‘significant’’ regulatory actions are subject to review by the Office of Management and Budget (OMB). Section 3(f) of the Executive Order defines a ‘‘significant regulatory action’’ as any regulatory action that is likely to result in a rule that may: (1) Have an annual effect on the economy of $100 million or more or adversely and materially affect a sector of the economy, productivity, competition, jobs, the environment, 69 Regulatory Planning and Review, 58 FR 51735 (Oct. 4, 1993). 70 Improving Regulation and Regulatory Review, 76 FR 3821 (Jan. 21, 2011). PO 00000 Frm 00027 Fmt 4701 Sfmt 4700 31909 public health or safety, or state, local, or tribal governments or communities (also referred to as ‘‘economically significant’’); (2) Create a serious inconsistency or otherwise interfere with an action taken or planned by another agency; (3) Materially alter the budgetary impacts of entitlement grants, user fees, or loan programs or the rights and obligations of recipients thereof; or (4) Raise novel legal or policy issues arising out of legal mandates, the President’s priorities, or the principles set forth in the Executive Order. The Department anticipates that this final regulatory action will likely have economic impacts of $100 million or more in any one year, and therefore meets the definition of an ‘‘economically significant rule’’ within the meaning of section 3(f)(1) of Executive Order 12866. Therefore, the Department has provided an assessment of the potential benefits, costs, and transfers associated with this final rule. In accordance with Executive Order 12866, this final rule was reviewed by OMB. Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.), OIRA has designated this rule as a ‘‘major rule,’’ as defined by 5 U.S.C. 804(2). (2) Need for Regulatory Action Technology has changed substantially since the Department first published the 2002 safe harbor.71 Broadband and wireless networks have expanded. More people rely on email. Servers and personal computers have improved. Smartphones, tablets, and other mobile devices have become predominant modes of communication. In 2003, one year after the existing safe harbor was established, approximately 62 percent of households had one or more computers.72 In 2016, about 89 percent of households had a computer, smartphone, or tablet.73 The share of U.S. adults who own a smartphone increased from 35 percent in 2011 to 81 percent in 2019.74 The share of households with internet access at home also increased, from 55 percent in 2003 75 to 82 percent in 2016.76 71 29 CFR 2520.104b–1(c) (2002). Cheeseman Day, Alex Janus, and Jessica Davis, Computer and Internet Use in the United States: 2003, U.S. Department of Commerce, Economics and Statistics Administration, U.S. Census Bureau (2005). 73 Camille Ryan, Computer and Internet Use in the United States: 2016, American Community Survey Reports, ACS–39, U.S. Census Bureau, August 2018. 74 Monica Anderson, Mobile Technology and Home Broadband 2019, Pew Research Center (June 13, 2019). 75 See Cheeseman Day et al., supra note 72. 76 See Ryan, supra note 73. 72 Jennifer E:\FR\FM\27MYR2.SGM 27MYR2 jbell on DSKJLSW7X2PROD with RULES2 31910 Federal Register / Vol. 85, No. 102 / Wednesday, May 27, 2020 / Rules and Regulations Consumers use the internet, smartphones, and other electronic devices for a wide range of activities, including for conducting financial transactions. According to a 2018 survey, a majority of banked households used electronic banking services. Slightly fewer than two-thirds accessed their accounts online in the past 12 months, and about two in five accessed their accounts through their mobile phones.77 The most common mobile banking activities were checking emails from banks (44 percent) and checking account balances or recent transactions online (35 percent). As technological capabilities, internet access, and internet use have increased, other government agencies have issued rules encouraging wider use of electronic disclosure. The Social Security Administration no longer sends paper statements to most workers. Instead, workers register on the Administration’s website for a ‘‘my Social Security’’ account to access their statements.78 The TSP uses paperless delivery as the default for its quarterly statements.79 Annual TSP statements are available both on a website and delivered by mail unless an individual requests only electronic annual statements. TSP reported that electronic paperless delivery saved about $7 to $8 million in 2006.80 On October 20, 2006, the Treasury Department and the IRS published 26 CFR 1.401(a)–21, setting forth standards for electronic notices and participant elections with respect to retirement plans and similar employee benefit arrangements.81 Similarly, the SEC has issued several regulations on electronic disclosure.82 The ERISA Advisory Council has, over the years, recommended improving the 2002 safe harbor. The Council’s 2017 report recommended a move toward electronic delivery.83 Electronic delivery, according to the report, is more helpful to participants and reduces disclosure costs.84 The Council’s 2009 report recommended that the Department adopt electronic disclosure regulations more aligned with 26 CFR 1.401(a)–21(c).85 The Government Accountability Office (GAO) has also made recommendations to the Department. In 2013, GAO recommended that SPDs and SMMs be posted on continuous access websites.86 GAO also recommended adding ‘‘clear, simple, brief highlights’’ of required disclosures.87 GAO noted that ‘‘the quantity of information diminishes the positive effects.’’ 88 On August 31, 2018, President Trump’s Executive Order 13847 89 instructed the Department to make retirement plan disclosures required under ERISA more understandable and useful for participants, while reducing the costs and burdens imposed on plan sponsors. The Executive Order also directed the Department to explore increasing electronic disclosures, to improve their effectiveness and reduce costs and burdens. In October 2019, the Department responded to Executive Order 13847 by publishing a proposed rule to establish an alternative electronic disclosure safe harbor. The proposed rule does not 77 2017 FDIC National Survey of Unbanked and Underbanked Households, Federal Deposit Insurance Corporation, October 2018, https:// www.fdic.gov/householdsurvey/. 78 See Frequently Asked Questions, Social Security Administration, https://faq.ssa.gov/en-us/ Topic/article/KA-01741. The Social Security Administration does, however, mail paper social security statements to workers age 60 and older if they do not receive social security benefits and they have not yet set up a ‘‘my social security’’ account. 79 5 CFR 1640.6 (2003) (‘‘The TSP will furnish the information described in this part to participants by making it available on the TSP website. A participant can request paper copies of that information from the TSP by calling the ThriftLine, submitting a request through the TSP website, or by writing to the TSP record keeper’’). See also Federal Thrift Savings Plan: Customer Service Practices Adopted by Private Sector Plan Managers Should Be Considered, U.S. Government Accountability Office, GAO–05–38, Jan. 2005, at 12, n. 21, http:// www.gao.gov/new.items/d0538.pdf (providing statistics on cost savings experience with TSP). 80 See Minutes of the Meeting of the Board Members, Federal Retirement Thrift Investment Board (Feb. 20, 2007), https://www.frtib.gov/ MeetingMinutes/2007/2007Feb.pdf. 81 Use of Electronic Media for Providing Employee Benefit Notices and Making Employee Benefit Elections and Consents, 71 FR 61877 (Oct. 20, 2006). 82 E.g., Optional Internet Availability of Investment Company Shareholder Reports, 83 FR 29158 (June 22, 2018); Internet Availability of Proxy Materials, 72 FR 4148 (Jan. 29, 2007); and Updated Disclosure Requirements and Summary Prospectus for Variable Annuity and Variable Life Insurance Contracts, Investment Company Act Release No. 33814 (Mar. 11, 2020). 83 Mandated Disclosure for Retirement Plans— Enhancing Effectiveness for Participants and Sponsors, ERISA Advisory Council on Employee Welfare and Pension Benefit Plans, Nov. 2017, at 34, https://www.dol.gov/sites/dolgov/files/EBSA/ about-ebsa/about-us/erisa-advisory-council/2017mandated-disclosure-for-retirement-plans.pdf. 84 Id. at 17. 85 Advisory Council Report on Promoting Retirement Literacy and Security by Streamlining Disclosures to Participants and Beneficiaries, ERISA Advisory Council on Employee Welfare and Pension Benefit Plans, 2009, https://www.dol.gov/ agencies/ebsa/about-ebsa/about-us/erisa-advisorycouncil/2009-promoting-retirement-literacy-andsecurity-by-streamlining-disclosures-toparticipants-and-beneficiaries. 86 Private Pensions: Clarity of Required Reports and Disclosures Could Be Improved, Government Accountability Office, GAO–14–92, Nov. 2013, at 40, https://www.gao.gov/assets/660/659211.pdf. 87 Id. at 41. 88 Id. at 29. 89 83 FR 45321 (Aug. 31, 2018). VerDate Sep<11>2014 18:54 May 26, 2020 Jkt 250001 PO 00000 Frm 00028 Fmt 4701 Sfmt 4700 disturb the Department’s 2002 safe harbor for electronic delivery. According to the Private Pension Plan Bulletin, there were approximately 710,000 private retirement plans, with over 137 million participants in 2017.90 Many participants were already receiving disclosures electronically under the Department’s 2002 safe harbor for electronic delivery. Under the Department’s new rule, plan administrators will have still more flexibility to electronically deliver covered documents, either by furnishing an NOIA directing participants to a website, or by furnishing covered documents directly by email. (3) Impacts The Department expects the final rule to increase electronic delivery and save money by reducing the production and mailing costs associated with paper disclosures. The Department estimates that it costs plans approximately $514 million annually to mail seven specific disclosures.91 The Department estimates that switching to electronic disclosures will likely save plans $419 million in the first year. Such savings would be partly offset by the estimated $232 million plans may pay to maintain websites, prepare NOIAs, and produce and distribute initial notifications. These added costs bring net savings to $187 million, a 36 percent reduction from the current $514 million burden. In the second year, net savings increase to $338 million, a 66 percent reduction. Over 10 years, the new rule saves approximately $3.2 billion net, annualized to $371 million per year 90 Private Pension Plan Bulletin, Abstract of 2017 Form 5500 Annual Reports, Employee Benefits Security Administration, September 2019, at 2, https://www.dol.gov/sites/dolgov/files/EBSA/ researchers/statistics/retirement-bulletins/privatepension-plan-bulletins-abstract-2017.pdf. 91 Pursuant to paragraph (i) of the proposed rule, seven disclosures could be included in a single annual combined NOIA. Those seven disclosures were the SPD, SMM, SAR, annual funding notice, 404(a)(5)/404(c) disclosure, annual QDIA notice, and pension benefit statement. In response to public comments, however, the Department revised paragraph (i) in the final rule. As a result, some of these seven disclosures can be no longer included in a single annual NOIA. For example, a single annual combined NOIA does not include a SMM and a quarterly pension benefit statement. Despite this change in the final rule, for the purposes of estimating cost savings associated with this new safe harbor, the Department included all seven disclosures because all these seven disclosures can still be delivered electronically, just not with one single annual combined NOIA. In its burden estimates, the Department accounted for the fact that some plan administrators will email NOIAs multiple times per year under the final rule instead of emailing one single annual combined NOIA, as would have been permitted under the proposal. The Department updated these burden estimates using 2019 wage rates and 2017 retirement plan-related data. E:\FR\FM\27MYR2.SGM 27MYR2 Federal Register / Vol. 85, No. 102 / Wednesday, May 27, 2020 / Rules and Regulations (using a 3 percent discount rate).92 Using a perpetual time horizon (to allow the comparisons required under E.O. 13771), the annualized cost savings in 2016 dollars are $319 million at a 7 percent discount rate.93 Since long-term projections are inherently uncertain, however, the Department cautions against relying on the perpetual annualized cost savings estimate for purposes other than the required analyses under E.O. 13771. The fast pace of technological innovation makes it especially difficult to project cost savings into the distant future. jbell on DSKJLSW7X2PROD with RULES2 (i) 10-Year Cost Saving Projection The Department based its projections on two assumptions: (1) The number of participants will grow at 0.5 percent per year; 94 and (2) the percentage of participants opting out of the default electronic delivery system will gradually decrease, from 18.5 percent to 7.5 percent, over the 10-year period.95 The Department’s 10-year projection may overstate cost savings because the number of participants receiving electronic disclosures could increase on its own under the 2002 safe harbor, even without this final rule. Similarly, plans could cut costs related to producing and mailing paper disclosures even without this final rule. On the other hand, the Department’s 10-year projection may understate savings if there are a smaller than assumed number of electronic 92 The net cost savings will be an estimated $2.6 billion over 10-year period, annualized to $365 million per year, if a 7 percent discount rate is applied. 93 The cost savings in years 11 and beyond are estimated using the same methodology as for years 1 to 10, which is explained in the following section. 94 The U.S. Bureau of Labor Statistics projects that total employment will grow at 0.5 percent annually from 2018 to 2028. Based on this projection, the Department assumes that the total number of participants will also increase at 0.5 percent each year. See Kevin S. Dubina, Teresa L. Morisi, Michael Rieley, and Andrea B. Wagoner, Projection overview and highlights, 2018–2028, Monthly Labor Review, U.S. Bureau of Labor Statistics, October 2019, https://www.bls.gov/opub/mlr/2019/article/ pdf/projections-overview-and-highlights-201828.pdf. 95 The Department assumes that approximately 18 percent of participants currently receiving disclosures by mail will opt out of default electronic delivery in the first year and 16.2 percent will opt out in the second year. The Department projects the opt-out rates will decrease gradually at rates consistent with exponential decay function, a * b(t¥1), where a is the initial opt-out rate, 18 percent, t is year, and b is the decay rate, 0.9 (= 16.2/18). The Department further projects that in the 10th year, only 7 percent of participants currently receiving paper disclosures by mail will continue to do so. Then the Department made an additional adjustment by adding 0.5 percentage point annually to account for the requirement in paragraph (f)(4) of the final rule regarding invalid or inoperable electronic addresses for covered individuals. For more detailed discussion, see Quantified Costs, below. VerDate Sep<11>2014 18:54 May 26, 2020 Jkt 250001 delivery failures for NOIAs over time, as plan administrators develop and maintain the most up-to-date lists of covered individuals’ electronic addresses. (The Department based its current projection on the assumption that the rates of undelivered NOIAs will remain constant over the 10-year period.) If undelivered NOIAs decrease, production and mailing costs for covered documents will decrease and net cost savings will increase over the 10-year period. These cost savings may indirectly benefit covered individuals, as they may defray plan expenses and lower direct or indirect participant fees. (ii) Cost Savings The Department’s cost savings estimates understate the potential savings generated from this final rule, because they account for the production and mailing costs of only seven covered documents.96 The seven documents are among the most costly because they affect a lot of plans and plans must provide them to participants regularly.97 But the final rule will cover other pension documents, such as blackout notices, which are provided irregularly because they are triggered by certain events. The cost savings associated with these disclosures is relatively small because they affect far fewer plans and individuals. For that reason, the Department estimated cost savings using only the seven regularly distributed, covered documents. If all covered documents are included, the cost savings generated by the final rule will likely be larger. In estimating cost savings, the Department assumes that slightly more than half (56 percent) of disclosures are already delivered electronically under the 2002 safe harbor.98 According to one commenter, 40 to 50 percent of participants receive disclosures electronically, likely from plans relying on the Department’s 2002 safe harbor. One service provider reported 62 percent of participants elected electronic delivery in 2018.99 Another 96 The seven covered documents are the SPD, SMM, SAR, annual funding notice, 404(a)(5)/404(c) disclosure, annual QDIA notice, and pension benefit statement. 97 Out of these seven disclosures, all but one (pension benefit statement) have associated information collection requests under the Paperwork Reduction Act. To estimate cost savings attributable to this final rule, the Department estimated the current cost burden associated with pension benefits statements, although it is not a part of the Department’s information collection inventory. 98 This is consistent with the assumption used for information collections. 99 Default Electronic Delivery Works: Evidence of Improved Participant Outcomes form Electronic Delivery of Retirement Plan Documents, Quantria PO 00000 Frm 00029 Fmt 4701 Sfmt 4700 31911 commenter reported 58 percent of defined contribution (DC) plan participants accessed plan information, including legal notices, electronically. For its cost savings estimate, the Department used the same methodology it uses to estimate the cost of distributing printed disclosures for information collections subject to the Paperwork Reduction Act.100 Preparation costs generally include costs required to develop the content and format of disclosures. Distribution costs generally include materials, printing, and mailing costs as well as burden hours associated with providing disclosures to participants and beneficiaries. The Department’s estimates assume that preparation costs will be unchanged by the final rule, because the rule does not change the content disclosures. (iii) Quantified Costs While the Department expects the final rule to reduce costs associated with distributing covered disclosures, these savings are partly offset by costs related to the following requirements: (1) Furnishing the NOIA (paragraph (d) of the final rule); (2) Providing the website for covered individuals to access covered documents (paragraph (e) of the final rule); and (3) Distributing the initial notifications of default electronic delivery and right to opt out in paper to each individual before he or she becomes a covered individual (paragraph (g) of the final rule). The Department assumes plans will incur one-time start-up costs to develop the NOIA and initial notifications. Such costs include ensuring the notifications comply with final regulatory requirements. The Department also assumes that costs for distributing NOIAs will be modest, because they may be distributed electronically. However, the initial notification of default electronic delivery and right to opt out would impose production and mailing costs. Plans that rely on the new email alternative, permitted under paragraph (k) of the rule, will email disclosures to participants rather than furnishing NOIAs. Certain types of plans will furnish NOIAs more often than other plan types, as required under Strategies, prepared for The SPARK Institute, November 2019, at 25, https:// www.sparkinstitute.org/wp-content/uploads/2019/ 12/SPARK-Institute-Default-Electronic-DeliveryWorks.pdf. 100 The distribution costs were estimated using the most recent data available, including updated 2019 wage rates and 2017 retirement-plan related data. E:\FR\FM\27MYR2.SGM 27MYR2 jbell on DSKJLSW7X2PROD with RULES2 31912 Federal Register / Vol. 85, No. 102 / Wednesday, May 27, 2020 / Rules and Regulations paragraph (i) of the rule. For example, participant-directed DC plans must provide NOIAs more often than non participant-directed DC plans, because they must notify participants quarterly rather than annually. The initial notification and right to opt out is a transitional notice that informs participants who are existing employees of changes in default delivery system to electronic delivery.101 Administrators must furnish this notice in paper form to each person before they become a covered individual. The notice informs them that covered documents will be furnished electronically, that they have the right to request paper copies of the covered documents free of charge, and how they may exercise such rights. The Department anticipates that most plans will rely on this final rule, delivering covered documents electronically to participants who were not eligible under the existing safe harbor without disrupting the current electronic delivery system under the Department’s 2002 safe harbor. Thus, plans are mostly likely to furnish initial notices to those participants who currently receive disclosures by mail. Retirement plans will incur one-time costs to develop and design an initial notice. Because the final rule clearly describes the specific information required of this notice, the Department expects initial costs to be modest, about $40 million on aggregate assuming all retirement plans decide to rely on this final alternative.102 The Department estimates that approximately 60 million retirement plan participants received the covered documents by mail in 2017.103 These participants could potentially receive the initial notice from their plan administrators. Assuming a one-page notice is mailed to these 60 million participants, the Department estimates the costs of distributing and mailing the initial notice will be about $97 million.104 Therefore, the Department estimates that retirement plans will incur approximately $138 million in one-time costs to develop and mail the initial notice. In subsequent years, the Department estimates that retirement plans will incur approximately $12 million each year to deliver the initial notice to new hires.105 Paragraph (g) of the final rule provides that the initial notice must identify the recipient’s electronic address where NOIAs are to be delivered. Although this revision requires personalization of the notice, the Department does not expect this change to significantly impact costs because many plan administrators already incorporate this process as common business practice.106 Paragraph (e) of the final rule requires plan administrators to ensure the existence of a website at which plan participants can access covered disclosures. In the proposed rule, the Department assumed this requirement would impose modest one-time costs. However, the Department was particularly concerned about burdening small plans and so solicited comments regarding the fraction of plans, particularly small plans, that would need to develop or modify a website. One commenter claimed that small plans have websites and not burdened by the proposed ‘‘notice and access’’ approach. However, another commenter suggested that small plans are less likely to have their own websites. A different commenter suggested that the impacts of paragraph (e) would vary by types of plans and that the vast majority of participant-directed DC plans already have access to or actively maintain a website, while many defined benefit plans or nonparticipant-directed DC plans may not.107 101 For newly hired employees, the Department assumes they will receive the notice required by paragraph (g) of the final rule in their new employee packets; thus, employers will incur only negligible costs in subsequent years. 102 The Department estimates that attorneys will take approximately 296,000 hours to develop and review the initial notice. Assuming an hourly rate of $138.41 for in-house attorneys, the Department estimates developing the initial notice will cost approximately $41 million (295,636 hours * $138.41). Then $41 million is discounted at three percent, which leads to $40 million. 103 Information collection requests associated with the SPD, SMM, SAR, and 404(a)(5)/404(c) disclosures assume that approximately 56 percent of participants electronically receive those disclosures from plans that rely on the 2002 safe harbor. According to the 2017 Private Pension Bulletin, there are approximately 137 million participants. Therefore, the Department estimates that approximately 60 million participants (44 percent of 137 million) receive disclosures by mail. 104 This estimate is based on $36 million mailing costs (approximately 60 million notices * $0.60) and $64 million production costs, assuming an hourly rate of $64.11 for in-house mailing clerks (approximately 998,000 hours * $64.11). Then $36 million mailing costs and $64 million preparation costs are discounted at three percent, which lead to $35 million and $62 million respectively. 105 According to the Current Population Survey (CPS) in 2018, approximately 16.8 percent of wage and salary workers aged 25 or older stayed with their current employers for a year or less. Based on this information, the Department estimates approximately 13 million workers will receive the initial notice each year as new hires. 106 Because it contains personally identifiable information, such as email address, the Department assumes employers will mail notice in a sealed letter rather than a postcard, even though a postcard is a less expensive option. 107 According to a commenter, this is because 29 CFR 2550.404a–5 currently requires that participant-directed individual account plans VerDate Sep<11>2014 18:54 May 26, 2020 Jkt 250001 PO 00000 Frm 00030 Fmt 4701 Sfmt 4700 According to a recent poll of plan sponsors, the majority already have websites, in-house (70 percent) or via service providers (62.5 percent), and many have both.108 One study suggests that approximately 18 percent of profit sharing and 401(k) plans did not provide any services via internet in 2017.109 Based on these comments and study, the Department estimates that approximately 25,000 plans currently do not have, directly or indirectly through a plan service provider, a website where they can post the covered documents.110 Although approximately 25,000 plans do not currently have a website, the Department expects the impact of paragraph (e) of the final rule to be minimal, in part, because paragraph (k) of the final rule allows plans to furnish covered documents by email. Commenters recommended the direct delivery approach in paragraph (k) for a number of reasons, one being that plans may not currently have a website.111 The Department assumes plans that do not have a website for posting the covered documents will most likely email the covered documents directly. The direct delivery option will likely ease the burden on small plans, as they are less likely to have, or have access to, a website. However, paragraph (k) of the final rule is still subject to the requirements of paragraph (f)(4) of the maintain a website to provide certain information to participants and beneficiaries. Defined benefit and nonparticipant-directed DC plans are not subject to 29 CFR 2550.404a–5. 108 Plan Sponsor Council of America (PSCA) conducted a poll to plan sponsors in November 2019 to obtain the plan sponsors’ perspectives on the proposed rule and received responses from 56 plan sponsors. 109 61st Annual Survey, Reflecting 2017 Plan Experience, Plan Sponsor Council of America, 2018. (In this survey, plan sponsors were asked to indicate if any services—enrollment, plan inquiries, contribution changes, balance inquiries, investment changes, loans, hardship distribution, retirement distributions, or no services—were provided to participants via internet. Responding to this question, about 18 percent of plan sponsors indicated they did not provide any services to participants through the internet. The Department used this as a proxy for plans that do not have a website.) 110 According to Private Pension Plan Bulletin 2017, there were over 143,000 defined benefit plans and nonparticipant-directed defined contribution plans. Applying an assumption of 18 percent, the Department estimates approximately 25,984 (143,558 * 0.181) plans currently lack websites. This estimate may understate the total number of plans that lack websites because the PSCA study examined profit-sharing plans and 401(k) plans. As discussed, most 401(k) plans are expected to have their own websites. Therefore, the fraction of defined benefit plans and nonparticipant-directed DC plans that lack websites would be likely higher than 18 percent. 111 The direct delivery provision in paragraph (k) is not subject to the website standards in paragraph (e) of the safe harbor. E:\FR\FM\27MYR2.SGM 27MYR2 31913 Federal Register / Vol. 85, No. 102 / Wednesday, May 27, 2020 / Rules and Regulations final rule, pertaining to invalid or inoperable electronic addresses. Therefore, plans that do not have software to detect invalid or inoperable electronic addresses will likely incur costs to add such software. Paragraph (e)(2)(ii) of the final regulation establishes how long covered documents must remain on a website. It generally requires covered documents to remain on the website for at least one year.112 Once a covered document is posted on a website, the Department assumes that the storage cost of retaining such document on the website is nominal.113 The Department requires plan administrators to include a cautionary statement in the NOIA relating to how long the covered document is required to be available on the website. The Department expects this statement can benefit both participants and plan administrators. The statement will encourage participants to download covered documents while they are available on the website rather than contacting plan administrators to request them. Plan administrators will benefit because they will likely receive fewer document requests. Paragraph (f)(4) of the final rule requires plan administrators to take certain actions when alerted that a covered individual’s electronic address has become invalid or inoperable. For example, if an NOIA is returned as undeliverable, the plan administrator must try to locate the correct address. Accordingly, plans may incur costs to detect invalid or inoperable electronic addresses and update them. If an accurate electronic address cannot be found, plan administrators may treat those covered individuals as if they opted out of electronic disclosure and furnish their documents via mail. To meet the requirements of paragraph (f)(4), plan administrators may purchase software to detect the validity and operability of electronic addresses. The Department invited comments about such costs and received none. The Department assumes that, while most plans already have such features built into their current electronic delivery systems, slightly less than 26,000 plans will purchase software to comply with the provision.114 The Department estimates these costs will run approximately $8.8 million per year.115 The Department assumes that before mailing out covered documents to the recipients of an undelivered NOIA, plan administrators will attempt to resolve issues that are relatively easy to fix, such as redelivering bounced emails or reaching out to covered individuals to update electronic addresses. Plan administrators may treat covered individuals who are more difficult to locate, such as those who have separated from service, as having opted out of electronic delivery. Although the Department acknowledges that plan administrators may spend time attempting to correct failed delivery, as provided in paragraph (f)(4) of the proposal, it does not have sufficient data to quantify associated costs. The Department assumes, however, that plan administrators will likely select the least costly and most efficient option. Therefore, the Department assumes that plan administrators will mail documents when unable to locate a covered participant’s electronic address. For this regulatory impact analysis, the Department assumes that the requirement to remediate failed delivery will increase the global opt-out rate by 0.5 percentage points.116 The Department assumes that plan administrators will exercise due diligence by reaching out to participants with invalid or inoperable electronic addresses rather than immediately treating them as having opted out of electronic delivery. If true, the global opt-out rate should not increase over time. The 0.5 percentage point increase in the global opt-out rate is reflected in the cost savings estimates for the seven covered documents. This final rule provides a comprehensive alternative to the 2002 safe harbor. As a result, many more participants and beneficiaries may be easily covered. Although some plan sponsors using the 2002 safe harbor may switch entirely to the final rule, the Department assumes that most will maintain existing systems and use the final rule to cover individuals that fall outside of the existing safe harbor. (iv) Quantified Net Cost Savings The Department’s estimates of the net cost savings from the final regulations are summarized in Table 1 below. TABLE 1—ESTIMATED COST SAVINGS ATTRIBUTABLE TO THE FINAL RULE [$ million] 1st Year 2nd Year 3rd Year Total over 10 years jbell on DSKJLSW7X2PROD with RULES2 Cost Savings from Eliminating Printing & Mailing Costs: 112 As discussed above in section B, paragraph (e)(2)(ii) of the final rule does not alter a plan administrator’s general recordkeeping requirements under ERISA. 113 As more documents remain on a website, plans may need more electronic storage. However, storage space prices have decreased substantially as cloud services become more widely available. In terms of adding storage space cloud services are available, on average, at a rate of $0.018 to $0.021 per GB per month. Some estimate that approximately 250,000 PDF files or other typical office documents can be stored on 100GB. Accordingly, the Department does not believe electronic storage will significantly increase cost burden. (For more detailed pricing information of three large cloud service providers, see https:// cloud.google.com/products/calculator; or https:// azure.microsoft.com/en-us/pricing/calculator/; or https://calculator.s3.amazonaws.com/index.html. Augmenting other features such as enhanced security services may increase costs of cloud service. However, plan administrators sometimes VerDate Sep<11>2014 18:54 May 26, 2020 Jkt 250001 may find it appropriate to provide enhanced security features for participants despite increased costs.) Also, plan administrators that currently store documents electronically to satisfy general recordkeeping requirements under ERISA may already have sufficient electronic storage space; thus, the burden increase from this condition would not be significant. 114 The Department understands that software is commercially available to produce a list of email addresses that have bounced back with the owners’ name, export the list into different formats, and, in certain circumstances, remove invalid email addresses from the list. Such software also generates and reports relevant statistics such as bounce rate, open rate, and click-through rate. Some software automatically re-attempts delivery depending on the reasons of failed delivery. Given the lack of data, the Department used the percentage of plans without their own websites as a proxy for plans that lack email tracking capability. 115 The Department gathered pricing information for five commercial software packages that ranged PO 00000 Frm 00031 Fmt 4701 Sfmt 4700 from $10 per month to $320 per month, depending on the volume and sophistication of features available. Taking the average of basic level prices of these five products, the Department assumes that it would cost $28.20 per month ($338.40 per year) to subscribe. Assuming 25,984 plans would purchase this type of product, the Department estimates that the aggregate costs will total $8.8 million (25,984 plans * $338.40). 116 One industry report indicates that a welltargeted and maintained email list yields, on average, a 1.06% bounce rate. (See Update Email Marketing Benchmarks for 2020: By Day and Time, Campaign Monitor, https:// www.campaignmonitor.com/resources/guides/ email-marketing-benchmarks/.) EBSA’s newsletter email deliveries yield a 4% bounce rate. Although the Department’s assumed 0.5% bounce rate is lower than the information discussed here, the Department believes that, in general, plan administrators are able to generate and maintain more accurate and current electronic addresses for covered individuals. E:\FR\FM\27MYR2.SGM 27MYR2 31914 Federal Register / Vol. 85, No. 102 / Wednesday, May 27, 2020 / Rules and Regulations TABLE 1—ESTIMATED COST SAVINGS ATTRIBUTABLE TO THE FINAL RULE—Continued [$ million] 1st Year 2nd Year 3rd Year Total over 10 years Summary Plan Description .............................................................................. Summary of Material Modification ................................................................... Summary Annual Report ................................................................................. Annual Funding Notice .................................................................................... 404(a)(5)/404(c) Disclosure ............................................................................. Annual QDIA Notice ........................................................................................ Pension Benefits Statement ............................................................................ $68 18 61 40 106 16 110 $69 18 61 40 106 16 109 $68 18 60 40 105 16 109 $663 172 585 390 1,021 156 1,058 Subtotal: Gross Cost Savings [1] ............................................................. 419 419 416 4,046 Costs Imposed by the Final Rule: Website ............................................................................................................ Initial Notification and Right to Opt Out ........................................................... Notice of Internet Availability ........................................................................... ¥27 ¥138 ¥67 ¥27 ¥12 ¥42 ¥26 ¥12 ¥41 ¥240 ¥235 ¥404 Subtotal: Costs of the final rule [2] ........................................................... ¥232 ¥81 ¥78 ¥880 Total Net Cost Savings: [1]–[2] ......................................................... 187 338 338 3,166 jbell on DSKJLSW7X2PROD with RULES2 Note: Totals in table may not sum precisely due to rounding. Total over 10 years and all other costs and cost savings estimates are discounted at three percent annually. The estimated cost savings of each covered disclosure reflects an assumption about participant behavior. The Department assumes that approximately 81.5 percent of participants who currently receive paper copies will switch to electronic documents, while the remaining 18.5 percent will choose paper.117 This assumption is based on the American Community Survey (ACS) estimate that about 82 percent of U.S. households had internet subscriptions in 2016.118 This assumption may overstate the cost savings because some participants with internet access at home may prefer to receive paper copies, and thus opt out.119 On the other hand, this assumption may understate the cost savings, because households with DC plans tend to have higher internet access rates and may be more comfortable online, which could lead to a lower opt-out rate.120 In projecting cost savings for 10 years, the Department assumes that by the 10th year this opt-out rate will gradually decrease to 7.5 percent of participants currently receiving paper.121 Table 2 shows the Department’s estimates of the number of participants who currently receive disclosures on paper. 117 Among participants who currently receive paper disclosures by mail (rather than electronically under the existing 2002 safe harbor), the Department assumes 18.5 percent of these participants will opt out of electronic delivery under this final rule and receive paper copies. This 18.5 percent global opt-out rate reflects a 0.5 percentage point upward adjustment due to failed deliveries of internet availability NOIAs, such as bounced emails. Without this adjustment, the global opt-out rate would be 18 percent, which is consistent with the data from American Community Survey 2016. 118 Ryan, supra note 73. 119 Some commenters argued that individuals, particularly retirees and individuals older than 55, prefer paper and, in certain cases, comprehend better if financial information is presented in paper form. 120 According to one study, among households owning DC plan accounts, 92 percent used the internet at home, work, or other location in 2018. (See 2019 Investment Company Fact Book, A Review of Trends and Activities in the Investment Company Industry, Investment Company Institute (April 2019), https://www.ici.org/pdf/2019_ factbook.pdf.). Another survey suggests that 99 percent of respondents have a computer at home or work that is connected to the internet, and 84 percent agree that employers can provide retirement plan information electronically if they can opt out at any time. This implies approximately 83 percent (99% * 84%) have internet access and would agree to receive plan information electronically, which is similar to the Department’s assumption of 82 VerDate Sep<11>2014 18:54 May 26, 2020 Jkt 250001 TABLE 2—ESTIMATED NUMBER OF PARTICIPANTS CURRENTLY RECEIVING PAPER DISCLOSURES Disclosures Summary Plan Description ... Summary of Material Modification ............................... Summary Annual Report ...... Annual Funding Notice ......... 404(a)(5)/404(c) Disclosure .. Annual QDIA Notice ............. Pension Benefits Statement Number of participants (million) 19 17 45 29 33 17 50 Table 3 summarizes the Department’s projected number of participants who will receive disclosures electronically due to the final rule. PO 00000 Frm 00032 Fmt 4701 Sfmt 4700 percent. (See Quantria Strategies, supra note 97, at 3, 5.) Note that in these studies, ‘‘use the internet’’ includes access to the internet at home, work or other locations. Thus, the share of households using the internet in these studies are higher than the share of households accessing the internet at home that the Department relies on in estimating opt-out rates. 121 Based on the American Community Survey (ACS) data from 2016 and 2017, the Department assumes the opt-out rate for the 2nd year is 16 percent. The Department’s opt-out rate projections are based on these two recent years of ACS data and, while the rates gradually decline each year, they do not reach zero at any point in the future. This also reflects the 0.5 percentage point upward adjustment due to bounced emails. E:\FR\FM\27MYR2.SGM 27MYR2 Federal Register / Vol. 85, No. 102 / Wednesday, May 27, 2020 / Rules and Regulations 31915 TABLE 3—PROJECTED NUMBER OF PARTICIPANTS RECEIVING DISCLOSURES ELECTRONICALLY DUE TO THE FINAL RULE [million] Disclosures 1st Year Summary Plan Description .............................................................................. Summary of Material Modification ................................................................... Summary Annual Report ................................................................................. Annual Funding Notice .................................................................................... 404(a)(5)/404(c) Disclosure ............................................................................. Annual QDIA Notice ........................................................................................ Pension Benefits Statement ............................................................................ Table 4 provides the estimated average per-participant cost of distributing disclosures on paper. TABLE 4—ESTIMATED AVERAGE PERPARTICIPANT COST OF DISTRIBUTING DISCLOSURES ON PAPER Disclosures Per-participant cost Summary Plan Description ... Summary of Material Modification ............................... Summary Annual Report ...... Annual Funding Notice ......... 404(a)(5)/404(c) Disclosure .. Annual QDIA Notice ............. Pension Benefits Statement $4.48 1.28 1.72 1.79 4.07 1.18 2.79 jbell on DSKJLSW7X2PROD with RULES2 (v) Non-Quantified Costs (Potential Adverse Impacts) While overall, 82 percent of U.S. households had access to the internet at home in 2016, the following groups had lower rates: Limited English speaking households (63 percent), households with income less than $25,000 (59 percent), households where the head of the household is age 65 or older (68 percent), Black households (73 percent), households in nonmetropolitan areas of the South (69 percent), and households where the head of the household obtained a high school diploma or less (56 percent).122 Responding to these relatively low rates, some commenters pointed out that households with DC plan accounts tend to have higher internet access rates. For example, an ICI report found that among households with DC accounts, 79 percent with income less than $50,000 and 81 percent with a senior (65 or older) head of the household use the internet at home, work, or other locations.123 Although these internet access figures are only slightly lower than those of all U.S. households (82 percent), they are supra note 73. Investment Company Fact Book, A Review of Trends and Activities in the Investment Company Industry, Investment Company Institute (April 2019), https://www.ici.org/pdf/2019_ factbook.pdf. 123 2019 VerDate Sep<11>2014 18:54 May 26, 2020 Jkt 250001 16 14 36 23 27 14 41 significantly lower than those of all DC plan account holding households (93 percent). Another group worth noting is households connected to the internet only through smartphones. Racial/ ethnic minorities and low-income households are overrepresented in this group.124 In 2015, approximately 8 percent of households in the United States were ‘‘handheld- device-only’’ households, but 16 percent of households where the head of the household obtained a high school diploma or less were handheld-deviceonly households. In contrast, only 3 percent of households where the head of the household obtained a bachelor’s degree or higher were handheld-deviceonly households.125 Although connected to the internet, these households may not be able to fully harness the efficiency, capacity, and convenience of the internet. Therefore, accessing disclosures online for these households may not be as convenient as for other households. In response to numerous comments, the Department added paragraph (e)(4) to the final rule, which defines ‘‘website’’ to include internet websites and other electronic-based information repositories, such as mobile applications. With this change, the Department believes that the final rule can better accommodate advances in technology. This change also requires that covered documents delivered through mobile applications be presented in a format that can be read using a handheld device. Consequently, these handheld-device-only households will be able to access their plan information with ease. Ensuring handheld-device-only households are able to access the same information as other households may help bridge the 124 Ryan, supra note 73. M. Lewis, Handheld Device Ownership: Reducing the Digital Divide? Social, Economic, and Housing Statistics Division, U.S. Census Bureau, Working Paper 2017–04, Mar. 2017, .https:// www.census.gov/content/dam/Census/library/ working-papers/2017/demo/SEHSD-WP201704.pdf. 125 Jamie 122 Ryan, 2nd Year PO 00000 Frm 00033 Fmt 4701 Sfmt 4700 3rd Year 16 15 37 24 28 14 42 10th Year 17 15 38 25 28 15 43 19 17 43 28 32 17 48 digital divide because the gaps in smartphone ownership are less prominent than in home internet access. For example, there is almost no disparity in smartphone ownership rates by race. According to a 2019 survey, Whites, Blacks, and Hispanics own smartphones at nearly the same rate (82 percent, 80 percent, and 79 percent, respectively).126 For participants without ready internet access, this final rule may create additional impediments to accessing critical plan information. Those who fail to opt out and request paper documents will have to leave home (e.g., visit a public library or the home of a friend or family member) to access plan information. One of the Department’s goals in establishing the final framework was to be certain that, regardless of delivery method, covered individuals who wish to receive paper copies would be able to do so without undue burden. For this reason, the final rule allows for global opt out. That is, a covered individual who prefers to receive all covered documents in paper may choose to do so through a single request. If covered individuals in groups with low internet access rates fail to request paper copies of covered documents or exercise their opt-out rights, the negative impacts they suffer may offset some benefits of this final regulation. The Department does not have sufficient data to quantify these negative impacts. If these unintended consequences occur, plan administrators may take steps to limit their impact. Such steps may include reaching out to these groups; communicating the plan’s electronic disclosure policy effectively; providing sufficient time for participant education before implementing electronic disclosure changes; and employing simple processes for requesting print documents, opting out of electronic disclosure, and establishing and resetting passwords. Such steps might 126 Mobile Fact Sheet, Pew Research Center, June 12, 2019, https://www.pewresearch.org/internet/ fact-sheet/mobile/. E:\FR\FM\27MYR2.SGM 27MYR2 31916 Federal Register / Vol. 85, No. 102 / Wednesday, May 27, 2020 / Rules and Regulations jbell on DSKJLSW7X2PROD with RULES2 help ensure that the cost savings discussed above is realized without burdening vulnerable groups. As with all agencies facing heightened cybersecurity concerns, the Department recognizes that increased electronic disclosures may expose covered participants’ information to intentional or unintentional data breach. Paragraph (e)(3) of the proposal requires the plan administrator to take measures reasonably calculated to ensure that the website protects the confidentiality of personal information relating to any covered individual. As required under ERISA section 404, the Department expects that many plan administrators, or their service or investment providers, already have secure systems in place to protect covered individuals’ personal information. Such systems should reduce covered individuals’ exposure to data breaches. Some commenters asserted that the Department should consider participants’ preferences for paper disclosures before finalizing the rule. According to these commenters, investors prefer to receive disclosures by mail and comprehend paper documents better than electronic documents. Commenters with opposing views criticized these claims and stated that they are based on dated studies. The Department reviewed several reports concerning the issue as to whether investors prefer paper disclosures. According to a recent FINRA report, investor preference was almost evenly split between paper delivery (36 percent) and electronic delivery (33 percent) in 2018. The share of investors who prefer paper delivery has declined considerably since 2015, however, while the share of investors who prefer electronic delivery has increased.127 (This study is based on a survey of investors who hold nonretirement accounts.) According to a different study performed in 2019, almost half of 401(k) plan participants (49 percent) preferred reviewing 401(k) account information through their 401(k) provider’s website, while 13 percent preferred a hard copy of account information.128 Even the eldest group studied (70 and older) preferred a 401(k) provider website (40 percent) to direct 127 See Investors in the United States, A Report of the National Financial Capability Study, FINRA Investor Foundation, December 2019, p. 1, https:// www.usfinancialcapability.org/downloads/NFCS_ 2018_Inv_Survey_Full_Report.pdf. (A survey of 2,000 investors shows that, in 2015, 49 percent preferred paper delivery, while 27 percent preferred electronic delivery). 128 U.S. Retirement End-Investor 2019, Driving Participant Outcomes with Financial Wellness Programs, Cerulli Report, 2019, at 18. VerDate Sep<11>2014 18:54 May 26, 2020 Jkt 250001 mail (31 percent).129 Similarly, other studies found that participants prefer to receive communications related to their benefits through electronic media such as personal emails or websites.130 Based on these studies, the Department reasonably believes that the final rule generally lines up with most participants’ preferences. And since participants retain the right to opt out of electronic delivery, those who prefer paper disclosures are adequately protected under the final rule. (vi) Benefits The final rule will not require plan administrators to develop new formats or content beyond what is required in printed form. Nonetheless, some plan administrators may elect to develop new formats and content for electronic disclosures. Such formats could include more interactive content, with hotlinks and multimedia presentations, which might improve the quality and accessibility of information. DC account information often is available continuously and updated in real-time, which may help participants to effectively manage their accounts. Using assistive technology, such as screen readers, electronic disclosures could be made more accessible to the visually impaired. Online translation may help covered individuals with limited English skills better understand their disclosures. Some plans may provide mobile apps with interactive features, which will allow participants to navigate the site and conduct account transactions with ease. Some commenters predicted that the final rule might contribute to higher retirement savings. According to these commenters, digitally engaged participants or those with electronic delivery have, on average, higher deferral rates and larger account balances than their counterparts who are not digitally engaged or receive paper disclosures. These commenters seem to attribute this higher retirement savings to electronic delivery. This interpretation, however, requires some caution. Participants who are more motivated to save are also more likely to actively use their plan’s website than other participants. This self-selection, with the most motivated savers being the most digitally engaged, may explain 129 Id. 130 See Boosting the Effectiveness of Retirement Plan Communications, Empower Institute, January 2019, at 9, https://docs.empower-retirement.com/ Empower/institute/Effective-Communication.pdf. See also What Your Employees Think About Your Benefits Communication, The Jellyvision Lab, 2016, at 12, https://www.jellyvision.com/wp-content/ uploads/Survey-Report_What-Your-EmployeesThink-About-Your-Benefits-Communication.pdf. PO 00000 Frm 00034 Fmt 4701 Sfmt 4700 their higher deferral rates and larger account balances. One study acknowledged this possibility, yet still contended that electronic delivery could nudge investors towards increased savings.131 The Department agrees that participants can be nudged to save more as they interact more with various website tools and gain more financial knowledge. The Department is encouraged to find that many plan administrators now offer on their websites various financial education tools, including retirement income planning tools and budgeting tools. However, it is difficult to compare the relative impacts on retirement savings of nudging participants (through electronic delivery and digital engagement) versus self-selection. To the extent that electronic delivery increases retirement savings and better prepares participants for retirement, this rule will produce even greater benefits. Several commenters had varying opinions on how cost savings generated by this rule would be distributed. Some commenters estimated that the rule would generate significant cost savings, with most going directly to participants. Others, however, expressed skepticism. Many suggested participants would experience minimal benefit, particularly because the Department does not require plan administrators to pass the cost savings onto participants. Cost savings in theory could be retained by service providers as profit, or passed on to plan sponsors or participants as lower fees.132 The disposition of savings is uncertain, in part because in the long run the savings’ nominal incidence may differ from its economic incidence. The Department believes that a large portion of the savings will reach participants. Such savings are additional to the benefits participants may realize from improvements in the quality and accessibility of disclosures. Competition among service providers can ensure cost savings to benefit plan sponsors and participants, in the form of lower fees. One commenter stated that 4,694 establishments offered third-party administrative services in 2016. She described the market as having a high volume of entry and exit, and high concentration.133 The commenter estimated that, because of the competitive environment, 131 See Quantria Strategies, supra note 99. of lowering fees, cost savings can be passed on to plan sponsors or to participants in the form of augmented services. 133 This commenter indicated that this estimate was based on data from U.S. Census Bureau, County Business Patterns by Employment Size Class, 2010– 2016. 132 Instead E:\FR\FM\27MYR2.SGM 27MYR2 Federal Register / Vol. 85, No. 102 / Wednesday, May 27, 2020 / Rules and Regulations approximately 60 percent of cost savings would be passed to participants in lower fees. (Stickiness in service provider relationships in some cases may slow the flow of savings, however. Large 401(k) plan sponsors (with $250 million or more in assets) most frequently identified ‘‘10 years or longer’’ when asked how long they had been with current recordkeepers.134 Another study finds a similar pattern: a majority of plan sponsors reported having been with their current recordkeepers for 10 years or longer.135 ) Fees associated with disclosures sometimes are bundled into investment costs, such as the fees internal to mutual funds on DC plan menus. Savings from reductions in such fees generally will accrue to participants. Other times, disclosure and other administrative fees are charged separately. These charges sometimes are allocated to DC participants’ accounts, again suggesting that savings will accrue to participants. Other times such separate charges may be allocated to plan forfeiture accounts or paid directly by plan sponsors. In these cases, savings may accrue to plan sponsors rather than directly to participants. Such savings nonetheless may benefit participants in the long run, for example if sponsors pass on savings in the form of richer matching contributions or other means, in response to labor market forces. Surveys and comments help illustrate how frequently common fee arrangements may result in savings to participants. In one survey, one in three DC plan sponsors reported that administrative fees are bundled into investment costs. This is a smaller fraction than in 2015, when one-half of plan sponsors reported using this arrangement.136 Another report identifies a similar downward trend for bundled fee arrangements.137 Such bundled fees may be less transparent than fees that are charged separately, so in some cases service providers may be slower to pass on savings from this rule by reducing such fees. Nonetheless, competition from other service providers, including those offering both bundled and unbundled fee arrangements, will put downward pressure on bundled fees, and savings jbell on DSKJLSW7X2PROD with RULES2 134 Cerulli, supra note 128. 135 2019 Defined Contribution Benchmarking Survey Report, Deloitte, 2019. 136 2019 Defined Contribution Benchmarking Survey Report, Deloitte, 2019, at 20. (In 2015, 50 percent of plan sponsors reported to have this ‘‘no additional fee’’ arrangement, which has declined to 33 percent in 2019.) 137 U.S. Retirement Markets 2019, Looking Toward Holistic Solutions for Participants and Plan Sponsors, Cerulli Report, 2019, at 69. VerDate Sep<11>2014 18:54 May 26, 2020 Jkt 250001 from reductions in such fees generally will accrue to participants. Other times administrative fees are charged separately. The most common fee arrangement is a direct fee paid to the recordkeeper, one survey found. A majority (52 percent) of plan sponsors had this arrangement in 2019, up from 41 percent in 2015. An additional 15 percent used separate wrap fees or charges on investment.138 Separate fees or charges generally are transparent and therefore likely to promote competition, so it is likely that savings from this rule largely will translate into reductions in such fees, benefitting plan sponsors or participants. Separate administrative fees or charges often are allocated to DC participants’ accounts. In 2019, 57 percent of plan sponsors reported that participants pay such fees either based on their account balances (29 percent) or in equal amounts (28 percent).139 Under such arrangements, savings will likely accrue to participants. Other times such separate charges may be allocated to plan forfeiture accounts (6 percent) or paid directly by plan sponsors (25 percent), according to the same survey.140 In these cases, savings may accrue to plan sponsors rather than directly to participants. Such savings nonetheless may benefit participants in the long run, for example if sponsors pass on savings in the form of richer matching contributions or other means, in response to labor market forces. Commenters offered different views on the costs of paper delivery at the participant level and the amount that participants will save from reducing those costs. Some commenters stated the costs of paper delivery, per participant, were minimal, suggesting participants would save little. Others took the opposite view, asserting that savings from electronic delivery would significantly increase participants’ account balances. One commenter suggested that a participant in a 401(k) plan receives, on average, 6 to 8 documents per year and the average cost to print and mail a single notice is $0.83. Assuming this is true, mailing disclosures to participants costs between $4.98 and $6.64 per year. If after eliminating these costs, 60 percent of the cost savings flow to participants, as one commenter suggests, participants on average would save $3 to $4 each year. A recent study estimated that the perparticipant direct fee for recordkeeping services was, on average, $54 in 2019, 138 Deloitte, supra note 135, at 20. 139 Id. 140 Id. PO 00000 Frm 00035 Fmt 4701 Sfmt 4700 31917 up from $50 in 2017.141 Then, eliminating recordkeeping fees would save participants about 6 to 7 percent of direct fees that they pay to recordkeepers.142 Some commenters characterized this savings as minimal. Others suggested the savings could be considerable, especially for young and newly enrolled participants, who will benefit most from the compounding effects. (4) Regulatory Alternatives To conform with Executive Order 12866, the Department considered several regulatory approaches while developing this final rule. (i) Covering Welfare Benefit Plan Disclosures As discussed in section (B)(2)(ii), the Department received numerous comments about whether to expand this final rule to cover health and welfare plans. After careful analysis and lengthy deliberation, the Department decided not to expand the rule at this time. The Department is reviewing the information provided in response to its RFI, and will continue to explore this option and may undertake rulemaking in the future. The Department has decided to take this two-step approach so that retirement plans can accrue cost savings without delay and to give the Department more time to analyze unique issues about health and welfare plans. Extending the scope of the final rule to health and welfare plans raises unique challenges regarding the triagency consultation process that warrant careful consideration. Accordingly, the Department intends to take more time, obtain public comments, and develop a rule that can maximize benefits to health and welfare plans and participants as part of a future project. (ii) Conforming With Electronic Delivery Approaches Adopted by Other Agency Executive Order 13847 directed the Department to coordinate with the Treasury Department to explore expanding electronic delivery. The goal of expanding electronic delivery is to 141 Id. at 5. But according to a different, the average recordkeeping/administration costs per participant was $35 in 2017 (see Stephen Miller, 401(k) Sponsors Focus on Benchmarking—and Lowering—Fees (Feb. 22, 2018), https:// www.shrm.org/resourcesandtools/hr-topics/ benefits/pages/401k-fee-benchmarking.aspx.). 142 These are calculated by ($3/$54) and ($4/$54) respectively. If the average recordkeeping/ administration costs per participant were $35, as one study suggested, participants would save approximately 9 to 11 percent of direct fees. These are calculated by ($3/$35) and ($4/$35). E:\FR\FM\27MYR2.SGM 27MYR2 31918 Federal Register / Vol. 85, No. 102 / Wednesday, May 27, 2020 / Rules and Regulations improve the effectiveness of disclosures and to reduce their associated costs and burdens. Following discussions with Treasury Department staff, the Department considered adopting an approach similar to that of 26 CFR 1.401(a)–21, the IRS rule for electronic disclosures.143 This rule generally provides that a plan may use an electronic medium to provide applicable notices only for a participant who affirmatively consents to receive the notice electronically or who has the ‘‘effective ability to access’’ the electronically delivered notice.144 A number of parties have encouraged the Department to adopt this approach, which they believed to be more flexible than the Department’s 2002 safe harbor.145 The final rule does not adopt 26 CFR 1.401(a)–21(c) verbatim, but it does, however, align with the regulation in large part. The Department considers this a logical outcome, because plan administrators have to comply with requirements of both ERISA and the Code. Thus, the more coordination and alignment among potentially overlapping regulatory requirements, the less regulatory burden overall. jbell on DSKJLSW7X2PROD with RULES2 (iii) Keeping a Quarterly Pension Benefit Statement in a Single Annual Combined NOIA In the final rule, the Department revised the group of covered documents for which a single annual combined NOIA is permitted. In contrast to the proposal, under the final rule some covered documents, such as a quarterly pension benefit statement, can no longer be furnished with a single annual combined NOIA.146 The Department considered keeping the quarterly pension benefit statement as one of the disclosures that can be included in a single annual combined NOIA. Pension 143 The Treasury Department and the IRS have issued a series of guidance on electronic disclosures, beginning with IRS Notice 99–1, and more recently in 26 CFR 1.401(a)–21(c) (2006), on the ‘‘Use of Electronic Media for Providing Employee Benefit Notices and Making Employee Benefit Elections and Consents.’’ See e.g., Notice 99–1 (1999–2 I.R.B. 8); Announcement 99–6 (1999– 4 I.R.B. 24); T.D. 8873, 65 FR 6001 (Feb. 8, 2000); and T.D. 9294, 71 FR 61877 (Oct. 20, 2006). 144 See 26 CFR 1.401(a)–21(b) and (c) (2006). 145 See Written Statement of Michael Hadley, Partner, Davis & Harman LLP, to the ERISA Advisory Council (June 7, 2017), at 8, https:// www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/ about-us/erisa-advisory-council/2017-mandateddisclosure-for-retirement-plans-hadley-writtenstatement-06-07.pdf; see also Written Statement of David N. Levine and Brigen L. Winters, Principals, Groom Law Group (June 7, 2017), at 4, https:// www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/ about-us/erisa-advisory-council/2017-mandateddisclosure-for-retirement-plans-levine-and-winterswritten-statement-06-07.pdf. 146 An SMM is another document excluded from a single annual combined NOIA. VerDate Sep<11>2014 18:54 May 26, 2020 Jkt 250001 benefit statements must be furnished on a quarterly basis for participant-directed individual account plans, such as 401k plans. Thus, if an annual combined NOIA is emailed at the beginning of the year, some participants may not appreciate that subsequent quarterly statements also will be made available online. Furthermore, quarterly benefit statements can prompt participants to take actions, such as checking their account balances, increasing deferral rates, or reallocating investments. With one notice at the beginning of the year, covered individuals may less frequently check their accounts and make changes accordingly. In the Department’s view, this may have detrimental impacts on participants’ retirement savings, although it may bring administrative costs down slightly. Therefore, the Department determined that the approach taken in the final rule is a more balanced approach that provides sufficient protection for participants while generating substantial cost savings. (5) Paperwork Reduction Act In accordance with the Paperwork Reduction Act of 1995 (PRA 95) (44 U.S.C. 3506(c)(2)(A)), the Department solicited comments on its new alternative safe harbor to use electronic media to satisfy the general furnishing requirement under Title 1 of ERISA. At the same time, the Department also submitted an information collection request (ICR) to OMB, in accordance with 44 U.S.C. 3507(d). The Department received no comment that specifically addressed the paperwork burden analysis of the information collections. The Department did, however, receive comments on costs and administrative burdens related to the proposal. The Department reviewed the comments and took them into account when making changes to the final rule, analyzing the economic impact of the proposal, and developing the revised paperwork burden analysis summarized below. In connection with the new rule, the Department is submitting an ICR to OMB requesting approval of a revised collection of information under OMB Control Number 1210–0121. The Department will notify the public when OMB approves the ICR. A copy of the ICR may be obtained by contacting the PRA addressee shown below or at https://www.RegInfo.gov. PRA Addressee: Address requests for copies of the ICR to James Butikofer, Office of Policy and Research, U.S. Department of Labor, Employee Benefits Security Administration, 200 Constitution Avenue NW, Room N– 5718, Washington, DC 20210. PO 00000 Frm 00036 Fmt 4701 Sfmt 4700 Telephone: (202) 693–8410; Fax: (202) 219–5333. These are not toll-free numbers. ICRs submitted to OMB also are available at https:// www.RegInfo.gov. As discussed above, the final regulation will create two new information collections that are subject to the PRA: The annual NOIA (29 CFR 2520.104b–31(d)(2)) and the initial notification (29 CFR 2520.104b–31(g)). The final rule will also reduce costs for some of the Department’s existing information collections. The Department is unaware of any data source that would directly identify the number of plans that will decide to use the final new alternative safe harbor. Therefore, for purposes of this analysis, the Department conservatively assumes that all plans will use the final alternative safe harbor for at least some of their covered individuals. As discussed in the Cost Savings section above, the Department estimates that plan administrators using the final rule will incur a one-time start-up cost to prepare and distribute the annual NOIA and the initial notification. The final rule’s impact on the hour and cost burden associated with the Department’s information collections are discussed below. Agency: Employee Benefits Security Administration, Department of Labor. Title: Consent to receive employee benefit plan disclosures electronically. Type of Review: Revision of currently approved collection of information. OMB Control Number: 1210–0121. Affected Public: Individuals or households; Business or other for-profit; Not-for-profit institutions. Respondents: 710,000. Responses: 109,440,000. Estimated Total Burden Hours: 2,388,000. Estimated Total Costs: $44,737,000. On April 9, 2002, the Department published a notice of final rulemaking on electronic communication and recordkeeping technologies to establish a safe harbor for electronic disclosures.147 The 2002 safe harbor generally covers disclosures under Title I. The final regulation also covered the receipt of required disclosures at locations other than the workplace. The 2002 safe harbor requires that plan administrators to obtain affirmative consent, in advance, before distributing electronic disclosures to participants and beneficiaries outside the workplace.148 In order to gain consent, the plan administrator must provide a 147 67 FR 17263 (April 9, 2002). requirement is incorporated at 29 CFR 2520.104b–1(c)(2)(ii)(A), (B), and (C). 148 This E:\FR\FM\27MYR2.SGM 27MYR2 Federal Register / Vol. 85, No. 102 / Wednesday, May 27, 2020 / Rules and Regulations jbell on DSKJLSW7X2PROD with RULES2 clear and conspicuous statement that includes the following: The types of documents to which the consent would apply; that consent may be withdrawn at any time; the procedures for withdrawing consent and updating necessary information; the right to obtain a paper copy, free of charge; and any hardware and software requirements. The Department revises this information collection by adding the information collections required under the final rule to the 2002 safe harbor. This will increase the number of respondents by 710,000, the responses by 109,440,000, the hour burden by 2,388,000, and the cost burden by $44,737,000. The final rule will affect the Department’s burden estimates for several existing information collections of covered disclosures. Specifically, the rule will reduce the burden associated with the following covered disclosures with information collections covered by the PRA: The SPD, the SMM, the SAR, the annual funding notice, disclosures for participant-directed individual account plans under ERISA section 404(a)(5), and the QDIA notice. The burden reduction estimates are based on the current cost and hour burdens for the Department’s existing ICRs for the covered disclosures, adjusted for the number of plans and participants the Department assumes will use electronic disclosures. The Department discusses these ICRs and its revised estimates below. The Department has submitted the revised information collections for these covered disclosures to OMB for review, in accordance with 44 U.S.C. 3507(d). Agency: Employee Benefits Security Administration, Department of Labor. Title: Summary Plan Description Requirements under the ERISA. Type of Review: Revised Collection. OMB Control Number: 1210–0039. Affected Public: Businesses or other for-profits, Not-for-profit institutions. Respondents: 3,033,000. Responses: 112,733,000. Estimated Total Burden Hours: 163,000. Estimated Total Costs: $235,556,000. Description: Section 104(b) of ERISA requires the employee benefit plan administrators furnish participants and certain beneficiaries with an SPD that describes, in language understandable to an average plan participant, the benefits, rights, and obligations of participants in the plan. The SPD information requirements are set forth in section 102(b) of ERISA. To the extent there is a material modification in the terms of VerDate Sep<11>2014 18:54 May 26, 2020 Jkt 250001 the plan or a change in the required content of the SPD, section 104(b)(1) of ERISA requires plan administrators to furnish participants and certain beneficiaries with an SMM or summary of material reductions (SMR).149 The Department has issued regulations providing guidance on compliance with the requirements to furnish SPDs, SMMs, and SMRs. These regulations, codified at 29 CFR 2520.102–2, 2520.102–3, 29 CFR 2520.104b–2, and 29 CFR 2520.104b–3, contain information collections for which the Department has obtained OMB approval under OMB Control No. 1210–0039. The Department estimates that the final alternative safe harbor will reduce the hour burden by 126,000 and the cost burden by $88,464,000. Agency: Employee Benefits Security Administration, Department of Labor. Title: ERISA Summary Annual Report Requirement. Type of Review: Revised Collection. OMB Number: 1210–0040. Affected Public: Not-for-profit institutions, Businesses or other forprofits. Respondents: 750,000. Responses: 166,350,000. Estimated Total Burden Hours: 1,185,000. Estimated Total Costs: $24,358,000. Description: ERISA Section 104(b)(3) and the regulation published at 29 CFR 2520.104b–10 require, with certain exceptions, that plan administrators furnish participants and certain beneficiaries with a SAR. The regulation prescribes the content and format of the SAR and the timing of its delivery. The SAR provides information about the plan’s current financial operation and condition. It also explains participants’ and beneficiaries’ rights to receive further information on these issues. EBSA previously submitted the ICR provisions in the regulation at 29 CFR 2520.104b–10 to OMB, and OMB approved the ICR under OMB Control No. 1210–0040. The Department estimates that the final alternative safe harbor will reduce the hour burden by 607,000 and the cost burden by $23,661,000. Agency: Employee Benefits Security Administration, Department of Labor. Title: Annual Funding Notice for Defined Benefit Pension Plans. Type of Review: Amendment of a currently approved collection of information. OMB Control Number: 1210–0126. Affected Public: Businesses or other for-profits, Not-for-profit institutions. 149 Because SMRs apply only to health plans, not retirement plans, they will not be affected by this new safe harbor. PO 00000 Frm 00037 Fmt 4701 Sfmt 4700 31919 Respondents: 32,000. Responses: 65,527,000. Estimated Total Burden Hours: 197,000. Estimated Total Costs: $7,080,000. Description: Section 101(f) of the ERISA sets forth annual funding notice requirements. Before 2006, the year the Pension Protection Act (PPA) was enacted, section 101(f) applied only to multiemployer defined benefit plans. The Department has issued multiple final regulations with regard to this provision, most recently on February 2, 2015 (80 FR 5625). Section 501(a) of the PPA amended section 101(f) of ERISA to change to the annual funding notice requirements. These amendments require plan administrators of all defined benefit plans subject to Title IV of ERISA to provide an annual funding notice to the Pension Benefit Guaranty Corporation (PBGC); plan participants and beneficiaries; labor organizations representing participants or beneficiaries; and, in the case of a multiemployer plan, all plan employers. The annual funding notice must include, among other things, the plan’s funding percentage, assets and liabilities, asset allocation, and a description of the benefits under the plan that are eligible to be guaranteed by the PBGC. The ICR was approved by OMB under OMB Control Number 1210–0126. The Department estimates that the final alternative safe harbor will reduce the hour burden by 454,000 and the cost burden by $12,560,000. Agency: Employee Benefits Security Administration, Department of Labor. Title: Disclosures for Participant Directed Individual Account Plans. Type of Review: Revised Collection. OMB Control Number: 1210–0090. Affected Public: Businesses or other for-profits, Not-for-profit institutions. Respondents: 566,000. Responses: 769,693,000. Estimated Total Burden Hours: 5,914,000. Estimated Total Costs: $223,980,000. Description: Plan administrators must provide plan- and investment-related fee and expense information to participants and beneficiaries in all participant-directed individual account plans (e.g., 401(k) plans) for plan years beginning on or after January 1, 2011. The Department previously requested review of this information collection and obtained approval from OMB under OMB control number 1210–0090. The Department estimates that the final alternative safe harbor will reduce the hour burden by 979,000 and the cost burden by $46,360,000. E:\FR\FM\27MYR2.SGM 27MYR2 31920 Federal Register / Vol. 85, No. 102 / Wednesday, May 27, 2020 / Rules and Regulations jbell on DSKJLSW7X2PROD with RULES2 Agency: Employee Benefits Security Administration, Department of Labor. Title: Default Investment Alternatives under Participant Directed Individual Account Plans. Type of Review: Revised collection. OMB Control Number: 1210–0132. Affected Public: Not-for-profit institutions, Businesses or other forprofits. Respondents: 297,000. Responses: 39,549,000. Estimated Total Burden Hours: 76,000. Estimated Total Burden Costs: $2,074,000. Description: Section 404(c) of ERISA states that participants or beneficiaries who can hold individual accounts under their pension plans and exercise control over the assets ‘‘as determined in regulations of the Secretary [of Labor]’’ will not be treated as fiduciaries of the plan. Moreover, plan fiduciaries are not liable for any loss resulting from the participants’ or beneficiary’s exercise of control over their individual account assets. The PPA amended ERISA section 404(c) by adding paragraph (c)(5)(A). The new paragraph requires that participants who fail to make investment elections be treated as having exercised control over their account assets, so long as the plan provides appropriate notice and invests the assets ‘‘in accordance with regulations prescribed by the Secretary [of Labor].’’ As required under ERISA section 404(c)(5)(A), the Department issued a final regulation on the types of investment vehicles that plan fiduciaries may choose as a QDIA. The regulation also outlines two information collection requirements. First, it implements the statutory requirement that a fiduciary must provide annual notices to participants and beneficiaries whose account assets could be invested in a QDIA. Second, the regulation requires fiduciaries to pass certain pertinent materials they receive relating to a QDIA to those participants and beneficiaries with assets invested in the QDIA as well to provide certain information on request. The ICRs are approved under OMB Control Number 1210–0132. The Department estimates that due to fiduciaries’ use of the final alternative safe harbor to provide disclosures to participants who currently are receiving them by mail, the hour burden will be reduced by 117,000 and the cost burden will be reduced by $9,135,000. VerDate Sep<11>2014 18:54 May 26, 2020 Jkt 250001 (6) Regulatory Flexibility Act The Regulatory Flexibility Act (RFA) 150 imposes certain requirements on rules subject to the notice and comment requirements of section 553(b) of the Administrative Procedure Act.151 Under section 604 of the RFA, agencies must submit a final regulatory flexibility analysis (FRFA) for proposals that are likely to have a significant economic impact on a substantial number of small entities. Small entities include small businesses, organizations, and governmental jurisdictions. For purposes of analysis under the RFA, the Employee Benefits Security Administration (EBSA) considers an employee benefit plan with fewer than 100 participants a small entity.152 This definition is based on section 104(a)(2) of ERISA, which permits the Secretary of Labor to prescribe simplified annual reports for pension plans that cover fewer than 100 participants. Under section 104(a)(3), the Secretary may also provide for exemptions or simplified annual reporting and disclosure for welfare benefit plans. Pursuant to section 104(a)(3), the Department has previously issued simplified reporting provisions and limited exemptions from reporting/disclosure requirements for small plans, including unfunded or insured welfare plans covering fewer than 100 participants and satisfying certain other requirements.153 Further, while some large employers may have small plans, small employers generally maintain small plans. Thus, EBSA believes that assessing the impact of this final rule on small plans is an appropriate substitute for evaluating the effect on small entities. The definition of small entity considered appropriate for this purpose differs, however, from a definition of small business that is based on size standards promulgated by the Small Business Administration (SBA) 154 pursuant to the Small Business Act.155 EBSA requested comments on the appropriateness of the size standard used to evaluate the impact of the proposed rule on small entities and received no comment on this issue. In particular, the Department did not receive any comment stating that it is inappropriate to use size 150 5 U.S.C. 601 (2012). U.S.C. 551 (2012). 152 The Department consulted with the Small Business Administration Office of Advocacy in making this determination as required by 5 U.S.C. 603(c) and 13 CFR 121.903(c). 153 See 29 CFR 2520.104–20 (2012), 29 CFR 2520.104–21 (2012), 29 CFR 2520.104–41 (2012), 29 CFR 2520.104–46 (2012), and 29 CFR 2520.104b–10 (2012). 154 13 CFR 121.201 (2011). 155 15 U.S.C. 631 (2013). 151 5 PO 00000 Frm 00038 Fmt 4701 Sfmt 4700 standards different from those promulgated by the SBA. The Department has determined that this final rule will significantly impact a substantial number of small entities: Employee benefit plans with fewer than 100 participants. The Department’s FRFA follows. (i) Need for and Objectives of the Rule Pursuant to section 505 of ERISA, the Secretary of Labor has broad authority ‘‘to prescribe such regulations as he finds necessary or appropriate to carry out the provisions of [Title I] of ERISA.’’ The final rule offers a voluntary, alternative method for electronic disclosures and, thus, reduces the costs and burdens of related to required disclosures. The final rule will reduce the cost of printing and mailing covered disclosures, benefitting plans regardless of the size. Therefore, the Department expects the final rule to deliver benefits to the participants of many small plans and their families, as well as the plans themselves. (ii) Affected Small Entities The majority of private retirement plans are small plans with fewer than 100 participants. The 2017 Form 5500 filings show that out of total 710,000 private retirement plans, approximately 87 percent, or 619,000, of ERISAcovered retirement plans were small plans with fewer than 100 participants.156 However, small plans cover only a fraction of total participants. In 2017, over 137 million individuals participated in private retirement plans. Out of these 137 million participants, over 12 million participants, less than 10 percent, were in small plans. The Department estimates that slightly more than half already receive disclosures electronically. The remaining half will likely receive electronic disclosures under this final rule. (iii) Projected Reporting, Recordkeeping, and Other Compliance Requirements As discussed above, by allowing more participants who access disclosures online, the final rule will save retirement plans, including small plans, money. These cost savings can in turn be used to defray other plan-related expenses, and thus lower the overall fees charged to participants. In addition, modern technology features may help participants with disabilities or limited English skills better understand the content of disclosures, which will allow 156 Private Pension Plan Bulletin 2016, Employee Benefits Security Administration, Department of Labor. E:\FR\FM\27MYR2.SGM 27MYR2 Federal Register / Vol. 85, No. 102 / Wednesday, May 27, 2020 / Rules and Regulations them to better manage their plan accounts. Both large and small plans will benefit from the cost savings and other benefits that result from wider use of electronic disclosure. This final rule is a voluntary safe harbor. Therefore, plan administrators will not be required to make any specific disclosures available on a website. This final rule simply provides an additional, optional method for plan administrators to deliver covered disclosures to participants and beneficiaries electronically and does not change any underlying reporting, disclosure, and recordkeeping requirements. Therefore, the Department does not believe this final rule will impose any additional compliance requirements on small entities. jbell on DSKJLSW7X2PROD with RULES2 (iv) Duplicate, Overlapping, or Relevant Federal Rules The final rule will provide retirement plan administrators with an alternative method to furnish covered disclosures electronically. In developing this alternative, the Department consulted with other relevant regulators, including the Treasury Department and the SEC. The Treasury Department has interpretive jurisdiction over certain notices relating to pension plans covered by Title 1 of ERISA, but the covered disclosures under the final rule are exclusively in the jurisdiction of the Labor Department. The SEC has jurisdiction over issuers of investment products that often are used as ERISA employee retirement plan investments as well as some service providers to ERISA-covered plans, but it has no jurisdiction over ERISA-covered pension plans. (v) Significant Alternatives Considered The RFA directs the Department to consider significant alternatives that would accomplish the stated objective, while minimizing any significant adverse impact on small entities. As discussed above, the Department expects this final rule to save money for small and large plans by eliminating materials, printing, and mailing costs. The Department considered keeping the quarterly pension benefit statement as one of the disclosures that can be included in a single annual combined NOIA. Pension benefit statements must be furnished quarterly for participantdirected individual account plans, such as 401k plans. Thus, if a single annual combined NOIA is emailed at the beginning of the year, some participants may not appreciate that subsequent quarterly statements will also be made available online. Furthermore, quarterly VerDate Sep<11>2014 18:54 May 26, 2020 Jkt 250001 benefit statements can prompt participants to take actions such as checking their account balances, increasing deferral rates, or reallocating investments. With one single notice at the beginning of the year, participants may less frequently check their accounts and make changes accordingly. In the Department’s view, this may have detrimental impacts on participants’ retirement savings, although it may bring costs down. Therefore, the Department determines that the approach taken in the final rule is more balanced, protecting participants while saving money. Small plans, like large plans, will incur costs associated with emailing NOIAs and addressing invalid or inoperable electronic addresses quarterly, rather than annually. The Department, however, does not believe this burden will be disproportionally borne by small plans because small plans, having fewer participants, will have fewer electronic addresses to manage and an easier time updating electronic addresses due to the proximity between administrators and participants. The Department, thus, determines that this approach does not disadvantage nor unduly burden small plans. Paragraph (e) of the final rule requires plan administrators to ensure the existence of a website at which covered individuals can access covered documents. In the proposed rule, the Department solicited comments regarding the fraction of plans, particularly small plans, that would need to develop or modify a website in order to rely on this new safe harbor. The Department was particularly concerned about any potential disproportionate burden on small plans that this condition may inadvertently impose. One commenter suggested that small plans are less likely to have their own websites. In addition, one study suggests that slightly more than a quarter (27 percent) of small profit sharing and 401(k) plans (plans with fewer than 50 participants) did not provide any services via internet, whereas only 10 percent of large profit sharing and 401(k) plans (plans with 5,000 participants or more) did not provide any services via internet in 2017.157 In part to mitigate any potential negative impact on small plans, the Department added a new paragraph, 157 See Plan Sponsors Council of America, supra note 109. (Because the Department expects most 401(k) plans to have their own websites, the fraction of small defined benefit plans and nonparticipant-directed defined contribution plans that lack websites will likely be higher than that of small 401(k) plans.) PO 00000 Frm 00039 Fmt 4701 Sfmt 4700 31921 paragraph (k), in the final rule and allows plan administrators to furnish covered documents directly by email as an alternative to the notice and access approach. Therefore, a plan administrator that does not have a website can rely on this new safe harbor to provide electronic disclosure without developing a website. The Department believes this change in the final rule will help more small plan administrators electronically deliver plan-related documents, reducing the administrative burden on small plans. (7) Unfunded Mandates Reform Act Title II of the Unfunded Mandates Reform Act of 1995 158 requires each federal agency to prepare a written statement assessing the effects of any federal mandate in a final rule that may result in an expenditure of $100 million or more (adjusted annually for inflation with the base year 1995) in any one year by state, local, and tribal governments, in the aggregate, or by the private sector. For purposes of the Unfunded Mandates Reform Act, as well as Executive Order 12875, this final rule does not include any federal mandate that will result in such expenditures. This is because the final rule merely provides an alternative, optional safe harbor for pension benefit plans subject to ERISA to use electronic media to furnish required disclosures to participants and beneficiaries. (8) Federalism Statement Executive Order 13132 outlines fundamental principles of federalism. E.O. 13132 requires federal agencies to follow specific criteria in forming and implementing policies that have ‘‘substantial direct effects’’ on the states, the relationship between the national government and states, or on the distribution of power and responsibilities among the various levels of government. Federal agencies promulgating regulations that have federalism implications must consult with state and local officials and describe the extent of their consultation and the nature of the concerns of state and local officials in the preamble to the final rule. In the Department’s view, this final regulation does not have federalism implications because it does not have a direct effect on the states, the relationship between the national government and the states, or on the distribution of power and responsibilities among various levels of government. 158 Public E:\FR\FM\27MYR2.SGM Law 104–4, 109 Stat. 48 (1995). 27MYR2 31922 Federal Register / Vol. 85, No. 102 / Wednesday, May 27, 2020 / Rules and Regulations List of Subjects in 29 CFR Parts 2520 and 2560 Employee benefit plans, Pensions. For the reasons stated in the preamble, the Department of Labor amends 29 CFR parts 2520 and 2560 as follows: PART 2520—RULES AND REGULATIONS FOR REPORTING AND DISCLOSURE 1. The authority citation for part 2520 continues to read as follows: ■ Authority: 29 U.S.C. 1021–1025, 1027, 1029–1031, 1059, 1134 and 1135; and Secretary of Labor’s Order 1–2011 77 FR 1088 (Jan. 9, 2012). Sec. 2520.101–2 also issued under 29 U.S.C. 1132, 1181–1183, 1181 note, 1185, 1185a–b, 1191, and 1191a– c. Secs. 2520.102–3, 2520.104b–1 and 2520.104b–3 also issued under 29 U.S.C. 1003, 1181–1183, 1181 note, 1185, 1185a–b, 1191, and 1191a–c. Secs. 2520.104b–1 and 2520.107 also issued under 26 U.S.C. 401 note, 111 Stat. 788. Sec. 2520.101–5 also issued under sec. 501 of Pub. L. 109–280, 120 Stat. 780, and sec. 105(a), Pub. L. 110–458, 122 Stat. 5092. 2. Amend § 2520.101–3 by revising paragraph (b)(3) to read as follows: ■ § 2520.101–3 Notice of blackout periods under individual account plans. * * * * * (b) * * * (3) Form and manner of furnishing notice. The notice required by paragraph (a) of this section shall be in writing and furnished to affected participants and beneficiaries in any manner consistent with the requirements of § 2520.104b–1 of this chapter, including § 2520.104b–1(c) or § 2520.104b–31 of this chapter relating to the use of electronic media. * * * * * ■ 3. Amend § 2520.104b–1 by revising paragraph (c)(1) introductory text and adding paragraph (f) to read as follows: § 2520.104b–1 Disclosure. jbell on DSKJLSW7X2PROD with RULES2 * * * * * (c) * * * (1) Except as otherwise provided by applicable law, rule or regulation, including the alternative methods for disclosure through electronic media in paragraph (f) of this section, the administrator of an employee benefit plan furnishing documents through electronic media is deemed to satisfy the requirements of paragraph (b)(1) of this section with respect to an individual described in paragraph (c)(2) of this section if: * * * * * (f) Alternative disclosure through electronic media. As an alternative to VerDate Sep<11>2014 18:54 May 26, 2020 Jkt 250001 electronic media disclosure obligations in paragraph (c) of this section, the administrator of an employee benefit plan is deemed to satisfy the requirements of paragraph (b)(1) of this section, provided that the administrator complies with the obligations in 29 CFR 2520.104b–31. ■ 4. Add § 2520.104b–31 to subpart F to read as follows: § 2520.104b–31 Alternative method for disclosure through electronic media— Notice-and-access. (a) Alternative method for disclosure through electronic media—Notice-andaccess. As an alternative to § 2520.104b–1(c), the administrator of an employee benefit plan satisfies the general furnishing obligation in § 2520.104b–1(b)(1) with respect to covered individuals and covered documents, provided that the administrator complies with the notice, access, and other requirements of paragraphs (b) through (k) of this section, as applicable. (b) Covered individual. For purposes of this section, a ‘‘covered individual’’ is a participant, beneficiary, or other individual entitled to covered documents and who—when he or she begins participating in the plan, as a condition of employment, or otherwise—provides the employer, plan sponsor, or administrator (or an appropriate designee of any of the foregoing) with an electronic address, such as an electronic mail (‘‘email’’) address or internet-connected mobilecomputing-device (e.g., ‘‘smartphone’’) number, at which the covered individual may receive a written notice of internet availability, described in paragraph (d) of this section, or an email described in paragraph (k) of this section. Alternatively, if an electronic address is assigned by an employer to an employee for employment-related purposes that include but are not limited to the delivery of covered documents, the employee is treated as if he or she provided the electronic address. (c) Covered documents. For purposes of this section, a ‘‘covered document’’ is: (1) Pension benefit plans. In the case of an employee pension benefit plan, as defined in section 3(2) of the Act, any document or information that the administrator is required to furnish to participants and beneficiaries pursuant to Title I of the Act, except for any document or information that must be furnished only upon request. (2) [Reserved] (d) Notice of internet availability—(1) General. The administrator must furnish PO 00000 Frm 00040 Fmt 4701 Sfmt 4700 to each covered individual a notice of internet availability for each covered document in accordance with the requirements of this section. (2) Timing of notice of internet availability. A notice of internet availability must be furnished at the time the covered document is made available on the website described in paragraph (e) of this section. However, if an administrator furnishes a combined notice of internet availability for more than one covered document, as permitted under paragraph (i) of this section, the requirements of this paragraph (d)(2) are treated as satisfied if the combined notice of internet availability is furnished each plan year, and, if the combined notice of internet availability was furnished in the prior plan year, no more than 14 months following the date the prior plan year’s notice was furnished. (3) Content of notice of internet availability. (i) A notice of internet availability furnished pursuant to this section must contain the information set forth in paragraphs (d)(3)(i)(A) through (H) of this section: (A) A prominent statement—for example as a title, legend, or subject line—that reads: ‘‘Disclosure About Your Retirement Plan.’’ (B) A statement that reads: ‘‘Important information about your retirement plan is now available. Please review this information.’’ (C) An identification of the covered document by name (for example, a statement that reads: ‘‘your Quarterly Benefit Statement is now available’’) and a brief description of the covered document if identification only by name would not reasonably convey the nature of the covered document. (D) The internet website address, or a hyperlink to such address, where the covered document is available. The website address or hyperlink must be sufficiently specific to provide ready access to the covered document and will satisfy this standard if it leads the covered individual either directly to the covered document or to a login page that provides, or immediately after a covered individual logs on provides, a prominent link to the covered document. (E) A statement of the right to request and obtain a paper version of the covered document, free of charge, and an explanation of how to exercise this right. (F) A statement of the right, free of charge, to opt out of electronic delivery and receive only paper versions of covered documents, and an explanation of how to exercise this right. E:\FR\FM\27MYR2.SGM 27MYR2 jbell on DSKJLSW7X2PROD with RULES2 Federal Register / Vol. 85, No. 102 / Wednesday, May 27, 2020 / Rules and Regulations (G) A cautionary statement that the covered 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 of the covered document. (H) A telephone number to contact the administrator or other designated representative of the plan. (ii) A notice of internet availability furnished pursuant to this section may contain a statement as to whether action by the covered individual is invited or required in response to the covered document and how to take such action, or that no action is required, provided that such statement is not inaccurate or misleading. (4) Form and manner of furnishing notice of internet availability. A notice of internet availability must: (i) Be furnished electronically to the address referred to in paragraph (b) of this section; (ii) Contain only the content specified in paragraph (d)(3) of this section, except that the administrator may include pictures, logos, or similar design elements, so long as the design is not inaccurate or misleading and the required content is clear; (iii) Be furnished separately from any other documents or disclosures furnished to covered individuals, except as permitted under paragraph (i) of this section; and (iv) Be written in a manner calculated to be understood by the average plan participant. (e) Standards for internet website. (1) The administrator must ensure the existence of an internet website at which a covered individual is able to access covered documents. (2) The administrator must take measures reasonably calculated to ensure that: (i) The covered document is available on the website no later than the date on which the covered document must be furnished under the Act; (ii) The covered document remains available on the website at least until the date that is one year after the date the covered document is made available on the website pursuant to paragraph (e)(2)(i) of this section or, if later, the date it is superseded by a subsequent version of the covered document; (iii) The covered document is presented on the website in a manner calculated to be understood by the average plan participant; (iv) The covered document is presented on the website in a widelyavailable format or formats that are suitable to be both read online and printed clearly on paper; VerDate Sep<11>2014 18:54 May 26, 2020 Jkt 250001 (v) The covered document can be searched electronically by numbers, letters, or words; and (vi) The covered document is presented on the website in a widelyavailable format or formats that allow the covered document to be permanently retained in an electronic format that satisfies the requirements of paragraph (e)(2)(iv) of this section. (3) The administrator must take measures reasonably calculated to ensure that the website protects the confidentiality of personal information relating to any covered individual. (4) For purposes of this section, the term website means an internet website, or other internet or electronic-based information repository, such as a mobile application, to which covered individuals have been provided reasonable access. (f) Right to copies of paper documents or to opt out of electronic delivery. (1) Upon request from a covered individual, the administrator must promptly furnish to such individual, free of charge, a paper copy of a covered document. Only one paper copy of any covered document must be provided free of charge under this section. (2) Covered individuals must have the right, free of charge, to globally opt out of electronic delivery and receive only paper versions of covered documents. Upon request from a covered individual, the administrator must promptly comply with such an election. (3) The administrator must establish and maintain reasonable procedures governing requests or elections under paragraphs (f)(1) and (2) of this section. The procedures are not reasonable if they contain any provision, or are administered in a way, that unduly inhibits or hampers the initiation or processing of a request or election. (4) The system for furnishing a notice of internet availability must be designed to alert the administrator of a covered individual’s invalid or inoperable electronic address. If the administrator is alerted that a covered individual’s electronic address has become invalid or inoperable, such as if a notice of internet availability sent to that address is returned as undeliverable, the administrator must promptly take reasonable steps to cure the problem (for example, by furnishing a notice of internet availability to a valid and operable secondary electronic address that had been provided by the covered individual, if available, or obtaining a new valid and operable electronic address for the covered individual) or treat the covered individual as if he or she made an election under paragraph (f)(2) of this section. If the covered PO 00000 Frm 00041 Fmt 4701 Sfmt 4700 31923 individual is treated as if he or she made an election under paragraph (f)(2) of this section, the administrator must furnish to the covered individual, as soon as is reasonably practicable, a paper version of the covered document identified in the undelivered notice of internet availability. (g) Initial notification of default electronic delivery and right to opt out. The administrator must furnish to each individual, prior to the administrator’s reliance on this section with respect to such individual, a notification on paper that covered documents will be furnished electronically to an electronic address; identification of the electronic address that will be used for the individual; any instructions necessary to access the covered documents; a cautionary statement that the covered 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 of the covered document; a statement of the right to request and obtain a paper version of a covered document, free of charge, and an explanation of how to exercise this right; and a statement of the right, free of charge, to opt out of electronic delivery and receive only paper versions of covered documents, and an explanation of how to exercise this right. A notification furnished pursuant to this paragraph (g) must be written in a manner calculated to be understood by the average plan participant. (h) Special rule for severance from employment. At the time a covered individual who is an employee, and for whom an electronic address assigned by an employer pursuant to paragraph (b) of this section is used to furnish covered documents, severs from employment with the employer, the administrator must take measures reasonably calculated to ensure the continued accuracy and availability of such electronic address or to obtain a new electronic address that enables receipt of covered documents following the individual’s severance from employment. (i) Special rule for annual combined notices of internet availability. Notwithstanding the requirements in paragraphs (d)(4)(ii) and (iii) of this section, an administrator may furnish one notice of internet availability that incorporates or combines the content required by paragraph (d)(3) of this section with respect to one or more of the following: (1) A summary plan description, as required pursuant to section 104(a) of the Act; (2) Any covered document or information that must be furnished E:\FR\FM\27MYR2.SGM 27MYR2 31924 Federal Register / Vol. 85, No. 102 / Wednesday, May 27, 2020 / Rules and Regulations jbell on DSKJLSW7X2PROD with RULES2 annually, rather than upon the occurrence of a particular event, and does not require action by a covered individual by a particular deadline; (3) Any other covered document if authorized in writing by the Secretary of Labor, by regulation or otherwise, in compliance with section 110 of the Act; and (4) Any applicable notice required by the Internal Revenue Code if authorized in writing by the Secretary of the Treasury. (j) Reasonable procedures for compliance. The conditions of this section are satisfied, notwithstanding the fact that the covered documents described in paragraph (b) of this section are temporarily unavailable for a reasonable period of time in the manner required by this section due to technical maintenance or unforeseeable events or circumstances beyond the control of the administrator, provided that: (1) The administrator has reasonable procedures in place to ensure that the covered documents are available in the manner required by this section; and (2) The administrator takes prompt action to ensure that the covered documents become available in the manner required by this section as soon as practicable following the earlier of the time at which the administrator knows or reasonably should know that the covered documents are temporarily unavailable in the manner required by this section. (k) Alternative method for disclosure through email systems. Notwithstanding any other provision of this section, an administrator satisfies the general furnishing obligation in § 2520.104b– 1(b)(1) by using an email address to furnish a covered document to a covered individual, provided that: (1) The covered document is sent to a covered individual’s email address, referred to in paragraph (b) of this section, no later than the date on which the covered document must be furnished under the Act. (2) In lieu of furnishing a notice of internet availability pursuant to paragraph (d) of this section, the administrator sends an email pursuant to this paragraph (k) that: VerDate Sep<11>2014 18:54 May 26, 2020 Jkt 250001 (i) Includes the covered document in the body of the email or as an attachment; (ii) Includes a subject line that reads: ‘‘Disclosure About Your Retirement Plan’’; (iii) Includes the information described in paragraph (d)(3)(i)(C) of this section if the covered document is an attachment (identification or brief description of the covered document), paragraphs (d)(3)(i)(E) (statement of right to paper copy of covered document), (d)(3)(i)(F) (statement of right to opt out of electronic delivery), and (d)(3)(i)(H) (a telephone number) of this section; and (iv) Complies with paragraph (d)(4)(iv) of this section (relating to readability). (3) The covered document is: (i) Written in a manner reasonably calculated to be understood by the average plan participant; (ii) Presented in a widely-available format or formats that are suitable to be read online, printed clearly on paper, and permanently retained in an electronic format that satisfies the preceding requirements in this sentence; and (iii) Searchable electronically by numbers, letters, or words. (4) The administrator: (i) Takes measures reasonably calculated to protect the confidentiality of personal information relating to the covered individual; and (ii) Complies with paragraphs (f) (relating to copies of paper documents or the right to opt out); (g) (relating to the initial notification of default electronic delivery), except for the cautionary statement; and (h) (relating to severance from employment) of this section. (l) Dates; severability. (1) This section is applicable July 27, 2020. (2) If any provision of this section is held to be invalid or unenforceable by its terms, or as applied to any person or circumstance, or stayed pending further agency action, the provision shall be construed so as to continue to give the maximum effect to the provision permitted by law, unless such holding PO 00000 Frm 00042 Fmt 4701 Sfmt 9990 shall be one of invalidity or unenforceability, in which event the provision shall be severable from this section and shall not affect the remainder thereof. PART 2560—RULES AND REGULATIONS FOR ADMINISTRATION AND ENFORCEMENT 5. The authority citation for part 2560 continues to read as follows: ■ Authority: 29 U.S.C. 1132, 1135, and Secretary of Labor’s Order 1–2011, 77 FR 1088 (Jan. 9, 2012). Section 2560.503–1 also issued under 29 U.S.C. 1133. Section 2560.502c–7 also issued under 29 U.S.C. 1132(c)(7). Section 2560.502c–4 also issued under 29 U.S.C. 1132(c)(4). Section 2560.502c–8 also issued under 29 U.S.C. 1132(c)(8). 6. Amend § 2560.503–1 by revising the second sentence of paragraph (g)(1) introductory text and the second sentence of paragraph (j)(1) to read as follows: ■ § 2560.503–1 Claims procedure. * * * * * (g) * * * (1) * * * Any electronic notification shall comply with the standards imposed by 29 CFR 2520.104b– 1(c)(1)(i), (iii), and (iv), or with the standards imposed by 29 CFR 2520.104b–31 (for pension benefit plans). * * * * * * * * (j) * * * (1) * * * Any electronic notification shall comply with the standards imposed by 29 CFR 2520.104b– 1(c)(1)(i), (iii), and (iv), or with the standards imposed by 29 CFR 2520.104b–31 (for pension benefit plans). * * * * * * * * Signed at Washington, DC, May 15, 2020. Eugene Rutledge, Assistant Secretary, Employee Benefits Security Administration, Department of Labor. [FR Doc. 2020–10951 Filed 5–21–20; 8:45 am] BILLING CODE 4510–29–P E:\FR\FM\27MYR2.SGM 27MYR2

Agencies

[Federal Register Volume 85, Number 102 (Wednesday, May 27, 2020)]
[Rules and Regulations]
[Pages 31884-31924]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-10951]



[[Page 31883]]

Vol. 85

Wednesday,

No. 102

May 27, 2020

Part III





Department of Labor





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Employee Benefits Security Administration





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29 CFR Parts 2520 and 2560





Default Electronic Disclosure by Employee Pension Benefit Plans Under 
ERISA; Final Rule

Federal Register / Vol. 85, No. 102 / Wednesday, May 27, 2020 / Rules 
and Regulations

[[Page 31884]]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration

29 CFR Parts 2520 and 2560

RIN 1210-AB90


Default Electronic Disclosure by Employee Pension Benefit Plans 
Under ERISA

AGENCY: Employee Benefits Security Administration, Department of Labor.

ACTION: Final rule.

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SUMMARY: The Department of Labor is adopting in this document a new, 
additional safe harbor for employee benefit plan administrators to use 
electronic media, as a default, to furnish information to participants 
and beneficiaries of plans subject to the Employee Retirement Income 
Security Act of 1974 (ERISA). The rule allows plan administrators who 
satisfy specified conditions to provide participants and beneficiaries 
with a notice that certain disclosures will be made available on a 
website, or to furnish disclosures via email. Individuals who prefer to 
receive disclosures on paper can request paper copies of disclosures 
and opt out of electronic delivery entirely. The Department expects the 
rule to enhance the effectiveness of ERISA disclosures and 
significantly reduce the costs and burden associated with furnishing 
many of the recurring and most costly disclosures. In addition to 
benefiting workers, this rule will immediately assist employers and the 
retirement plan industry as they face a number of economic challenges 
due to the COVID-19 emergency, including logistical and other 
impediments to compliance with ERISA's disclosure requirements.

DATES: 
    Effective date: The final rule is effective on July 27, 2020.
    Applicability date: The final rule is applicable on July 27, 2020.

FOR FURTHER INFORMATION CONTACT: Rebecca Davis or Kristen Zarenko, 
Office of Regulations and Interpretations, Employee Benefits Security 
Administration, (202) 693-8500. This is not a toll-free number.

SUPPLEMENTARY INFORMATION: 

A. Background

(1) Original Delivery Standards for ERISA Disclosures

    The Employee Retirement Income Security Act of 1974 (ERISA) and 
regulations thereunder provide general standards for the delivery of 
all information required to be furnished to participants, 
beneficiaries, and other individuals under Title I of ERISA.\1\ Plan 
administrators must use delivery methods reasonably calculated to 
ensure actual receipt of information by participants, beneficiaries, 
and other individuals.\2\ For example, in-hand delivery to an employee 
at his or her workplace is acceptable, as is material sent by first 
class mail. In response to developing internet, email, and similar 
technologies, the Department of Labor (Department) first amended 
ERISA's delivery standards in 2002 by establishing a safe harbor for 
the use of electronic media to furnish disclosures (the 2002 safe 
harbor).\3\ The 2002 safe harbor was not and is not the exclusive means 
by which a plan administrator may use electronic media to satisfy the 
general standard. However, plan administrators who satisfy the 
conditions of a safe harbor are assured that the general delivery 
requirements have been satisfied.
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    \1\ See 29 CFR 2520.104b-1.
    \2\ See 29 CFR 2520.104b-1(b)(1).
    \3\ See 29 CFR 2520.104b-1(c).
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    The 2002 safe harbor, which is set forth in paragraph (c) of Sec.  
2520.104b-1, applies only to two categories of participants and 
beneficiaries: First, employees who are ``wired at work''--those with 
the ability to effectively access electronic disclosures at any 
location where they are reasonably expected to perform their employment 
duties and for whom access to the employer's electronic information 
system is an integral part of those duties; and second, individuals 
entitled to documents under Title I of ERISA who do not fit into the 
first category, but who affirmatively consent to receive documents 
electronically. The 2002 safe harbor also specifies additional 
requirements that must be satisfied in order to furnish ERISA 
disclosures electronically. The preamble to the Department's proposal 
of this regulation included a comprehensive summary of the 2002 safe 
harbor's requirements.\4\ As explained in detail below, the new, 
additional safe harbor adopted today does not supersede the 2002 safe 
harbor; the 2002 safe harbor remains in place as another option for 
plan administrators.
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    \4\ 84 FR 56894, 56895 (Oct. 23, 2019).
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    In addition to the 2002 safe harbor, the Department occasionally 
has issued interpretive guidance allowing different electronic delivery 
methods in limited circumstances. For example, Field Assistance 
Bulletin 2006-03 (FAB 2006-03) allows plan administrators who meet 
specified criteria to provide continuous website access to pension 
benefits statement information required by ERISA section 105.\5\ 
Similarly, Field Assistance Bulletin 2008-03 (FAB 2008-03), which 
provides supplementary interpretive guidance on the Department's 
qualified default investment alternative (QDIA) regulation,\6\ allows 
plan administrators who want to send required QDIA notices 
electronically to rely on either the Department's 2002 safe harbor or 
the regulations issued by the Department of the Treasury (Treasury 
Department) and the Internal Revenue Service (IRS) at 26 CFR 1.401(a)-
21 relating to use of electronic media.\7\ The impact of this final 
rule on these Field Assistance Bulletins and other interpretive 
guidance is discussed below, in the section titled ``Transition 
Issues.''
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    \5\ Field Assistance Bulletin No. 2006-03 (Dec. 20, 2006).
    \6\ See generally 29 CFR 2550.404c-5.
    \7\ See Field Assistance Bulletin No. 2008-03, (Q&A7), quoting 
72 FR 60458 (Oct. 24, 2007).
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(2) Regulatory Background

    The Department is issuing a final rule today following an extensive 
and thorough evaluation not only of the public record for this 
regulatory initiative, but also of other agencies' disclosure rules; 
economic and policy research concerning electronic disclosure; and 
information submitted by, and recommendations of, a variety of 
stakeholders. This evaluation has been ongoing, as electronic 
disclosures and modes of delivery have developed over time and as the 
Department over the years has released additional disclosure 
requirements and interpretive guidance following issuance of the 2002 
safe harbor. The Department consistently receives feedback about 
compliance with the 2002 safe harbor and suggestions for how the safe 
harbor could be improved, sometimes in response to other regulatory 
projects, sometimes in response to ERISA Advisory Council proceedings, 
and otherwise. A first formal step, however, was the Department's 2011 
publication of a Request for Information (RFI) Regarding Electronic 
Disclosure \8\ in response to Executive Order 13563, ``Improving 
Regulation and Regulatory Review,'' issued on January 18, 2011.\9\ The 
RFI asked 30 questions soliciting views, suggestions, and comments from 
employee benefit plan stakeholders, their representatives, and the 
general public on whether and how to expand

[[Page 31885]]

or modify the 2002 safe harbor. The Department carefully evaluated 
responses to this RFI to better understand the benefits, challenges, 
and costs of electronic delivery and other disclosure-related 
issues.\10\
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    \8\ 76 FR 19286 (Apr. 7, 2011).
    \9\ See 76 FR 3821 (Jan. 21, 2011). The Executive Order stresses 
the importance of achieving regulatory goals through the most 
innovative and least burdensome tools available.
    \10\ The Department received approximately 78 comments on the 
2011 RFI, which are available at https://www.dol.gov/agencies/ebsa/laws-and-regulations/rules-and-regulations/public-comments/1210-AB50.
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    Since publication of the 2011 RFI, the Department has analyzed 
whether there are more effective ways to regulate the disclosure and 
delivery of information to ERISA plan participants and beneficiaries. 
Stakeholders routinely ask the Department to recognize ongoing changes 
in technology, as some other federal agencies have done, and to take 
advantage of those changes by updating and modernizing ERISA's 
electronic delivery standards in the 2002 safe harbor. The Department 
has had numerous discussions with staff of other federal government 
agencies after reviewing their guidance and standards for electronic 
delivery of required information, including the Treasury Department, 
IRS, and the Securities and Exchange Commission (SEC). The preamble to 
the Department's proposed regulation discussed at length the 
Department's review of these agencies' guidance, all of which informed 
the Department in publishing the proposed rule, as did standards and 
practices of the Social Security Administration, the Comptroller of the 
Currency, and the Federal Thrift Savings Plan (TSP).\11\ Commenters 
agreed that it is important for the Department to continue coordinating 
with other agencies, especially the Treasury Department, IRS, and 
SEC.\12\ Plan administrators and service providers may have to comply 
with other federal and state requirements in administering their plans, 
and commenters therefore encouraged as much coordination as possible to 
limit the regulatory burden that may result from inconsistent 
standards.
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    \11\ 84 FR 56894, at 56897 et seq.
    \12\ One commenter recommended that the Department coordinate 
with the Federal Communications Commission (FCC) to ensure that the 
use of smartphones to comply with this rule will not conflict with 
FCC guidance. The FCC was included as part of the Executive Order 
12866 review process and raised no objection to the requirements of 
this final rule.
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    The Department also met with stakeholders and reviewed recent 
studies and policy and economic analyses concerning disclosure 
practices, as well as changes in internet access and usage across 
different populations. Entities such as the ERISA Advisory Council \13\ 
and the U.S. Government Accountability Office \14\ also have made 
recommendations to the Department concerning possible changes to 
ERISA's electronic delivery rules to improve participants' disclosure 
experience and reduce administrative burdens. And the Department 
continues to closely monitor Congressional interest in expanding the 
use of electronic media for ERISA disclosures.\15\
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    \13\ See, e.g., Mandated Disclosure for Retirement Plans--
Enhancing Effectiveness for Participants and Sponsors, ERISA 
Advisory Council (Nov. 2017); 2009 ERISA Advisory Council Report on 
Promoting Retirement Literacy and Security by Streamlining 
Disclosures, at https://www.dol.gov/agencies/ebsa/about-ebsa/about-us/erisa-advisory-council/2009-promoting-retirement-literacy-and-security-by-streamlining-disclosures-to-participants-and-beneficiaries; 2007 ERISA Advisory Council Working Group Report on 
Participant Benefit Statements, at https://www.dol.gov/agencies/ebsa/about-ebsa/about-us/erisa-advisory-council/2007-participant-benefit-statements; and 2006 ERISA Advisory Council Report Working 
Group on Prudent Investment Process, at https://www.dol.gov/agencies/ebsa/about-ebsa/about-us/erisa-advisory-council/2006-prudent-investment-process.
    \14\ See GAO-14-92, Private Pensions: Clarity of Required 
Reports and Disclosures Could Be Improved, p. 40, GAO (Nov. 2013), 
https://www.gao.gov/assets/660/659211.pdf.
    \15\ For example, the Setting Every Community Up for Retirement 
Enhancement Act of 2019, enacted December 20, 2019, Public Law 116-
94 (``SECURE Act''), reflects Congressional interest in expanding 
electronic delivery of ERISA disclosures and other information. 
Specifically, section 101(c) of the SECURE Act, which amended 
section 3 of ERISA, requires the terms of a pooled employer plan to 
provide that certain disclosures and other information may be 
provided in electronic form. See also Joint Committee on Taxation, 
Technical Explanation of H.R. 4, the ``Pension Protection Act of 
2006,'' as Passed by the House on July 28, 2006, and as considered 
by the Senate on Aug. 3, 2006 (JCX-38-06), Aug. 3, 2006 (regulations 
relating to the furnishing of pension benefit statements, ``could 
permit current benefit statements to be provided on a continuous 
basis through a secure plan website for a participant or beneficiary 
who has access to the website''); Secretary of Labor's 2018 
Testimony before the Senate Appropriations Subcommittees on Labor, 
Health and Human Services, Education, Review of the FY 2019 Dept. of 
Labor Budget Request, Senate, 115th Cong. (April 12, 2018), https://www.appropriations.senate.gov/hearings/review-of-the-fy2019-dept-of-labor-budget-request; and 2017 and 2018 legislative activity 
concerning the Receiving Electronic Statements to Improve Retiree 
Earnings Act (RETIRE) Act, at H.R. 4610 (Dec. 11, 2017) and S. 3795 
(Dec. 19, 2018).
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    A final important development, prior to the Department's issuance 
of the proposed regulation in October 2019, was the President's 
issuance of Executive Order 13847 on August 31, 2018.\16\ In relevant 
part, the Order instructed the Department, in consultation with the 
Treasury Department, to review whether regulatory or other actions 
could be taken to improve the effectiveness of required disclosures and 
ease the costs and regulatory burdens given the number and complexity 
of ERISA notices. In compliance with the Order, the Department worked 
with Treasury Department staff throughout the regulatory process and, 
within the required one-year period, completed a review of actions that 
could be taken ``to make retirement plan disclosures required under 
ERISA and the Internal Revenue Code of 1986 more understandable and 
useful for participants and beneficiaries, while also reducing the 
costs and burdens they impose on employers and other plan fiduciaries 
responsible for their production and distribution.'' \17\ The Order 
directed that the Department consider proposing appropriate regulations 
or other guidance, if a determination is made that action should be 
taken. The Department's proposed regulation, issued October 23, 2019 
and finalized herein, directly responds to the mandate set forth in 
Executive Order 13847.\18\
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    \16\ E.O. 13847, Strengthening Retirement Security in America, 
83 FR 45321 (Sept. 6, 2018).
    \17\ Id.
    \18\ A few commenters suggested that the proposed regulation 
inadequately responded to the Executive Order 13847, because the 
proposal focused on delivery, as opposed to other methods of 
improving the effectiveness of disclosures. The Department does not 
agree with these commenters. At the outset, the Executive Order does 
not require the Department to issue any proposed or final rule, but 
only to review policies and, if warranted, ``consider proposing 
appropriate regulations or guidance.'' Id. section 2(c). The 
Executive Order also does not create any enforceable rights against 
the Department. See id. section 3(c). Regardless, the Department is 
confident that the new safe harbor substantially responds to both 
prongs of the Executive Order. As discussed in the Regulatory Impact 
Analysis section of this document, a notice-and-access framework 
will significantly reduce plan costs. Further, a notice-and-access 
framework also facilitates, among other things, interactivity, just-
in-time notifications, layered or nested information, word and 
number searching, engagement monitoring, anytime or anywhere access, 
and potentially improved visuals, tutorials, assistive technology 
for those with disabilities, and translation software, even though 
this rule does not mandate such practices. These features may be 
used to improve participants' and beneficiaries' disclosure 
experiences. Further, the RFI (published with the proposed rule) 
solicited information, data, and ideas on additional measures 
(beyond the electronic delivery safe harbor in 29 CFR 2520.104b-31) 
that the Department could take in the future (either as part of 
finalizing the proposal in this document, or a separate regulatory 
or appropriate guidance initiative) to improve the effectiveness of 
ERISA disclosures, especially with respect to design and content of 
ERISA disclosures.
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    In the preamble to the proposal, the Department described in detail 
the standard of the Treasury Department and the IRS for notices using 
electronic media, which was issued in 2006 at 26 CFR 1.401(a)-21.\19\ 
Affected parties, including the ERISA Advisory Council, had previously 
encouraged the

[[Page 31886]]

Department to allow plan administrators to rely on this standard, which 
they generally interpret as more flexible than the Department's 2002 
safe harbor, when furnishing ERISA disclosures.\20\ The Department has, 
in limited circumstances and pursuant to temporary guidance, allowed 
plan administrators to rely on the Treasury Department's electronic 
media regulation for applicable notices at 26 CFR 1.401(a)-21(c) as an 
alternative to reliance on the 2002 safe harbor.\21\ In light of 
Executive Order 13847 requiring consultation with the Treasury 
Department, the preamble to the proposal explained that the 
Department's new proposed safe harbor was intended to align with the 
Treasury Department's electronic media regulation. The Department 
invited interested parties to share their views on whether this 
objective is desirable and what other steps might be needed to achieve 
it. Commenters consistently took the position that it was unclear 
whether an ``intention to align'' meant that a plan administrator's use 
of the notice-and-access framework in the proposal for Code disclosures 
would satisfy the applicable Treasury Department electronic media 
regulations. Commenters encouraged the Department to obtain 
confirmation of this position from the Treasury Department to eliminate 
any uncertainty.\22\ The Department provided these comments to the 
Treasury Department for its consideration. The Treasury Department and 
the IRS have indicated that they intend to issue additional guidance 
relating to the use of electronic delivery for participant notices. 
This final rule is considered to be an Executive Order 13771 
deregulatory action. Details on the estimated cost savings of this 
final rule can be found in the Regulatory Impact Analysis, below.
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    \19\ 84 FR 56894 at 56897, 56898.
    \20\ For example, in comments submitted to the ERISA Advisory 
Council in 2017, the Department was encouraged to adopt the Treasury 
Department's approach. See Groom Law Group, statement to the ERISA 
Advisory Council, June 7, 2017, p. 4, available at https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/about-us/erisa-advisory-council/2017-mandated-disclosure-for-retirement-plans-levine-and-winters-written-statement-06-07.pdf.
    \21\ See, e.g., Field Assistance Bulletin No. 2006-03 (Dec. 20, 
2006), providing for ``the furnishing of pension benefit statements 
in accordance with the provisions of [26 CFR ] 1.401(a)-21, as good 
faith compliance with the requirement to furnish pension benefit 
statements to participants and beneficiaries'' under ERISA.
    \22\ A few commenters suggested that the Treasury Department 
also should explicitly adopt a notice-and-access framework. The 
Department provided these comments to the Treasury Department for 
its consideration.
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(3) Purpose of Regulatory Action

    The Department's principal objective in finalizing this rule is to 
carefully update, based on a comprehensive public record, ERISA's 
electronic delivery rules for required disclosures to better leverage 
ongoing improvements in online and mobile-based technology and 
communications and to provide a structure that will be appealing to, 
and workable for, today's workers. In doing so, the Department believes 
the framework of this final rule strikes an appropriate balance between 
competing policy goals--on the one hand taking advantage of the 
innovations and reduced costs that may be achieved through enhanced use 
of electronic communication, and on the other hand ensuring suitable 
safeguards for participants and beneficiaries who may be less ready to 
move to electronic communication (or who simply prefer paper).
    The final rule reflects the Department's reliance on a wide variety 
of sources of evidence concerning individuals' access to, and use of, 
electronic media in the United States:
     A 2019 survey found that 90 percent of U.S. adults use the 
internet, representing a substantial increase from 2000 when 52 percent 
of U.S. adults reported using the internet.\23\
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    \23\ Monica Anderson, Andrew Perrin, et al, 10% of Americans 
don't use the internet. Who are they?, Pew Research Center (Apr. 22, 
2019). Available at https://www.pewresearch.org/fact-tank/2019/04/22/some-americans-dont-use-the-internet-who-are-they/.
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     A 2017 survey by the U.S. Census Bureau estimated that 87 
percent of the U.S. population lives in a home with a broadband 
internet subscription.\24\
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    \24\ ``Types of internet Subscriptions by Selected 
Characteristics,'' U.S. Census Bureau American Community Survey 1-
Year Estimates (Table S2802) (2017).
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     A 2019 survey found that among non-broadband users, 45 
percent cite their smartphone as a reason for not subscribing to high-
speed internet service at home.\25\
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    \25\ See Monica Anderson, Mobile Technology and Home Broadband 
2019, Pew Research Center (June 13, 2019), https://www.pewresearch.org/internet/wp-content/uploads/sites/9/2019/06/PI_2019.06.13_Mobile-Technology-and-Home-Broadband_FINAL2.pdf.
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     A 2018 study concluded that 93 percent of households 
owning defined contribution accounts had access to, and used, the 
internet in 2016.\26\
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    \26\ Peter Swire and DeBrae Kennedy-May, ``Delivering ERISA 
Disclosure for Defined Contribution Plans: Why the Time has Come to 
Prefer Electronic Delivery--2018 Update,'' (April 2018), p. 19., See 
Also ICI Research Perspective, ``Ownership of Mutual Funds, 
Shareholder Sentiment, and Use of the internet, 2018'' (November 
2018), finding among households with defined contribution plans, 92% 
had access to the internet in 2016 and 93% had access in 2018.
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     A 2015 survey of retirement plan participants' online 
habits indicated that 99 percent reported having internet access at 
home or work, and 88 percent of respondents reported accessing the 
internet on a daily basis.\27\
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    \27\ 2015 Telephone Survey Conducted by Greenwald & Associates 
for the SPARK Institute. Improving Outcomes with Electronic Delivery 
of Retirement Plan Documents, Quantria Strategies, (June 2015), 
https://www.sparkinstitute.org/content-files/improving_outcomes_with_electronic_delivery_of_retirement_plan_documents.pdf.
---------------------------------------------------------------------------

     A 2015 report observed that smartphones are used for much 
more than calling, texting, or basic internet browsing. Based on 
surveys, the report notes that 62 percent of smartphone owners have 
used their smartphones in the past year to look up information about a 
health condition; 57 percent, to do online banking; 44 percent, to look 
up real estate listings; 43 percent, to look up information about a 
job; 40 percent, to look up government services or information; 30 
percent, to take a class or find education content; and 18 percent, to 
submit a job application.\28\
---------------------------------------------------------------------------

    \28\ Aaron Smith, Smartphone Use in 2015, Pew Research Center, 
(April 1, 2015), https://www.pewresearch.org/internet/2015/04/01/us-smartphone-use-in-2015/.

The Department believes that these trends have continued to the present 
and will into the future, increasing the number of individuals for whom 
electronic delivery of ERISA disclosures is appropriate or preferred.

(4) 2019 Proposed Regulation and Request for Information

    In October 2019, the Department published in the Federal Register a 
proposed rule and RFI intended to expand the methods by which required 
ERISA disclosures may be furnished electronically.\29\ The proposal 
would allow plan administrators who satisfy certain conditions to 
notify participants and beneficiaries that certain disclosures will be 
made available on a website, while preserving the right of these 
individuals to opt out of electronic delivery and to request paper 
copies of disclosures. The Department invited interested persons to 
submit comments on the proposed rule and RFI and, in response to this 
invitation, the Department received 257 written comments from a variety 
of parties, including plan sponsors and fiduciaries, plan service and 
investment providers, and employee benefit plan and participant 
representatives, as well as 210 submissions in response to a petition. 
These comments are available for review on the ``Public Comments'' page 
under the ``Laws and Regulations'' tab of the Department's Employee

[[Page 31887]]

Benefits Security Administration website.\30\ This Notice includes a 
detailed discussion of the provisions of the final rule, the public 
comments received by the Department, and how these comments impacted 
the Department's decision-making when adopting the final rule.
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    \29\ 84 FR 56894 (Oct. 23, 2019).
    \30\ https://www.dol.gov/agencies/ebsa/laws-and-regulations/rules-and-regulations/public-comments/1210-AB90. A few commenters on 
the proposal requested an extension, arguing that the 30-day comment 
period for the proposed rule was unreasonable and insufficient to 
adequately address the many complex issues presented by the 
proposal. One commenter further requested that the Department hold a 
hearing on the proposal prior to issuing final guidance. The 
Department declined these requests, in part because so few 
commenters raised the objections, and also because most issues 
relevant to electronic disclosure have been analyzed and reviewed by 
the Department and the public for many years, especially after the 
2011 RFI and temporary guidance issued by the Department. A 
substantial and comprehensive public record exists, supplemented and 
updated with comments on the proposed rule. The Department disagrees 
that a public hearing is necessary to supplement an already 
comprehensive public record. The scope and depth of the public 
record that has been developed belies arguments that a 30-day 
comment period was insufficient.
---------------------------------------------------------------------------

    The Department also issued the RFI on electronic disclosure based 
on the Department's conclusion, at the time the proposed rule was 
published, that further information from stakeholders is necessary 
before proposing any substantive regulatory additions, deletions, or 
changes to ERISA's disclosures themselves, as opposed to changes in the 
means of delivery for such disclosures. The RFI, which was included in 
the preamble to the proposed rule (as opposed to being a stand-alone 
document), contained a series of questions to elicit views from all 
interested parties on additional ways to improve the usefulness and 
effectiveness of ERISA disclosures, for example with respect to the 
design or content of disclosures. The Department is analyzing responses 
to the RFI to determine whether regulatory or other action, in addition 
to today's final rule on electronic delivery of disclosures, should be 
taken to further enhance the effectiveness of ERISA's disclosures.\31\
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    \31\ Review of comments on the RFI also is responsive to 
Executive Order 13847, which directed the Department to improve the 
effectiveness of plan disclosures, in addition to exploring 
reductions in employer costs and administrative burden, through 
expanded use of electronic delivery. See generally E.O. 13847, 83 FR 
45321 (Sept. 6, 2018).
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B. Final Rule--Alternative Method for Disclosure Through Electronic 
Media

    The Department is amending part 2520 by adding a new section, Sec.  
2520.104b-31, entitled ``Alternative method for disclosure through 
electronic media.'' This section is a regulatory safe harbor that 
provides a new, optional method for compliance with ERISA's general 
standard for furnishing or delivering disclosures to participants and 
beneficiaries. A number of commenters on the proposed rule asked about 
the relationship between the new safe harbor and the existing 2002 
electronic delivery safe harbor. Some commenters indicated satisfaction 
with the existing safe harbor. The new safe harbor is an additional 
method of delivery and does not substantively change the 2002 safe 
harbor.\32\ Plan administrators, therefore, have additional flexibility 
with the rule in selecting the electronic delivery method that works 
best for the plan and its participants and beneficiaries. Plan 
administrators who wish to continue to rely on the 2002 safe harbor for 
electronic delivery, or to furnish paper documents by hand-delivery or 
by mail, can continue doing so.
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    \32\ In response to comments, non-substantive conforming 
amendments are being made to the 2002 safe harbor to facilitate the 
new safe harbor. For example, in response to commenters' requests, 
the Department is adding a cross reference to the new safe harbor in 
paragraph (f) of Sec.  2520.104b-1 to improve regulatory clarity. 
Similar conforming amendments were made to Sec. Sec.  2520.101-
3(b)(3) and 2560.503-1.
---------------------------------------------------------------------------

    Most commenters on the rule, as a general matter, believe that the 
new framework is a welcome addition to the 2002 safe harbor, which they 
argue is difficult for them to satisfy with respect to many 
participants and beneficiaries. In support of this position, these 
commenters cited with approval the many prior recommendations of the 
ERISA Advisory Council, the U.S. Government Accountability Office, and 
other parties.\33\ These commenters also argue that electronic 
disclosure is both feasible and preferred; that paper disclosure is 
very costly; that participants' disclosure experiences can be improved 
online; that data obtained online enables plans to improve disclosures; 
that online activity may improve participants' savings rates and 
retirement outcomes; that participants can access information online at 
any time; and that web-based disclosures have the capacity to serve 
diverse populations better than traditional paper disclosures.
---------------------------------------------------------------------------

    \33\ These recommendations also are set forth in the preamble to 
the proposed rule. See 84 FR 56899, 56900.
---------------------------------------------------------------------------

    Commenters who object to the new safe harbor, on the whole, believe 
that the 2002 safe harbor is sufficient on its own and is a preferable 
rule because it retains paper delivery as the default.\34\ The 
principal argument of these commenters against the proposal is that 
some participants and beneficiaries lack reasonable access to the 
internet and others simply prefer paper, and the proposed rule, if 
finalized, would fail to adequately protect the interests of both 
categories of individuals. The Department disagrees with this argument. 
The statistics cited above, under the heading ``Purpose of Regulatory 
Action,'' show nearly universal access to the internet among 
individuals who participate in an ERISA covered plan. These statistics 
also demonstrate significant and upward trends in both access to, and 
usage of, the internet by individuals covered by ERISA plans, including 
for banking, research, and other non-browsing functions. Despite these 
statistics, however, the Department understands that some people prefer 
paper documents for a variety of legitimate personal reasons, including 
improved reading comprehension, distrust of electronic storage 
solutions, computer illiteracy, difficulty navigating websites, 
username and password fatigue or forgetfulness, and the cost of 
computer hardware and establishing and maintaining access to the 
internet or managing files electronically. The final rule, therefore, 
honors the preference of these individuals by including several key 
provisions to ensure that if covered individuals desire paper 
documents, plans must accommodate these individuals with minimal 
friction. The first, and perhaps most important, of these conditions in 
the final rule is the provision that guarantees covered individuals a 
right to request and receive paper copies of specific covered documents 
or to globally opt out of electronic delivery altogether. This 
provision alone addresses commenters' major concerns with a plan 
administrator's decision to change the default mode of delivery from 
paper to electronic media. Second, not only are plan administrators 
prohibited from charging covered individuals a fee in connection with 
their exercise of these rights, plan administrators also are prohibited 
from having procedurally cumbersome or complex processes for exercising 
these rights. Thus, a covered individual's decision to receive paper 
disclosures must be respected and cannot be met with economic or 
procedural hindrances. Finally, the final rule mandates that covered 
individuals

[[Page 31888]]

receive multiple reminders, on different mediums, of these rights. 
Thus, a participant's initial decision against opting out of electronic 
delivery is not permanent and can be revisited with each reminder or at 
any time. Collectively these three provisions protect individuals' 
preference for paper by guaranteeing a right to it and by barring plan 
administrators from imposing unreasonable burdens on exercising this 
right.
---------------------------------------------------------------------------

    \34\ One of these commenters requested that, to prevent the 
misuse of any cost savings attributable to this final rule, the 
Department require plan administrators to document all savings 
attributable to their reliance on this safe harbor and apply these 
savings directly to participants' accounts or benefits. Such a 
request is beyond the scope of this safe harbor and ERISA's 
disclosure requirements, which are the subject of this rulemaking.
---------------------------------------------------------------------------

    The final rule adopted today is fundamentally similar to the 
proposed rule, although modifications were made to reflect a variety of 
comments from affected parties. As in the proposal, the final rule 
establishes a safe harbor for compliance with ERISA's general standard 
for delivery of disclosures to participants and beneficiaries.\35\ The 
general scope of the safe harbor relief is set forth in paragraph (a) 
of the final rule. Paragraphs (b) through (k) of the final rule set 
forth the detailed conditions to receiving the relief, and paragraph 
(l) contains the effective and applicability date. The detailed 
conditions are discussed below along with public comments on the 
proposal. The safe harbor applies only to ``covered individuals'' and 
only with respect to ``covered documents.'' Over 10 years, the new safe 
harbor will save plans approximately $3.2 billion net, annualized to 
$349 million per year (using a 3 percent discount rate).\36\
---------------------------------------------------------------------------

    \35\ Commenters have asked about the application of ERISA's 
fiduciary standards and other statutory requirements to electronic 
disclosure in varying contexts. This safe harbor addresses only a 
plan administrator's compliance with ERISA's standard for the 
furnishing of covered documents to covered individuals. It neither 
addresses nor supplants more general fiduciary or other statutory 
obligations under ERISA.
    \36\ See the Regulatory Impact Analysis in Section D of this 
preamble for a fuller discussion of net cost savings.
---------------------------------------------------------------------------

(1) Covered Individual

    Paragraph (b) of the final safe harbor defines a ``covered 
individual'' for purposes of the rule as a participant, beneficiary, or 
other individual entitled to covered documents and who--when he or she 
begins participating in the plan, as a condition of employment, or 
otherwise--provides the ``employer, plan sponsor, or administrator (or 
an appropriate designee of any of the foregoing)'' with an electronic 
address. This includes an email address or internet-connected mobile- 
computing-device (e.g., smartphone) number, and is intended to be broad 
enough to encompass new and changing technology.
    The existence of an electronic address for notification to a 
covered individual is critical to the effective implementation of a 
notice-and-access framework, much like a mailing address is critical to 
delivery of a paper document. The existence of a valid email address is 
similarly essential for a plan administrator who will deliver ERISA 
disclosures by complying with the requirements of new paragraph (k) of 
this final rule, which allows plan administrators to send documents via 
email. The final rule continues to require, as a condition of reliance 
on the safe harbor, including the new paragraph (k), that a plan 
administrator possess an electronic address that enables electronic 
communication with a covered individual.
    The final rule offers plan administrators a variety of ways to 
comply with the condition to obtain an electronic address for each 
covered individual. This provision, for example, is satisfied if the 
company provides plan participants an electronic address because of 
their employment. This requirement also is satisfied if an employee 
provides a personal electronic address to the plan administrator or 
plan sponsor, for example, as part of the job application process or on 
other human resource documents. In addition, a plan administrator or 
service provider can request an electronic address in plan enrollment 
paperwork or to establish a plan participant's online access to plan 
documents and account information.
    A few commenters raised a pragmatic concern with the use of 
electronic addresses that are phone numbers (as opposed to an email, 
for instance). They asked what would happen if a notice of internet 
availability (hereinafter ``NOIA'') inadvertently is sent to a landline 
number, rather than a smartphone or similar number. It is not always 
readily apparent, given a ten-digit phone number, whether the number 
belongs to a landline or not. Exacerbating this potential problem, a 
plan administrator who sends an NOIA to a landline may not receive a 
bounce-back or any other notification that the recipient's phone 
address is a landline that cannot receive text messages. If the plan 
administrator did receive such a notification, it would trigger the 
substantive protections in paragraph (f)(4) of the safe harbor, which 
require a plan administrator to take curative steps if the electronic 
address of a covered individual is invalid or inoperable. The inability 
of an electronic address to receive, for example, a text message that 
is intended to be an NOIA, would mean that the address is in fact 
inoperable for purposes of the rule. Some phone carriers offer a 
landline service that converts a text message into a voice message, 
instead of returning a bounce-back notification. ERISA generally 
mandates that disclosures be in writing. Thus, the Department does not 
consider receipt of a voice-based message to be operable for purposes 
of this rule; the electronic address must be able to accept text 
(rather than audio) messaging. To address this concern, the final rule 
clarifies that an electronic address that will be used to satisfy 
paragraph (b) for a covered individual must be an address at which the 
individual may receive and inspect a written NOIA. Plan administrators 
who use internet-connected mobile computing device numbers, as opposed 
to email addresses, for example, will have to take steps to confirm 
with plan participants and beneficiaries, or through other reasonable 
means, such as using mobile phone carriers' validator services, to 
distinguish landline numbers from mobile or similar numbers that enable 
the receipt and inspection of written messages.
    The final rule continues to recognize the validity of employer-
assigned electronic addresses. Paragraph (b) of the proposal, in 
relevant part, provides that ``if an electronic address is assigned by 
an employer to an employee for this purpose, the employee is treated as 
if he or she provided the electronic address.'' The proposal 
specifically solicited comments on whether this provision of the 
proposal, as distinguished from the provision authorizing participants 
to affirmatively provide a personal electronic address to receive 
covered documents, should impose additional or different conditions to 
ensure that participants receive their disclosures.
    Many commenters supported the proposal's recognition of the 
validity of employer-assigned electronic addresses. These commenters 
believe the provision is a common-sense technique to facilitate default 
electronic delivery: Employers routinely assign employees electronic 
addresses as part of their employment, for a variety of business 
purposes including human resource management, work-related assignments, 
and routine communications. Commenters also noted that the Department's 
2002 safe harbor allows for electronic delivery of disclosures to 
employer-assigned electronic addresses without the affirmative consent 
of participants, and called attention to the lack of reported problems 
or harm to participants caused by or attributable to that provision in 
the 2002 safe harbor.
    Other commenters, however, raised objections to the proposal's 
recognition of the validity of employer-assigned

[[Page 31889]]

electronic addresses. These commenters were particularly concerned 
about the language in the proposal that permitted an employer-assigned 
address to be created solely for purposes of using the proposed safe 
harbor. These commenters were concerned that ineffective disclosure 
will result if employers, or service providers or third-party 
technology firms hired by employers, create and assign electronic 
addresses with unclear or unfamiliar URL components solely to comply 
with the new safe harbor. In these circumstances, such attenuated or 
ambiguous electronic addresses (e.g., email accounts) may be unfamiliar 
to, ignored, overlooked, or forgotten by covered individuals. One 
commenter asserted that an employer-assigned electronic address for 
purposes of this rule could, in some jurisdictions, constitute a breach 
of fiduciary duty.
    Based on these concerns, the Department eliminated the phrase ``for 
this purpose'' from the final rule. Paragraph (b) now provides that 
participants will be treated as if they provided an electronic address 
to an employer if the electronic address is assigned by an employer to 
an employee ``for employment-related purposes that include but are not 
limited to the delivery of covered documents.'' Thus, to satisfy the 
rule's definition of a covered individual, the electronic address 
assigned by an employer for an employee must be assigned for some 
employment-related purpose other than the delivery of covered documents 
under the new safe harbor. An employer could not, for example, 
establish for an employee a personal electronic address (e.g., a Google 
or Yahoo email account) that will be used by the plan's administrator 
only to send notices required by this safe harbor. The employer-
assigned address must have an employment-related purpose other than to 
comply with the safe harbor. Whether such an assignment meets ERISA's 
furnishing standard is a matter to be determined based on the facts and 
circumstances of the particular situation.
    Although the safe harbor recognizes the validity of employer-
assigned electronic addresses, it does not permit plan administrators 
to assign them. A few commenters explicitly agreed with the 
Department's concern, expressed in the preamble to the proposal, about 
the assignment of electronic addresses by plan administrators and 
third-party service providers. These believe that misuse could result 
from allowing these individuals and entities to assign electronic 
addresses, for example, citing a practice under which a plan's service 
provider would use commercial locator services or similar people-finder 
tools to acquire electronic addresses of plan participants. The 
Department agrees, and paragraph (b) of the final rule continues to 
prohibit plan administrators or their service providers from assigning 
electronic addresses under the new safe harbor. To ensure effective 
access to electronic media, paragraph (b) confers this authority only 
on an employer with respect to its employees. Accordingly, in response 
to one commenter's request for clarification, a plan administrator 
could not use a commercial locator service to acquire, and then use, 
personal electronic addresses under this safe harbor.
    Similarly, a few commenters raised concerns about application of 
the proposed safe harbor to spouses, divorced spouses, and other 
beneficiaries who may be entitled to disclosures under ERISA. 
Specifically, these commenters believe that it would be inappropriate 
for employers to assign electronic addresses for disclosure of covered 
documents to these individuals, because, unlike employees participating 
in an employer's plan, spouses and other beneficiaries may not have any 
real relationship with the employer. The Department agrees with this 
concern. Although paragraph (b) of the final rule allows employers to 
assign electronic addresses for their employees, employers cannot 
assign electronic addresses for non-employee spouses or other 
beneficiaries of their plans' participants. For a spouse or other 
beneficiary that is entitled to ERISA disclosures to be a covered 
individual for purposes of the final rule, the spouse or other 
beneficiary must affirmatively provide (or must have provided) the 
employer, plan sponsor, or administrator (or appropriate designee) with 
an electronic address; otherwise the plan administrator cannot furnish 
disclosures to these individuals pursuant to this rule.
    The definition of ``covered individual'' in the final rule does not 
exclude participants in multiemployer plans. Commenters representing 
multiemployer plans requested confirmation that these individuals could 
be covered individuals for purposes of paragraph (b) of the rule. Their 
concern stemmed from the proposal's use of the phrase ``as a condition 
of employment,'' as a predicate for providing the plan administrator an 
electronic address because, according to the commenters, multiemployer 
plan sponsors do not have the ability to establish employment 
conditions, unlike plan sponsors generally. In this regard, they argue, 
multiemployer plans are very different from single-employer plans. The 
Department confirms for affected parties that the final rule's 
definition of covered individual in paragraph (b) is intended to 
include multiemployer plan participants. This necessarily follows from 
paragraph (c) of the final rule, which defines the scope of ``covered 
documents'' to include all pension benefit plans under ERISA. If the 
Department had intended to exclude from this safe harbor a subset of 
pension plans, such as multiemployer plans, the exclusion would have 
been set forth in paragraph (c) of the final rule. Nevertheless, the 
Department has slightly rephrased paragraph (b) to clarify that 
providing an electronic address as a condition of employment is only 
one way that an individual might supply an electronic address. The 
individual might supply it as part of their initial participation in 
the plan, or they might supply it otherwise: Through other means and 
for other reasons. In addition, in response to one commenter's question 
regarding the source of an electronic address, the definition of 
``covered individual'' includes multiemployer plan participants who 
provide their electronic addresses directly to the plan administrator, 
as well as plan participants whose personal or employer-assigned 
electronic address is provided to the plan administrator by an 
employer.

(2) Covered Documents

(i) Employee Pension Benefit Plans
    Paragraph (c) of the proposal defined the ``covered documents'' to 
which the rule would apply. It provided that the safe harbor may be 
used by the administrator of a pension benefit plan, as defined in 
ERISA section 3(2), to furnish any document that the administrator is 
required to furnish to participants and beneficiaries pursuant to Title 
I of ERISA, except for any document that must be furnished only upon 
request. The proposal clarified that a plan administrator would not be 
required to furnish all of these documents, as applicable for a 
particular plan, pursuant to the safe harbor if the plan administrator 
prefers a different method of furnishing for some of the documents. The 
Department requested comments generally as to whether the scope of 
covered documents is appropriate, and specifically whether certain 
employee pension benefit plan disclosures are better suited for such 
electronic disclosure.

[[Page 31890]]

    Commenters generally supported the scope of the definition of 
covered documents as including disclosures for pension benefit plans. 
The final rule does, however, include two minor revisions. First, in 
response to numerous commenters, the Department added the words ``or 
information'' to this paragraph to clarify that certain ``information'' 
required to be disclosed pursuant to 29 CFR 2550.404a-5, the 
Department's participant-level fee disclosure regulation, is covered by 
the final rule. Second, the Department added the word ``only'' to this 
paragraph to clarify the scope of the definition's exception for 
documents that must be furnished upon request (the exception now 
applies to documents ``that must be furnished only upon request,'' 
emphasis added).
    Commenters disagreed about this exception. Some commenters argued 
that the final rule should not exempt documents that are available upon 
request by a covered individual, particularly if the individual agrees 
or has not objected to the rule's method for delivery. Other commenters 
did not object to the exception, but requested that it be revised to 
ensure that the safe harbor's exclusion from covered documents is 
limited to documents that are available only upon request. Under ERISA, 
some documents must be furnished automatically and others only upon 
request by an eligible person.\37\ However, these commenters point out 
that in certain cases (including pursuant to this safe harbor) 
participants may request copies of many different documents--even 
documents that must be furnished automatically, such as the summary 
plan description (SPD). The Department's intention, as reflected in the 
preamble to the proposed regulation and unchanged for purposes of the 
final rule, is that the exception applies to documents that are 
furnished only upon request (i.e., the exception does not apply to, and 
therefore the final rule includes as covered documents, documents for 
which the plan administrator has an affirmative obligation to furnish 
but that are also, for various reasons, requested by covered 
individuals).\38\ The 2002 safe harbor, if satisfied, remains available 
for plan administrators to furnish ERISA disclosures that are excluded 
from this safe harbor.
---------------------------------------------------------------------------

    \37\ See, e.g., 29 U.S.C. 1024(b)(4) for the general requirement 
that upon written request of any participant or beneficiary, plan 
administrators must furnish plan documents including the latest 
updated SPD, latest annual report, any terminal report, the 
bargaining agreement, trust agreement, contract, or other 
instruments under which the plan is established or operated. See 
also 29 U.S.C. 1021(k) with respect to multiemployer plan 
information provided to participants and beneficiaries upon written 
request.
    \38\ 84 FR 56894, 56901 n. 63 (``The proposed safe harbor does 
not apply to documents that are furnished only upon request.'').
---------------------------------------------------------------------------

(ii) Employee Welfare Benefit Plans
    The proposed safe harbor did not apply to employee welfare benefit 
plans, as defined in section 3(1) of ERISA, such as plans providing 
disability benefits or group health plans. The Department instead 
reserved paragraph (c)(2) of the proposal so that it could continue to 
study the future application of the new safe harbor to documents that 
must be furnished to participants and beneficiaries of employee welfare 
benefit plans. In the proposal, the Department noted that this 
reservation accords with Executive Order 13847, which focuses the 
Department's review on retirement plan disclosures. The Department 
further explained that it does not interpret the Order's directive as 
limiting the Department's ability to take future action with respect to 
employee welfare benefit plans, especially to the extent similar policy 
goals, including the reduction of plan administrative costs and 
improvement of disclosures' effectiveness, may be achieved. The 
Department noted in the preamble of the proposal that welfare plan 
disclosures, such as group health plan disclosures, may raise different 
considerations, such as pre-service claims review and access to 
emergency and urgent health care. Moreover, the Department shares 
interpretive jurisdiction over many group health plan disclosures with 
the Treasury Department and the Department of Health and Human 
Services. In considering any possible new electronic delivery safe 
harbor for group health plan disclosures in the future, the Department 
would consult with these other Departments.
    Many commenters agreed with the Department's reasoning as set forth 
in the preamble to the proposed rule. These commenters urged the 
Department not to include welfare plans in the final rule, the most 
common reason being that welfare plans present unique issues as 
compared to other types of employee benefit plans. These commenters 
also acknowledged the necessity of the tri-agency consultation process 
for any such rule.
    Other commenters, by contrast, encouraged the Department to expand 
the final rule to apply to disclosures for welfare plans or begin 
immediately the formal process of doing so. These commenters argued 
that there is no sound legal or policy basis for excluding welfare 
plans, and that significant additional reductions in regulatory costs 
and burdens would follow if the safe harbor were expanded to cover 
welfare benefit plans, especially group health plans. A few of these 
commenters estimated that even extending the safe harbor only to 
routine health care denials (e.g., ``Explanation of Benefits'' or 
``EOBs'') would save millions of dollars annually for health plan 
administration.
    The Department understands that there could be significant cost 
savings if the safe harbor were extended to cover welfare plan 
disclosures. At the same time, such an extension warrants careful 
consideration and analysis that goes beyond the scope of this final 
rule. The Department, therefore, has decided not to expand the scope of 
the final rule to cover welfare benefit plans at this time. The 
Department will continue exploring whether, and under what 
circumstances, to extend the safe harbor in the final rule to welfare 
benefit plans, and may undertake rulemaking in the future.

(3) Notice of Internet Availability

    As a general rule, the proposal required that plan administrators 
furnish to each covered individual an NOIA for each covered document in 
accordance with the requirements of this section. A special rule, in 
paragraph (i) and discussed below, allowed plan administrators to 
combine the content of the required notices for certain covered 
documents. Paragraph (d) of the final rule, as in the proposal, 
continues to require that plan administrators furnish an NOIA and sets 
forth the conditions for satisfying this requirement, as modified to 
reflect the Department's response to commenters' views on the notice 
requirement.
(i) Timing of Notice of Internet Availability
    Paragraph (d)(2) of the final rule continues to provide that the 
plan administrator must furnish an NOIA at the time the covered 
document is made available on the website described in paragraph (e). 
One commenter argued that, due to the flexibility of online posting, 
covered documents should be posted earlier than required by law, for 
example that any disclosures affecting covered individuals' benefits 
should be posted as soon as reasonably possible after the decision 
affecting benefits is made. The Department disagrees that it would be 
appropriate, in a rule focused on the acceptable methods for

[[Page 31891]]

delivering required ERISA disclosures, to alter the timing requirements 
for the disclosures themselves. As set forth in the preamble to the 
proposal, the rule is not intended to alter the substance or timing of 
any of ERISA's required disclosures. The rule merely expands the 
possible delivery methods for disclosures. ERISA and the regulations 
thereunder include thoughtfully prescribed timelines for each required 
disclosure; the Department maintains that any changes to those 
substantive, legal standards would have to be made on a disclosure-by-
disclosure basis, subject to the regulatory process, including public 
notice and comment. The Department does agree with this commenter, 
however, that, for similar reasons, it would not be necessary or 
appropriate to include any extensions to the timing requirements for 
covered documents that are posted online.
    As in the proposal, the final rule continues to allow plan 
administrators to furnish a combined NOIA each plan year for more than 
one covered document. If a combined NOIA was furnished in the prior 
plan year, the next plan year's combined NOIA must be furnished no more 
than 14 months later. As discussed below, however, the covered 
documents that may be combined pursuant to paragraph (i) of the final 
rule have changed. The final rule continues to provide plan 
administrators with a 14-month period to comply with the annual NOIA 
requirement. The Department does not want plan administrators to have 
to push back the date of furnishing from year to year to avoid the risk 
that they run afoul of a strict 12-month requirement, and the 
Department acknowledges that actual disclosure dates can vary slightly 
from year to year. The two-month grace period should offer sufficient 
flexibility without compromising individuals' receipt of an NOIA on a 
periodic, essentially annual, basis. The Department did not receive any 
comments disagreeing with this approach or arguing that different 
timing requirements would be preferable.
    The Department also reminds plan administrators that if they choose 
to furnish a consolidated NOIA once a year under paragraph (i) of the 
rule, doing so will not change the date on which the covered documents 
must be made available on the website. Each covered document described 
in the consolidated NOIA must be made available on the website no later 
than the date it must be furnished to participants and beneficiaries by 
law.
(ii) Content of Notice of Internet Availability
    Paragraph (d)(3)(i) through (vii) of the proposal listed the 
content requirements for the NOIA. Paragraph (d)(3)(i) of the proposal 
required a prominent statement, for example as a title, legend, or 
subject line that reads, ``Disclosure About Your Retirement Plan.'' 
Paragraph (d)(3)(ii) required this statement: ``Important information 
about your retirement plan is available at the website address below. 
Please review this information.'' Paragraph (d)(3)(iii) required a 
brief description of the covered document. Paragraph (d)(3)(iv) 
required ``the internet website address where the covered document is 
available.'' Paragraph (d)(3)(v) required a statement of the right to 
request and obtain a paper version of the covered document, free of 
charge, and an explanation of how to exercise this right. Paragraph 
(d)(3)(vi) required a statement of the right to opt out of receiving 
covered documents electronically, and an explanation of how to exercise 
this right. Finally, paragraph (d)(3)(vii) required a telephone number 
to contact the plan administrator or other designated representative of 
the plan.
    The Department requested comments on these content requirements and 
whether the NOIA would adequately serve its intended purpose, which is 
to provide very concise and clear notification to covered individuals 
about covered documents available on the website. As a general matter, 
some commenters believe that the content requirements are excessive, 
while others merely stated that the Department should be less 
prescriptive about the content requirements, and allow plan 
administrators greater flexibility for innovation. Commenters also 
provided significant feedback on specific content provisions in the 
proposal. Although not all of these suggestions were implemented in the 
final rule, the Department is persuaded by commenters that its 
intention for the NOIA may be better achieved by adopting some 
revisions to the NOIA's content requirements. Due to these revisions, 
the Department also restructured paragraph (d)(3), making non-
substantive changes to the lettering and numbering of subsections. The 
following paragraphs set forth commenters' views with respect to each 
of the specific NOIA content provisions and, where applicable, changes 
that have been made for purposes of the final rule.
    The Department has adopted the first two content requirements today 
with only minor revision from the proposed rule. As in paragraph 
(d)(3)(i) of the proposal, now (d)(3)(i)(A) in the final rule, the NOIA 
must include a prominent statement--for example as a title, legend, or 
subject line--that reads: ``Disclosure About Your Retirement Plan.'' 
Commenters did not object to this statement or its prominence. The 
statement required by paragraph (d)(3)(ii) of the proposal, now 
(d)(3)(i)(B) in the final rule, has been revised to be technologically 
neutral. As finalized, the NOIA must include the following statement: 
``Important information about your retirement plan is now available. 
Please review this information.'' A few commenters disagreed with the 
use of the word ``Important'' and the Department's provision of 
required language for this statement. As one commenter explained, the 
word ``important'' may become meaningless as NOIAs are regularly 
received. The Department disagrees that the use of the word 
``Important'' is problematic. Even as covered individuals become 
accustomed to this framework for disclosure and receive notices over 
time, there is no harm in highlighting what the Department believes to 
be ``important'' retirement plan information; federal law, after all, 
does require disclosure of this information for a reason. The 
Department also is not persuaded that the rule's required language for 
the statement in (d)(3)(i)(B) is problematic, especially as revised to 
more broadly apply to different electronic delivery methods. Very few 
commenters objected to this language, and a number of commenters 
expressly stated that they would not object to model language for some 
of the safe harbor's notice requirements. The statement is brief and 
straightforward, and plan administrators often prefer to have specific 
guidance when making such statements to reduce risk that language 
drafted at their discretion will be insufficient.
    The Department has decided to make a few revisions to paragraph 
(d)(3)(iii) of the proposal, now (d)(3)(i)(C), in response to public 
comments. An NOIA, under the final rule, must include ``[a]n 
identification of the covered document by name (for example, a 
statement that reads: `your Quarterly Benefit Statement is now 
available') and a brief description of the covered document if 
identification only by name would not reasonably convey the nature of 
the covered document.'' Many commenters on the proposal requested 
additional guidance on what would be expected as a ``brief 
description'' of a covered document and worried that this

[[Page 31892]]

requirement could result in too much information on what is supposed to 
be a very short notice. Suggestions included requiring that the brief 
description be limited to no more than a sentence or two, or even 
consolidating the first few content requirements and merely requiring 
identification of the covered document. The Department agrees that it 
may not always be necessary, to the extent the nature of a covered 
document is clear by its name, to include a brief description and that 
inconsistent application of the standard could result in longer, and 
more complex, NOIAs. The final rule requires a brief description only 
when identifying a covered document by name would not reasonably convey 
the nature of the covered document. Otherwise, only identification of 
the covered document by name is required. For example, an NOIA for a 
quarterly benefit statement ordinarily would not need a brief 
description. Quarterly benefit statements are furnished every three 
months and their content, which includes periodic personalized benefit 
account information for a covered individual, generally is well 
understood by individuals. Alternatively, the Department expects that a 
plan administrator furnishing an NOIA for a blackout notice would need 
to include a brief description to comply with this requirement. 
Blackout notices typically are not furnished on a recurring basis, and 
the circumstances surrounding the provision of a blackout notice may 
not be clear to many covered individuals. It is not unlikely, for 
example, that some covered individuals will have never before received 
a blackout notice. The Department believes that these modifications are 
responsive to commenters' concerns without undercutting the important 
message NOIAs are intended to convey.
    Paragraph (d)(3)(iv) of the proposal, now (d)(3)(i)(D) in the final 
rule, also reflects limited revision in response to commenters' 
questions about whether plan administrators could use a hyperlink on an 
NOIA, rather than simply a website address. The Department did not 
intend to limit NOIAs to including only website address citations: Plan 
administrators are encouraged to use hyperlinks that take covered 
individuals directly to a website address. The rule has been revised 
explicitly to include hyperlinks.\39\
---------------------------------------------------------------------------

    \39\ The Department did not adopt one commenter's recommendation 
that final guidance require hyperlinks or the ability to hover over 
words that previously have been defined. Although the rule now 
explicitly includes hyperlinks in addition to website addresses, the 
Department is not persuaded that hyperlinks should be mandatory; 
further, it is unclear whether the commenter's suggestion that 
covered individuals must be able to hover over defined terms is 
meant to apply to notices (which are intended to be concise, clear 
documents notifying of internet availability, rather than substance) 
or more likely to the covered documents themselves. This rule is not 
intended to change substantive requirements of covered documents, 
such as the use of (and hyperlink capabilities associated with) 
defined terms.
---------------------------------------------------------------------------

    A few commenters addressed the standard in paragraph (d)(3)(iv) of 
the proposal, now (d)(3)(i)(D), that the required internet website 
address must be ``sufficiently specific'' to provide ready access to 
the covered document (or, in the case of a combined NOIA, covered 
documents).\40\ A website address (or hyperlink) will satisfy this 
requirement if it leads the covered individual directly to the covered 
document. A website address (or hyperlink) also will satisfy the 
``sufficiently specific'' standard if the address leads the covered 
individual to a login page that provides, or immediately after a 
covered individual logs on provides, a prominent link to the covered 
document. Most commenters did not respond with suggestions for how to 
improve the ``sufficiently specific'' standard, except for requesting 
minor clarifications. The very few commenters that did address the 
standard disagreed with each other on the problem; for example, one 
commenter believed that the ``sufficiently specific'' standard is too 
prescriptive and should allow more flexibility, especially to 
accommodate future technology, whereas another commenter argued that 
the standard is not sufficiently protective of covered individuals and 
that the notice should take individuals straight to the disclosure 
(following a secure login, as applicable). Similarly, very few 
commenters addressed whether additional or different security 
procedures or information about login or similar procedures should be 
included in the notice. Most believe this additional information will 
only further clutter the notice and detract from key information, and 
that security procedures and protocols may become quickly outdated. One 
commenter asked the Department to require a separate notice including 
login and security information, but did not offer specific commentary 
on security or privacy language that should be required. Following its 
review of commenters' views, the Department decided to retain the 
``sufficiently specific'' standard, which now applies whether the 
notice includes a website address or a hyperlink to such address, and 
made other non-substantive revisions to simplify the paragraph.
---------------------------------------------------------------------------

    \40\ See, e.g., 29 CFR 2550.404a-5(d)(v), which similarly 
requires disclosure of specified information at ``[a]n internet 
website address that is sufficiently specific to provide 
participants and beneficiaries access to'' such information 
(emphasis added). The Department is not aware of any evidence that 
plan administrators need further clarification or that this standard 
is ineffective. The proposal nonetheless included, and the final 
rule continues to include, two non-exclusive methods for website 
access that satisfy this standard.
---------------------------------------------------------------------------

    The next two content requirements proposed in paragraphs (d)(3)(v) 
and (vi), which are now contained in paragraphs (d)(3)(i)(E) and (F) of 
the final rule, have been adopted with only minor amendment to clarify 
that requests for a specific paper version, and requests to opt out are 
both fulfilled free of charge. An NOIA must include a statement of the 
right to request and obtain a paper version of the covered document, 
free of charge, and an explanation of how to exercise this right (under 
(d)(3)(i)(E)); and a statement of the right, free of charge, to opt out 
of electronic delivery and receive only paper versions of covered 
documents, and an explanation of how to exercise this right (under 
(d)(3)(i)(F)). Commenters overall did not object to requiring that the 
notice explain covered individuals' rights to request paper or opt out 
of electronic delivery. The Department continues to believe these are 
vitally important and protective rights for covered individuals and is 
not persuaded by the one commenter who requested that these statements 
be removed. A couple of commenters suggested that these rights should 
be ``prominently'' displayed and that the notice should include 
detailed instructions about how to opt out and any timelines for doing 
so. The Department did not adopt these suggestions. Given the very 
limited content of the NOIA, nearly everything arguably is 
``prominent,'' and adding more and more content and specifications 
would only undermine the intended brevity and simplicity of the notice.
    The final rule includes one additional content requirement, in 
paragraph (d)(3)(i)(G), to respond to several commenters' suggestion 
that covered individuals should be made aware that covered documents 
may not always be available online. The Department agrees that covered 
individuals would benefit from such a warning or reminder, so that they 
can take any desired action to print or save covered documents, or 
possibly request a paper copy of a covered document. As discussed below 
in detail, plan administrators are not required to maintain covered 
documents online indefinitely for purposes of

[[Page 31893]]

satisfying this electronic delivery safe harbor. Thus the final rule 
now requires an NOIA to include a cautionary statement that the covered 
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 
of the covered document. This requirement will ensure that covered 
individuals understand that covered documents will not be available 
online indefinitely. Plan administrators could, for example, draft the 
cautionary statement in a manner that encourages covered individuals to 
print, save, or otherwise preserve covered documents.
    A few commenters found paragraph (d)(3)(vii) of the proposal, now 
(d)(3)(i)(H), requiring a contact telephone number to be deficient, for 
example suggesting that the rule should mandate toll-free telephone 
numbers both for the employer or plan administrator and for the 
Department. The Department did not adopt a requirement that the 
telephone number must be toll-free, because such a requirement would 
place a costly and unnecessary burden on plan sponsors, particularly 
for sponsors of small plans that might be located in the vicinity of 
most of their participants without the need for any long-distance 
calling. Further, the Department is unaware of any problems or 
objections from plan participants with the telephone number that is 
required as contact information in the participant-level fee disclosure 
regulation (which similarly does not require a toll-free number).\41\ 
In any event, the safe harbor does not preclude plan administrators 
from providing (and including on the NOIA) a toll-free number. The 
Department was not persuaded that this final content requirement from 
the proposal should be revised. Paragraph (d)(3)(i)(H) of the final 
rule continues to require a telephone number to contact the plan 
administrator or other designated representative of the plan.
---------------------------------------------------------------------------

    \41\ See 29 CFR 2550.404a-5(d)(2)(i)(A).
---------------------------------------------------------------------------

    The Department declined to adopt a number of additional content 
requirements suggested by some commenters.\42\ For example, one 
commenter on paragraph (d)(3)(vii) of the proposal, now (d)(3)(i)(H), 
argued that the notice's content should be expanded to include an 
explanation that the number may be used for paper and opt-out requests 
as well as other questions, with a required response time of no more 
than 72 hours. Covered individuals will not necessarily be better 
informed by, and are more likely to ignore, a long and detailed notice 
that they receive repeatedly. The purpose of the NOIA is to highlight 
for covered individuals that a retirement plan document is available 
online, not to become a new and comprehensive disclosure of ERISA 
rights and responsibilities in itself.
---------------------------------------------------------------------------

    \42\ Examples of additional statements that commenters suggested 
for the NOIA include that it is the covered individual's 
responsibility to notify the plan administrator of a new electronic 
address; where historical versions of documents can be obtained; the 
significance of the covered document and what has changed since the 
last version; that there will be no retaliation for choosing paper; 
that notices and covered documents should be printed and saved for 
personal records; the right to print covered documents at an 
employer's place of business; and the availability of the plan 
administrator to assist with passwords.
---------------------------------------------------------------------------

    Based on additional feedback from commenters and analysis of the 
circumstances that may in fact warrant additional content on an NOIA, 
however, the Department adopted one more provision to the final safe 
harbor in paragraph (d)(3)(ii). As opposed to the preceding content 
requirements for the notice in paragraph (d)(3)(i), the information 
described in paragraph (d)(3)(ii) (ii) is not required. An NOIA 
furnished pursuant to the safe harbor may (but is not required to) 
contain a statement as to whether action by the covered individual is 
invited or required in response to the covered document and how to take 
such action, or that no action is required, provided that such 
statement is not inaccurate or misleading. The Department included this 
new provision because it was persuaded by commenters that covered 
individuals may find it advantageous to be notified whether some action 
on their part is (or is not) invited or required in response to the 
notice. The rule does not preclude plan administrators' discretion to 
include this information, although it is not required. Plan 
administrators, however, must ensure that any statement about action 
that may or must be taken, or that no action is needed, is not 
inaccurate or misleading. For example, in the Department's view, it 
would ordinarily be inaccurate and misleading for a plan administrator 
to state on an NOIA for a benefits claim denial under section 503 of 
ERISA that no action is invited or required. Even if a covered 
individual chooses to ignore the NOIA and not initiate an appeal, a 
benefits claim denial, by its very nature, is an invitation to take 
action, and requires such action within a specific timeframe or else 
the claimant may forfeit a right to a benefit.
    Finally, as to the content required for the NOIA, the Department 
requested comments on whether affected parties believed that a model 
NOIA would be useful, and asked that parties submit sample models for 
the Department's consideration. Although a few commenters stated that 
they did not necessarily object to the provision of a model NOIA, many 
commenters responded that a model is not necessary, for example because 
the NOIA content and other requirements are sufficiently clear, or more 
explicitly that the Department should not adopt a model, because, given 
the large variety in retirement plan features and designs, a model 
could be insufficiently flexible and ultimately interfere with the 
ability of plan administrators to appropriately prepare NOIAs for their 
plans.\43\ The public record, therefore, did not demonstrate a 
meaningful level of interest in having a model NOIA published with the 
final rule. The Department also did not receive any sample models from 
commenters. Given this overall lack of interest, and in light of 
changes made to improve the required content of the NOIA in response to 
commenters' concerns, the Department has not included a model NOIA in 
the final rule.\44\
---------------------------------------------------------------------------

    \43\ One commenter supported the Department's development of a 
model notice, and explained that to do so properly would require as 
long as six months. For the reasons stated herein, however, the 
Department has declined to adopt a model NOIA at this time.
    \44\ The Department similarly did not adopt a model for the 
initial notification required under paragraph (i) of the rule, 
discussed in detail below. As with the NOIA, commenters did not 
necessarily object to a model, but there was not consistent or 
strong support for a model for either notice.
---------------------------------------------------------------------------

(iii) Form and Manner of Furnishing Notice of Internet Availability
    The Department intends the NOIA to be a succinct, understandable 
disclosure that will convey its importance and easily call the 
recipient's attention to the availability of a covered document. With 
this goal in mind, paragraphs (d)(4)(i) through (iv) of the proposed 
rule set forth standards for the form and manner of furnishing the 
notice. As proposed, an NOIA had to first, be furnished electronically 
to the address referred to in paragraph (b) of the proposal; second, 
contain only the content specified in paragraph (d)(3) of the proposal, 
except that the plan administrator could include pictures, logos, or 
similar design elements, so long as the design was not inaccurate or 
misleading; third, be furnished separately from any other documents or 
disclosures furnished to covered individuals, except as permitted under 
paragraph (i) of the proposal (which addressed the consolidation of 
certain notices of internet availability on an annual basis); and 
fourth, be written in a manner calculated to be understood by

[[Page 31894]]

the average plan participant. The proposal elaborated on this fourth 
condition, explaining that a notice that uses short sentences without 
double negatives, everyday words rather than technical and legal 
terminology, active voice, and language that results in a Flesch 
Reading Ease test score of at least 60 would satisfy the fourth 
requirement.\45\
---------------------------------------------------------------------------

    \45\ See, e.g., general information about this formula for 
writing in plain English, at https://web.archive.org/web/20160712094308/http://www.mang.canterbury.ac.nz/writing_guide/writing/flesch.shtml (Rudolf Flesch).
---------------------------------------------------------------------------

    The proposal required that the NOIA be furnished by itself. The 
NOIA contains important information alerting covered individuals that 
retirement plan disclosures are available online. This information 
should not be obscured by commercial advertisements or even other 
ERISA-required disclosures. The second and third requirements in 
paragraph (d)(4) of the proposal were intended to achieve this 
objective. Any additional information or content had to be limited; to 
permit otherwise would have frustrated the Department's goal of a 
clear, concise notice. To the extent design elements could enhance the 
appearance of the NOIA and possibly increase the likelihood that it 
would draw the desired attention of covered individuals, however, the 
proposal did not exclude the use of pictures, logos, and similar design 
elements, so long as the design was not inaccurate or misleading and 
the required content was clear.
    Plan administrators must write clear and understandable notices of 
internet availability, and to that end the proposal relied on the 
standard measure for readability of ERISA disclosures--that the annual 
notice be ``written in a manner calculated to be understood by the 
average plan participant.'' Due to the concise nature of the NOIA, 
however, paragraph (d)(4)(iv) of the proposal included additional 
guidelines for plan administrators to satisfy the readability 
requirement, and plan administrators were encouraged to apply the plain 
language concepts described above (including the Flesch Reading Ease 
test). The Department incorporated these concepts to further improve 
individuals' comprehension of the information on the NOIA and to 
provide plan administrators a safe harbor, essentially, to satisfy the 
readability standard for purposes of the proposed safe harbor.
    Commenters had a variety of general observations about the form and 
manner by which an NOIA must be furnished. For example, some commenters 
asked the Department to provide flexibility in how the notice may be 
furnished, not just by email but by text messages, mobile application 
notifications, and future innovations. Alternatively, some commenters 
requested that the rule be revised to allow plan administrators to 
furnish the NOIA in paper form, or electronic form, based on a 
determination by the plan administrator. Allowing paper disclosure 
would, these commenters explained, somewhat alleviate their concerns 
about the revocation of FAB 2006-03, discussed below in the section 
titled ``Transition Issues.'' Other commenters argued that allowing 
paper would reduce their concern that disclosures may not be received 
by covered individuals, winding up in a spam folder or otherwise 
buried.
    The Department notes that, similar to the discussion below with 
respect to the concept of a ``website,'' the final rule is intended to 
apply to a broad range of technologies in addition to emails and 
internet browser websites. Indeed, the Department specifically designed 
the rule to accommodate future technological innovations that can be 
used in compliance with the standards of the safe harbor. By its terms, 
the rule does not limit furnishing of the NOIA to email; the notice 
could, for example, be sent by text message. The Department did not, 
however, adopt certain commenters' suggestion that plan administrators 
should be able to furnish the NOIA in paper form.\46\ One of the goals 
in adopting this safe harbor is to advance the use of electronic tools 
to enhance the effectiveness of, and reduce the costs associated with, 
ERISA disclosures. The Department maintains that it is important for 
covered individuals to receive an initial notice, on paper, alerting 
them that disclosures will be furnished using different procedures. But 
after that, the safe harbor will create consistency by requiring plan 
administrators to communicate electronically. As to ensuring the 
receipt of electronic notices, the rule includes a specific provision 
in paragraph (f)(4) requiring that action be taken in response to 
invalid or inoperable electronic addresses. Accordingly, paragraph 
(d)(4)(i) of the final rule adopts the proposal's requirement that an 
NOIA must be furnished electronically to the address referred to in 
paragraph (b) of the safe harbor.
---------------------------------------------------------------------------

    \46\ The Department believes that commenters' support for paper 
NOIAs was due, in part, to the fact that some plan administrators 
currently rely on Field Assistance Bulletin 2006-03, which permits a 
paper notice, to furnish pension benefit statements. The Department 
understands that for these administrators, reliance on this final 
rule will require them to modify their procedures with respect to 
notices for benefit statements and consequently is providing an 18-
month transition period during which plan administrators can 
implement such modifications. FAB 2006-03 and the transition period 
are discussed further below, under the heading ``Transition 
Issues.''
---------------------------------------------------------------------------

    The Department also received more specific comments on the 
requirements of section (d)(4) of the proposal. In response to 
paragraph (d)(4)(ii) of the proposal, limiting the content of the NOIA 
but permitting specified design elements, a few commenters requested 
clarification that covered individuals will not be forced to wade 
through what are essentially marketing communications as purported 
``design'' elements that could overtake the actual content of the 
notice. And more importantly to these commenters, covered individuals 
should not be confused by suggestible endorsements and advertising. The 
Department appreciates commenters' concern that the content of the 
required NOIA must be clear and direct, and that the NOIA should not be 
used as marketing or sales material to the extent the NOIA is prepared 
by a plan service provider. However, the Department believes that these 
concerns are mitigated by the requirement in paragraph (d)(4)(ii) that 
design elements not be inaccurate or misleading and that the required 
content be clear. The purpose of the notice is to communicate the 
availability of an online disclosure, and plan administrators are 
responsible for ensuring that this purpose is not obscured.
    Paragraph (d)(4)(iii) of the final rule requires that an NOIA must 
be furnished separately from any other documents or disclosures except 
as permitted, and discussed below, by paragraph (i) of the final rule. 
Some commenters questioned whether the NOIA must be furnished 
separately if it accompanies the covered document (e.g., an email 
notice with an attached PDF version of the covered document); this 
matter is addressed by the addition to the final rule of paragraph (k), 
discussed below, permitting such direct delivery of covered documents.
    The Department received significant commentary on the readability 
standard in paragraph (d)(4)(iv) of the proposal with its references to 
short sentences, active voice, and the Flesch reading ease score. Most 
commenters strenuously objected to the inclusion of these additional, 
more specific measurements to assess the readability of NOIAs. These 
commenters argued that the Department's existing standard, ``written in 
a manner calculated to be understood by the average plan participant,'' 
is sufficient and well understood. They asserted that, in their

[[Page 31895]]

view, including additional standards, particularly standards based on 
the application of a Flesch reading ease score, would increase the 
costs of compliance with the safe harbor without obvious benefits. Even 
though the new standards were proposed as examples of compliance with 
the general standard, rather than as independent requirements, the 
commenters argued that there is a good chance the standards would be 
interpreted as a new legal standard, not only for this final rule's 
notices but for other ERISA disclosures, such as the SPD. The Flesch 
reading ease score was especially problematic for commenters, who 
suggested that perhaps it could be used as a goal, but is not 
appropriate as a required score.\47\ If the Department retained this 
standard, they argued, it would have to be clear that it applied only 
in the context of this safe harbor, even though such a statement would 
not necessarily preclude its expected application in other contexts. 
Only one commenter supported these additional criteria, and that 
commenter suggested that their inclusion should only be a first step 
and that additional standards, including for the design and layout of 
notices, should be included. The same commenter cautioned that the 
Department should also test NOIAs to ensure they are understandable.
---------------------------------------------------------------------------

    \47\ One commenter suggested that, if the Department wishes to 
include additional standards for plan administrators to achieve 
``readability,'' the final rule should include only the Flesch 
reading ease score, an objective standard.
---------------------------------------------------------------------------

    In response to commenters' concerns, the Department has removed 
from paragraph (d)(4)(iv) the more detailed guidelines for meeting the 
general readability standard. The final rule requires that the NOIA 
must be written in a manner calculated to be understood by the average 
plan participant. Although those additional guidelines may be helpful 
tools suitable for drafting clear and simple notices under this rule, 
the Department agrees with commenters that it would not be desirable to 
imply that these guidelines are mandatory for ERISA disclosures or 
notices in general. The Department also acknowledges some of the more 
specific objections that commenters raised. For example, it may not be 
possible to consistently achieve a Flesch reading ease test score of at 
least 60, especially for NOIAs that consolidate content for more than 
one covered document, as permitted by paragraph (i) of the rule. Some 
experts posited that using ``one-size-fits-all'' scoring programs does 
not always result in effective communications.\48\ Although the 
Department has declined to include the proposal's specific guidelines 
in the final rule, it will continue to analyze readability and other 
measures in connection with the responses to the RFI on general 
disclosure issues that was published with the proposed rule. In the 
meantime, plan administrators may look to the Department's SPD 
regulations for guidance on the meaning of ``written in a manner 
calculated to be understood by the average plan participant.'' \49\
---------------------------------------------------------------------------

    \48\ See, e.g., Janan, D., Wray, D., ``Readability: The 
limitations of an approach through formulae'' (2012) (readability 
formulae found to be inadequate), at http://www.leeds.ac.uk/educol/documents/213296.pdf. See also Crossley, S.A., Allen, D., & 
McNamara, D. S., ``Text readability and intuitive simplification: A 
comparison of readability formulas'' (Apr. 2011, Vol. 21, No. 1, pp. 
84-101) (traditional readability formulas weak due to reliance on 
overly simplistic mechanisms), at http://nflrc.hawaii.edu/rfl. But 
compare Federal Plain Language Guidelines, (March 2011, Rev. 1, May 
2011) (federal agencies should apply user testing techniques to aid 
compliance with The Plain Writing Act of 2010 (P.L. 111-274) (Oct. 
13, 2010),)), at https://plainlanguage.gov/guidelines/.
    \49\ See 29 CFR 2520.102-2(a) (``The summary plan description 
shall be written in a manner calculated to be understood by the 
average plan participant and shall be sufficiently comprehensive to 
apprise the plan's participants and beneficiaries of their rights 
and obligations under the plan. In fulfilling these requirements, 
the plan administrator shall exercise considered judgment and 
discretion by taking into account such factors as the level of 
comprehension and education of typical participants in the plan and 
the complexity of the terms of the plan. Consideration of these 
factors will usually require the limitation or elimination of 
technical jargon and of long, complex sentences, the use of 
clarifying examples and illustrations, the use of clear cross 
references and a table of contents.'').
---------------------------------------------------------------------------

(iv) Standards for Internet Website
    The proposed safe harbor included minimum standards concerning the 
availability of covered documents on a website, which were set forth in 
paragraphs (e)(1) through (3) of the proposal. Generally these 
standards remain intact. The principal changes, discussed below, 
include revisions to the website retention requirement, in paragraph 
(e)(2)(ii) of the final rule, and a new provision, in paragraph (e)(4), 
to address the application of the safe harbor to mobile apps.
    Paragraph (e)(1) of the proposal stated the general requirement 
that plan administrators must ensure the existence of an internet 
website at which covered individuals are able to access covered 
documents. This provision is adopted without change. This paragraph 
holds the plan administrator responsible for ensuring the establishment 
and maintenance of the website. The Department understands that, in 
many cases, some or all of the responsibilities associated with the 
website may be delegated to plan service or investment providers or 
other third parties, as frequently occurs now for other aspects of plan 
administration. Any such delegation is subject to the plan 
administrator's compliance with paragraph (j) of the safe harbor, 
``Reasonable procedures for compliance,'' discussed below, and the plan 
administrator's general obligation as a plan fiduciary under ERISA 
section 404 to prudently select and monitor such parties.\50\
---------------------------------------------------------------------------

    \50\ One commenter specifically expressed concern about service 
providers' potential misuse of plan and account information, for 
example covered individuals' personal financial information, that is 
obtained in connection with their provision of plan services, 
including furnishing information and disclosures, or maintaining a 
website, to comply with this rule. The commenter suggested that the 
Department should prohibit the use of any such information to market 
or sell non-plan products and services to covered individuals. This 
commenter's concern is beyond the scope of this safe harbor, which 
addresses only a plan administrator's compliance with ERISA's 
standard for the furnishing of covered documents to covered 
individuals.
---------------------------------------------------------------------------

    A few commenters argued that paragraph (e)(1) of the proposal sets 
a higher, strict liability, standard for plan administrators that is 
not appropriate. The Department disagrees with these commenters. The 
existence of an internet website is integral to the successful 
execution of the notice-and-access framework adopted in the final rule. 
Without an accessible website that includes the covered document, the 
plan administrator has not effectively ``furnished'' the document under 
the notice-and-access portion of this safe harbor.\51\ Consequently, 
the Department cannot accept a lesser standard, for example that the 
plan administrator must ``take measures reasonably calculated'' to 
ensure the website's existence, as was suggested by a few commenters. 
The Department also disagrees that this standard results in strict 
liability. The final rule explicitly provides relief in paragraph (j), 
discussed below, for reasonable events that may interrupt the 
availability of covered documents on the website. Temporary 
interruptions due to internet connectivity problems, routine 
maintenance, or network disturbances do not necessarily mean that the 
plan administrator failed to ensure the existence of the website 
pursuant to this safe harbor.
---------------------------------------------------------------------------

    \51\ Other methods of furnishing covered documents 
electronically do not require the existence of a website. See 
paragraph (k) of the final rule.
---------------------------------------------------------------------------

    One commenter requested that the Department modify paragraph (e)(1) 
of the proposal to prohibit website addresses from changing for at 
least

[[Page 31896]]

some specified period of time, because website addresses can shift over 
time. The Department declines to adopt this suggestion. The final rule, 
in paragraph (e), relating to minimum standards for the website, 
contains a new provision requiring that covered documents remain 
available on the website for a specified time. In addition, paragraph 
(d)(3)(i)(D) of the final rule requires each NOIA to contain a 
sufficiently specific website address or hyperlink to provide ready 
access to the covered document. Collectively, these two provisions 
provide for easily locatable content available for a long enough time. 
At this time, the Department therefore declines to establish additional 
prescriptive mandates on website management or website maintenance, 
such as hyperlink redirects or hyperlink expiration rules, in response 
to this comment.
    Paragraph (e)(2) of the proposal contained six paragraphs. 
Paragraph (e)(2)(i) of the proposal provided that the covered document 
must be available on the website no later than the date on which the 
covered document must be furnished under ERISA. Paragraph (e)(2)(ii) 
required that a covered document remain available on the website until 
it is superseded by a subsequent version of the covered document. 
Paragraph (e)(2)(iii) required that a covered document be presented on 
the website in a manner calculated to be understood by the average plan 
participant. Paragraph (e)(2)(iv) of the proposal provided that the 
covered document must be presented on the website in a widely-available 
format or formats that are suitable to be both read online and printed 
clearly on paper. Paragraph (e)(2)(v) provided that the covered 
document must be searchable electronically by numbers, letters, or 
words. Finally, under paragraph (e)(2)(vi) of the proposal, the covered 
document must be presented on the website in a widely-available format 
or formats that allow the covered document to be permanently retained 
in an electronic format that satisfies the requirements of paragraph 
(e)(2)(iv) (requiring a format that can be read online and printed 
clearly on paper). Paragraph (e)(2)(vi) of the proposal was included to 
enable covered individuals to keep a copy of the covered document, for 
example, by saving it to a file in electronic format, on a personal 
computer.
    A significant number of commenters focused on the requirement, in 
paragraph (e)(2)(ii) of the proposal, relating to how long covered 
documents must remain available on the website. This provision in the 
proposal required that a document must remain available until ``it is 
superseded by a subsequent version of the covered document.'' This 
provision was intended to ensure that covered individuals have readily 
available the information they need to protect and enforce their rights 
under ERISA and the plan, especially the SPD for example. The 
Department requested comments as to whether there are circumstances 
when a superseded document may still be relevant to a covered 
individual's claims or rights under the plan and, if so, whether 
additional or different conditions are needed to address such 
circumstances. The Department also invited comments on whether a final 
rule should explicitly address the category of covered documents that 
technically do not become superseded by reason of a subsequent version 
of the covered document, but instead cease to have continued relevance 
to covered individuals (e.g., a blackout notice).
    The Department received a wide range of comments on paragraph 
(e)(2)(ii) of the proposal. A few commenters, who were generally 
opposed to the new safe harbor, argued that all covered documents 
should be retained on the website indefinitely, regardless of continued 
relevance. Many more commenters, however, supported the proposed 
retention provision, but even these commenters suggested a need for a 
clearer standard for the category of covered documents that technically 
do not become superseded by reason of a subsequent version of the 
covered document, such as blackout notices under section 101(i) of 
ERISA or notices of the right to divest employer securities under 
section 101(m) of ERISA. For this subset of covered documents, 
commenters offered a variety of suggestions for how long such documents 
should be retained on the website. A number of commenters, for example, 
suggested that such documents should be retained on the website ``until 
they cease to have relevance,'' leaving it to the plan administrator to 
determine whether and when a document ceases to be relevant. Other 
commenters, however, strongly preferred that the Department set a 
defined length of time, with comments ranging from one to three years. 
These commenters emphasize that there is a benefit to having a bright 
line standard for compliance purposes.
    After considering the comments received, the Department has decided 
a one-year posting requirement strikes the appropriate balance between 
ensuring participants have reasonable electronic access to current 
documents and the appropriate scope of this regulation, which provides 
a safe harbor for furnishing requirements, not underlying retention 
requirements. The one-year period in paragraph (e)(2)(ii) of the final 
rule is responsive to both of the principal observations by most 
commenters: First, by specifically addressing the fact that not all 
covered documents are in fact superseded by another version; and 
second, by providing clear time limits for website retention of these 
covered documents. Affected parties will benefit from the 
administrative simplicity and consistency of a bright-line test to 
follow when managing, or accessing, covered documents on a website. 
Accordingly, paragraph (e)(2)(ii) of the final rule now provides that a 
covered document must remain available on the website until it is 
superseded by a subsequent version of the covered document, if 
applicable, but in no event less than one year after the date the 
covered document is made available on the website pursuant to paragraph 
(e)(2)(i) of the rule.\52\ Under this standard, all covered documents 
must remain on the website for at least one year from the date they 
were first posted on a website. This will protect participants from 
confusion and uncertainty about how long their documents will be 
available on a website. Some covered documents, for example, the SPD, 
must remain on a website until they are superseded by a subsequent 
version of themselves, even if longer than one year from the date they 
were originally posted on a website.
---------------------------------------------------------------------------

    \52\ These safe harbor requirements are not retroactive. Plan 
administrators are not required to go back and post historical 
versions of covered documents, dated prior to the effectiveness of 
this final rule, on the website. The Department intends these 
website retention provisions to be prospective in nature.
---------------------------------------------------------------------------

    The following examples illustrate how paragraph (e)(2)(ii) of the 
final rule applies to several different covered documents.
    Example 1. A plan's SPD is furnished under the new safe harbor on 
January 1, 2025 (``2025 SPD''). Thus, it is first posted on the website 
on the same date. The plan is materially amended in 2026, and a summary 
of material modifications (SMM) was timely furnished. A new SPD is 
furnished via posting on the website on January 1, 2030 (``2030 SPD''), 
reflecting the 2026 amendment. The 2025 SPD must remain on the website 
at least until January 1, 2030, the date the updated 2030 SPD is 
furnished superseding the 2025 SPD. In this example, the 2025 SPD is 
superseded by a subsequent covered document more than one year after 
the

[[Page 31897]]

date it was first made available on the website.
    Example 2. A pension benefit statement for a participant in a 
defined benefit pension plan is furnished on January 1, 2030 (``2030 
PBS''), via posting it on the website on the same date. Subsequently, 
the plan furnished the same participant the next pension benefit 
statement on January 1, 2033 (``2033 PBS''), via posting it on the 
website on the same date. The 2030 PBS must remain on the website until 
January 1, 2033, when it is superseded by the 2033 PBS. In this 
example, the 2030 PBS was superseded by a subsequent covered document 
more than one year after the date it was first made available on the 
website.
    Example 3. A pension benefit statement for a participant in a 
participant-directed defined contribution pension plan was furnished on 
January 1, 2030, via posting it on the website on the same date (``Q1 
Benefit Statement''). Subsequently, the plan furnishes the same 
participant the next pension benefit statement on April 1, 2030, via 
posting it on the website on the same date (``Q2 Benefit Statement''). 
The Q1 Benefit Statement must remain on the website until January 1, 
2031, one year after it was first posted to the website. In this 
example, even though the Q1 Benefit Statement was superseded on April 
1, 2030, the date on which the Q2 Benefit Statement is posted, the Q1 
Benefit Statement must remain on the website for at least one year, 
i.e., at least until January 1, 2031.
    Example 4. A blackout notice is furnished to all plan participants 
on January 1, 2029, via posting it on the website. The blackout notice, 
among other things, announced an upcoming 30-day blackout period ending 
on March 15, 2029. The blackout notice must remain on the website until 
at least January 1, 2030. In this example, even though the blackout 
period ended on March 15, 2029, the blackout notice must remain on the 
website for at least one year, i.e., at least until January 1, 2030.
    The Department does not agree that covered documents must be 
available online indefinitely, as suggested by several commenters, but 
paragraph (e)(2)(ii) of the final rule reflects the Department's 
determination that covered documents must, at a minimum, be available 
on the website for at least one year. Covered individuals will benefit 
from having covered documents available to them for a reasonable period 
of time. For example, participants in a participant-directed individual 
account plan will, at any time, have access to at least a year's worth 
of quarterly pension benefit statements, which may be accessed 
throughout the year for a variety of reasons, including to verify 
contributions, review and revise asset allocations, or otherwise manage 
their retirement assets. This also provides ample time for covered 
individuals who wish to print or download covered documents to do so.
    The new website retention provision in paragraph (e)(2)(ii) of the 
final rule does not preclude the ability of plan administrators to 
retain historical documents on the website longer than the minimum term 
required, if they choose.\53\ Plan administrators may prefer to archive 
or similarly preserve prior covered documents on the website for a 
longer period of time than is required by paragraph (e)(2)(ii). Nor do 
these new website retention requirements alter a plan administrator's 
general recordkeeping requirements under ERISA. For example, ERISA 
sections 107 (retention of records) and 209 (recordkeeping and 
reporting requirements) separately specify retention periods.\54\ Thus, 
participants may continue to request covered documents that are older 
than one year. Plan terminations, benefit determinations, and many 
other circumstances and events naturally will arise during, and 
following, an employer's sponsorship of a pension benefit plan that 
require special attention to the proper management and retention of 
documents.\55\ Plan administrators' (and other plan fiduciaries') 
responsibilities with respect to retaining plan records and documents 
and responding to participant requests are unchanged from existing law. 
The new safe harbor adopted today is not meant to alter ERISA 
obligations with respect to the maintenance of plan records or 
otherwise. This is an optional safe harbor available to plan 
administrators that provides a new method for plan administrators to 
furnish covered documents to plan participants.
---------------------------------------------------------------------------

    \53\ One commenter argued that including numerous historical 
documents on the website could create unnecessary confusion. The 
Department disagrees. Any such confusion should be minimal to the 
extent that the current version of any covered document must be 
presented on the website in a manner calculated to be understood by 
the average plan participants pursuant to paragraph (e)(2)(iii) of 
the final rule. A covered document that is buried or obscured on the 
website is not, in the Department's view, presented on the website 
in a manner that satisfies this standard.
    \54\ 29 U.S.C. 1027, 1059.
    \55\ As one commenter pointed out, maintaining historical 
versions of covered documents not only is necessary for plan 
administrators to satisfy their ERISA recordkeeping obligations and 
this final rule, but may be in plan sponsors' own interest to the 
extent they wish to rely on such covered documents in later 
litigation or enforcement matters.
---------------------------------------------------------------------------

    Some commenters asked the Department to include standards for the 
design of the website, such as requiring that information be presented 
in a simple and direct form, and that the rule should prevent covered 
individuals from having to click through various levels to find 
documents. The Department disagrees that any changes to the rule are 
necessary to manage these concerns. The rule already requires, in 
paragraph (e)(2)(iii), that covered documents must be presented on the 
website in a manner calculated to be understood by the average plan 
participant. Further, the rule requires, in paragraph (d)(3)(i)(D), 
that a website address or hyperlink must be ``sufficiently specific'' 
to provide ready access to a covered document. A link that requires a 
covered individual to click through an unreasonable number of web pages 
to find a covered document would not satisfy the standard. The 
Department also believes that plan administrators and their service 
providers, rather than the Department, are better equipped to address 
the technicalities involved in designing websites to disclose required 
information.
    Paragraph (e)(3) of the proposal required that the plan 
administrator take measures reasonably calculated to ensure that the 
website protects the confidentiality of personal information that could 
be included in covered documents. The Department explained that given 
the industry's increasing reliance on and use of electronic technology, 
many plans already have secure systems in place to protect covered 
individuals' personal information, as is generally required by section 
404 of ERISA. The Department requested comments on whether this 
standard is sufficient to protect covered individuals' personally 
identifiable information. Commenters disagreed on the sufficiency of 
this standard. Some commenters asserted that the proposal adequately 
addressed information privacy and security concerns and that the 
approach taken in the proposal, which included a principles-based 
standard, is preferable to specific standards, requirements, and 
certifications, which can quickly become obsolete with rapidly-changing 
technology. Other commenters do not believe the Department sufficiently 
addressed privacy concerns in the proposal, especially for inactive or 
unused electronic addresses, which, in the view of some commenters, are 
likely to result for participants who are

[[Page 31898]]

assigned an electronic address by their employer. These commenters 
suggested that the more devices on which the Department allows 
electronic delivery of information, the more complex security issues 
become, and that security requirements may need to vary from covered 
document to covered document.
    The Department in the final rule has maintained the principles-
based standard included in the proposal, agreeing with commenters that 
efforts to establish specific, technical requirements would be 
difficult to achieve, given the variety of technologies, software, and 
data used in the retirement plan marketplace. The commenters requesting 
more specific standards themselves point to this difficulty, insofar as 
these issues become more complex as innovations occur and the same 
standards may not be appropriate for all covered documents, all 
systems, or in all circumstances. Therefore, the final rule continues 
to require that the plan administrator, possibly in coordination with 
plan service providers, take measures reasonably calculated to protect 
the security and privacy of covered individuals' information.\56\
---------------------------------------------------------------------------

    \56\ Some commenters raised issues regarding liability for 
security breaches. This safe harbor only establishes an optional 
method for delivery of covered documents. Issues pertaining to 
liability for security breaches are beyond the scope of this safe 
harbor.
---------------------------------------------------------------------------

    Paragraph (e)(4) of the final rule is new. It was added in response 
to a range of questions from commenters about what constitutes a 
``website'' for purposes of the safe harbor. In the preamble to the 
proposed rule, the Department explicitly asked for commenters' views on 
whether, and how, the rule should be modified to include other web-
based mechanisms, such as messaging and mobile ``apps.'' Although some 
commenters recommended a narrow application of the rule to traditional 
websites accessed with a browser, most commenters on this issue 
encouraged the Department to broadly define what constitutes a website, 
or at least to clarify that the term covers any appropriate electronic 
source for accessing information. These commenters want to ensure that 
the rule accommodates advances in technology and permits the use of 
mobile applications, texting, and other internet-based mechanisms and, 
in some cases, these commenters suggested specific language for the 
rule or that the Department adopt a good faith or similar standard in 
the rule to allow plan administrators to use new technology without 
having to revisit the regulatory process. The Department agrees that 
the rule should more clearly state its inclusion of additional and new 
technologies, as long as those technologies are not inconsistent with a 
plan administrator's ability to satisfy the requirements of the safe 
harbor. The Department does not want to inhibit innovation in the 
delivery of required ERISA disclosures, especially as forms of 
communication improve and expand. Thus, for purposes of the safe 
harbor, the term ``website'' means an internet website, or other 
internet or electronic-based information repository, such as a mobile 
application, to which covered individuals have been provided reasonable 
access.

(4) Right to Copies of Paper Documents or To Globally Opt Out of 
Electronic Delivery

    The Department believes that it is essential that any enhanced use 
of electronic disclosure permitted under ERISA respects the preferences 
of covered individuals who want to receive covered documents on paper, 
mailed or delivered to them. To that end, the proposal contained two 
safeguards, in paragraph (f), for these covered individuals.
    The first safeguard, in paragraph (f)(1) of the proposal, provided 
that upon request from a covered individual, the plan administrator 
must promptly furnish to such individual, free of charge, a paper copy 
of a covered document. Commenters overwhelmingly supported protecting 
covered individuals' rights to request a free paper copy of a required 
ERISA disclosure. A few commenters focused on the number of paper 
copies a covered individual could request, and receive, free of charge. 
These commenters were concerned about potentially abusive practices in 
which a covered individual makes several requests for different covered 
documents. The Department is not persuaded that this is a legitimate 
concern. The 2002 safe harbor permits paper copies, free of charge, and 
the Department is unaware of abusive practices of this nature. The 
final rule allows covered individuals to request more than one covered 
document pursuant to this provision. For instance, a participant could 
contact the plan administrator for a participant-directed individual 
account plan and request paper copies of the plan's comparative 
investment chart required by 29 CFR 2550.404a-5(d)(2) as well as a copy 
of the participant's most recent quarterly pension benefit statement. 
In response to commenters concerns about repeated requests for the same 
version of the covered document, however, paragraph (f)(1) of the final 
rule clarifies that only one paper copy of any specific covered 
document must be provided free of charge under this safe harbor. Beyond 
that, whether the plan charges for additional copies of the same 
covered document depends on the terms of the particular plan and other 
applicable provisions of ERISA and regulations thereunder, and is 
outside the scope of this regulation.
    A few commenters focused on how quickly plan administrators must 
respond to requests under the safe harbor. Some suggested time limits 
for responses, like those adopted by the SEC for shareholder reports, 
i.e., within three business days.\57\ The Department is not persuaded 
that strict time limits are needed. The 2002 safe harbor does not 
contain time limits for responses and the Department is unaware of harm 
or exploitation in this area. The safe harbor requirement to respond to 
requests rests with the ERISA plan administrator. The Department 
expects that the plan administrator will furnish the copy to the 
covered individual as soon as reasonably practicable after receiving 
the request. This overarching standard of reasonableness is sufficient 
to protect covered individuals' right to paper. The statute itself also 
provides a civil enforcement remedy, when appropriate.\58\
---------------------------------------------------------------------------

    \57\ 17 CFR 270.30e-3(e).
    \58\ 29 U.S.C. 1132(c)(1).
---------------------------------------------------------------------------

    The second safeguard, in paragraph (f)(2) of the proposal, provided 
covered individuals with the right to opt out of electronic delivery 
and receive some or all covered documents in paper form. Commenters 
overwhelmingly supported this provision and, thus, it was adopted with 
only two minor changes. As proposed, this provision allowed covered 
individuals to ``globally'' opt out, in the sense that individuals 
would be able to opt out of electronic delivery entirely. In addition, 
the provision granted covered individuals the right to opt out of 
electronic delivery on a document-by-document, [agrave] la carte basis. 
Commenters universally supported the right of covered individuals to 
globally opt out of electronic delivery. Many commenters, however, 
objected to requiring plan administrators to offer a document-by-
document opt-out right. Current recordkeeping systems, they explained, 
generally apply an ``all or nothing'' approach to paper versus 
electronic delivery. An [agrave] la carte system, by contrast, would 
require difficult and costly system modifications to keep track of 
paper preferences on a document-by-document basis for each covered 
individual. Commenters

[[Page 31899]]

explained that it is highly atypical for plan administrators to offer a 
``pick-and-choose'' approach to opting out of electronic delivery. It 
would be rather cumbersome and complicated for plan administrators to 
track opt-outs participant-by-participant, and document-by-document, 
over time, they added. In addition, the fact that the rule permits plan 
administrators to provide a combined annual NOIA for multiple covered 
documents would exacerbate this problem, and potentially create 
confusion for covered individuals. For example, the commenters question 
whether an NOIA would have to include an explanation that a covered 
individual can opt out for one, more than one, or all of the combined 
covered documents and a detailed explanation of how to do so for each 
possible opt-out variation. Commenters also pointed out that even if 
the rule were limited to a global opt out, covered individuals under 
the rule always may request a paper copy of any specific covered 
document. Thus, according to these commenters, accommodating an 
[agrave] la carte opt-out right would be burdensome and result in costs 
that could deter plan administrators from using the safe harbor. At 
least one comment letter can be interpreted as support for requiring 
plan administrators to offer a document-by-document opt out right, in 
that it identifies practices showing that some participants might 
prefer a combination of paper and electronic communications.
    The Department is persuaded that the critical protection for 
covered individuals is the right to globally opt out of electronic 
delivery. Therefore, the final rule strikes the phrase ``some or all'' 
from paragraph (f)(2), retaining (and making clearer by adding the term 
``globally'') only the global opt-out as a requirement. This global 
opt-out requirement in paragraph (f)(2) of the final rule is the 
minimum; plan administrators may offer additional opt-out election 
options, such as a document-by-document opt out or one based on 
categories or classifications of covered documents. For example, some 
participants might be comfortable knowing that certain documents, such 
as the SPD, are available on the website, but prefer to receive paper 
versions of other documents, such as their quarterly pension benefit 
statements. This provision also was revised to include the words ``free 
of charge,'' clarifying that covered individuals may not be charged an 
opt-out fee.
    Paragraph (f)(3) of the proposal required that the plan 
administrator establish and maintain reasonable procedures governing 
requests or elections under paragraphs (f)(1) and (2) of the safe 
harbor. This provision also provided that the procedures are not 
reasonable if they contain any provision, or are administered in a way, 
that unduly inhibits or hampers the initiation or processing of a 
request or election. This paragraph is adopted without change in the 
final rule, although a few commenters raised concerns with this 
provision.
    The principal concerns related to the provision's lack of 
specificity, lack of prescriptiveness, and level of discretion afforded 
plan administrators. These commenters were worried that the provision 
would not adequately protect covered individuals who prefer paper 
documents, either because plan administrators would establish onerous 
procedures designed to frustrate requests or because covered 
individuals would find it difficult to follow such procedures. The 
suggested solution, according to these commenters, would be the 
establishment of required, uniform procedures for all plans. Ideas for 
elements of such procedures included, among other things, mandatory 
written procedures for tracking opt-outs; and a requirement that plan 
administrators permit covered individuals to submit opt-out elections 
either electronically or in writing.
    These ideas may be perfectly reasonable with respect to certain 
plans, and the Department does not wish to discourage the establishment 
of such procedures under this safe harbor. The Department does not 
believe, however, that it is appropriate to set forth a single set of 
procedures to govern all requests or elections for all plans, in all 
circumstances. The general, principle-based approach in paragraph 
(f)(3) of the final rule provides stringent and protective guardrails 
to protect covered individuals' rights, while avoiding the pitfalls of 
adopting strict one-size-fits-all procedural requirements that must be 
applied by all plans in all circumstances, and that might inhibit 
innovation in the implementation of this notice-and-access framework. 
Finally, the Department finds unpersuasive the assertions that some 
covered individuals may be unaware of their plan's procedures for 
making requests or elections. Paragraph (g) of the final rule, 
discussed in more detail below, requires these procedures to be set out 
in writing in an initial paper notice to all individuals to whom the 
plan administrator intends the safe harbor to apply, before the safe 
harbor can be used.
    A couple of commenters also asked for confirmation that paragraph 
(f)(3) of the safe harbor does not preclude plan administrators from 
continuing to make online information available to covered individuals 
who globally opt out of electronic delivery under the safe harbor. One 
commenter, for example, noted that some plan administrators may post 
covered documents online and continue to send NOIAs to covered 
individuals that have decided to opt out of electronic delivery. The 
safe harbor provides plan administrators with an optional method of 
furnishing covered documents through electronic media, and paragraph 
(f)(3) provides a mechanism for individuals to override a plan's 
decision and select paper delivery. When an individual makes an 
election under paragraph (f)(2) of the safe harbor, the plan 
administrator must return that individual to paper delivery, at which 
point the conditions of the safe harbor no longer apply with respect to 
that individual. Once a plan respects the individual's election and 
satisfies its obligation to furnish paper documents, the plan may 
continue to provide online access to covered documents that are 
available as well. The safe harbor has no effect on optional action in 
this context by plan administrators.
    Finally, paragraph (f)(4) of the proposal is adopted in the final 
rule with one minor change for clarification. This paragraph requires 
that the system for furnishing the NOIA must be designed to alert the 
plan administrator of an invalid or inoperable electronic address. If a 
plan administrator learns of an invalid or inoperable electronic 
address (e.g., the email is returned as undeliverable or ``bounces 
back'' and the problem is not promptly cured), the plan administrator 
must treat the covered individual as if he or she had elected to opt 
out of electronic delivery under paragraph (f)(2). One way to cure the 
problem would be to furnish the NOIA to a valid and operable secondary 
electronic address that had been provided by the covered individual 
when alerted of the invalidity or inoperability of the primary 
electronic address. Another way to cure the problem would be to 
promptly obtain a new electronic address for the covered individual. 
Some commenters offered additional remedies for promptly curing an 
invalid electronic address. The Department agrees that other acceptable 
cures exist depending on the particular facts and circumstances 
surrounding an NOIA that cannot be delivered. Regardless of the 
procedures that a plan administrator implements to cure an invalid 
electronic address, if the problem is not promptly cured, the deemed 
election of paper delivery will

[[Page 31900]]

persist until the plan administrator is able to obtain a valid and 
operable electronic address for the covered individual.
    Paragraph (f)(4) is solely a safeguard to ensure that covered 
individuals actually receive their pension plan disclosures by 
requiring different treatment of a covered individual when his or her 
electronic address is invalid or inoperable. As long as the plan 
administrator is not alerted to such a problem, and the other 
conditions of the safe harbor are satisfied, the plan administrator is 
considered to have furnished the covered documents required under Title 
I of ERISA. This provision does not address issues such as whether a 
covered individual read, understood, or had actual knowledge of the 
contents of the covered documents accessed.\59\ Nor does this provision 
impose an affirmative obligation on the plan administrator to monitor 
whether covered individuals visit the specified website or login at the 
website.
---------------------------------------------------------------------------

    \59\ See Intel Corp. Inv. Policy Cmte. v. Sulyma, 140 S. Ct. 768 
(2020).
---------------------------------------------------------------------------

    Some commenters recommended that paragraph (f)(4) should include 
additional safeguards, such as a requirement that plan administrators 
monitor, using electronic tracking tools, whether covered individuals 
actually receive, open, read, or access online the NOIA or covered 
documents. These commenters argued that without a monitoring 
requirement, NOIAs could end up in a spam folder or be buried or 
otherwise misfiled, resulting in a covered individual never actually 
accessing a covered document online. A few commenters questioned 
whether application of the safe harbor would adequately result in 
covered documents actually being received and whether the conditions of 
this rule are sufficient to satisfy the general standard for furnishing 
documents under ERISA.
    Other commenters strongly opposed the imposition of tracking or 
monitoring obligations on plan administrators. These commenters did not 
necessarily challenge the existence of tracking or monitoring 
technology to learn about participants' electronic engagement; indeed 
some commenters pointed to tracking capabilities when citing the 
benefits of electronic delivery, possibly even correlating to higher 
deferral rates. Rather, these commenters opposed a tracking or 
monitoring obligation on the grounds of economic burdens. One 
commenter, for example, stated that ``requiring employers to ensure 
that a required document is received and read--when this has not been 
required for paper documents--would surely substantially increase cost, 
time and liability for plan fiduciaries.'' In support of this position, 
they maintained that the safeguards in paragraph (f)(4) of the proposal 
are reasonably crafted and sufficient to resolve potential electronic 
delivery failures, and that any additional obligations would be 
unnecessary and unsupported from a cost-benefit perspective. These 
commenters also opposed a tracking or monitoring obligation on policy 
grounds, arguing that it would be inconsistent for the Department to 
impose a tracking or monitoring requirement on plan administrators 
using electronic delivery when they currently are unable to determine 
if individuals open and read paper disclosures sent by U.S. mail. In 
this regard, they asserted that it would be poor and inconsistent 
policy to regulate electronic delivery more stringently than 
traditional paper delivery methods.
    The Department disagrees that compliance with this final rule, 
which includes a variety of protections and safeguards for covered 
individuals, in addition to this paragraph (f)(4), fails to satisfy 
ERISA's standard for delivery. The Department does agree, however, that 
imposition of a monitoring requirement could be very expensive, 
especially for small plans, to the extent technological systems have to 
be replaced or altered significantly, or additional, potentially 
costly, plan services have to be procured. Even the most basic 
requirement for website monitoring, for example tracking the instances 
of users visiting a particular page on a website or views of a screen 
on an app, would require a web analytics tool, according to the 
commenters. Even for plan administrators that already, as suggested by 
a few commenters, engage in some level of monitoring, transitioning 
their systems and procedures to comply with a specific, technical 
requirement in this safe harbor would not be without some burden and 
cost. It is unlikely in all cases that the capabilities or functioning 
of existing monitoring systems would align precisely with a new 
regulatory requirement. Further, the Department believes that the 
rule's protections for covered individuals, not only paragraph (f)(4) 
but, for example, the clear and timely communication of website 
activity and paper and opt-out rights to preserve individuals' delivery 
preferences, taken together, provide a method of furnishing documents 
that is more than reasonably calculated to ensure actual receipt of 
covered documents. Thus, the Department does not see a compelling 
reason to establish a stricter standard for monitoring covered 
individuals' use of disclosures furnished electronically than for paper 
deliveries. The practical effect of paragraph (f)(4) of the final rule 
is analogous to the circumstances that arise when a plan is alerted to 
an invalid physical mailing address when a letter is returned as 
undeliverable. Of course, this final rule does not prevent plan 
administrators who already engage in some level of monitoring from 
continuing to do so.

(5) Initial Notification of Default Electronic Delivery and Right To 
Opt Out

    Paragraph (g) of the proposal provided that the plan administrator 
must furnish to each individual, prior to the plan administrator's 
reliance on this section with respect to such individual, a 
notification on paper that some or all covered documents will be 
furnished electronically to an electronic address, a statement of the 
right to request and obtain a paper version of a covered document, free 
of charge, and of the right to opt out of receiving covered documents 
electronically, and an explanation of how to exercise these rights.
    The Department is adopting paragraph (g) with a few modifications 
in response to commenters' suggestions, which are explained below. The 
final rule continues to require that each individual with respect to 
whom a plan administrator intends to rely on the new safe harbor, be 
furnished a notification, on paper, that some or all of the plan's 
covered documents will be furnished electronically to an electronic 
address. The initial notice, as proposed, also required a statement of 
the right to request and obtain a paper version of covered documents 
and of the right to opt out of receiving covered documents 
electronically, free of charge, and an explanation of how to exercise 
these rights. The Department continues to believe that it is important 
for all participants and beneficiaries, who are accustomed to the 
current ERISA delivery rules, to be notified, on paper, that the plan 
administrator is adopting a new method of electronic delivery. If the 
plan administrator does not intend to rely on this new safe harbor for 
one or more employees, however, the plan administrator does not need to 
send these employees an initial notification. To illustrate, assume 
that an existing defined contribution plan covers three participants, 
only one of whom is covered under the 2002 safe harbor as an employee 
who is ``wired at work.'' This plan could take advantage of the new 
safe harbor for all three

[[Page 31901]]

participants, in which case each participant would have to be furnished 
the initial notification, even the employee who is ``wired at work.'' 
Alternatively, this plan could take advantage of this safe harbor only 
with respect to the two participants who are not covered under the 2002 
safe harbor, in which case the plan would furnish the initial 
notification only to these two participants.
    Many commenters requested an exception to the requirement that the 
initial notice must be furnished on paper for individuals who already 
receive disclosures electronically under the 2002 safe harbor. 
Commenters were concerned that, in this context, participants and 
beneficiaries who are accustomed to receiving electronic disclosures 
may be confused by a paper notice, or might ignore it altogether. Some 
of these commenters suggested that individuals covered by the 2002 safe 
harbor should not be required to receive an initial notice at all. On 
the other hand, the Department received comments supporting the 
requirement that an initial notice must be furnished on paper to all 
intended covered individuals, without exception. The Department 
believes that commenters' concern about potential confusion on the part 
of individuals receiving an initial notice is speculative at best. 
Further, even if an individual has been receiving electronic 
disclosures pursuant to the 2002 safe harbor, the logistics of 
electronic disclosure likely will work differently under the new safe 
harbor, for example with respect to the right to globally opt out. 
Therefore, the Department continues to believe that application of this 
new safe harbor warrants an initial notification, in paper, advising 
participants at the outset how covered documents will be furnished and 
their rights under the new electronic delivery framework and that 
confusion or other harm is highly unlikely. To that end, a plan 
administrator may not rely on the 2002 safe harbor to furnish the 
initial notice electronically to any participant or beneficiary that 
will be a covered individual under the new safe harbor.
    A few commenters questioned the sufficiency of providing only one 
initial notice to warn participants and beneficiaries about the 
transition from paper to electronic delivery. Commenters made various 
suggestions, including that the Department require plan administrators 
to send two such notices before relying on the safe harbor, and that 
additional notices should be provided annually and at termination of 
employment. The Department declines to adopt these suggestions. These 
commenters offered no basis to conclude additional paper notices would 
be significantly more effective, particularly in light of the 
additional costs such a requirement would entail. In addition, the 
Department notes that the initial notice is not the only protection for 
participants and beneficiaries who will be transitioned to notice-and-
access electronic disclosure. The specific purpose of the initial 
notice is to alert covered individuals to the coming change and of 
their rights under the new disclosure framework. Covered individuals, 
however, will continue to be informed of these rights in all future 
NOIAs. The Department drafted this safe harbor mindful of important 
periods of transition for covered individuals, not only requiring an 
initial notice before electronic delivery begins for a particular 
individual, but also requiring all future NOIAs thereafter to contain 
similar information, and a special rule to address the time at which 
covered individuals sever from employment.
    Although a number of commenters supported the proposed content 
requirements, without modification, other commenters recommended a 
variety of additional content requirements for the initial notice 
required under paragraph (g) of the proposal. For example, commenters 
suggested that it would benefit covered individuals if the initial 
notice included instructions for how to access covered documents and 
the electronic address that will be used to furnish NOIAs under the 
safe harbor. Commenters point out that a covered individual's 
electronic address plays a crucial role under the new safe harbor, 
especially with respect to situations in which the employer will assign 
an electronic address (and here, especially if an employer assigned a 
commercial electronic address, such as a Google email account (or 
``gmail.com'')). Additional suggestions for required content included a 
list of disclosures the plan intends to provide electronically, a 
statement that individuals who request paper will be protected from 
retaliation, the right of individuals to print covered documents at the 
employer's office, and a toll-free number to contact the plan for 
password and other assistance.
    Although the Department disagrees with the appropriateness and 
necessity of each item on the broad list of additions offered by these 
commenters, the Department was persuaded by commenters that the initial 
notification could be improved, and the transition to electronic 
delivery made smoother, by requiring certain additional items of 
information. First, the final rule now provides, in paragraph (g), that 
plan administrators identify the electronic address that will be used 
for a particular individual and any instructions necessary to access 
the covered documents. The Department agrees that it would be helpful 
for a plan administrator to identify the specific electronic address 
that will be used to furnish covered documents to a covered individual 
and that the additional burden, if any, of including this personalized 
information will be more than offset by the benefit to both the plan 
administrator and covered individuals of stating, up front, the 
electronic address that will be used. This requirement will help to 
identify and rectify potential mistakes for an individual's preferred 
electronic address and to clearly identify electronic addresses 
assigned by the employer. Second, the Department agrees that 
individuals will benefit from the inclusion of any instructions that 
will be necessary to access covered documents, for example whether 
individuals will have to use passwords, download a mobile application, 
or set up an online account to view secure documents. Third, the 
Department added to the final rule a requirement that the initial 
notice include a cautionary statement that the covered document is not 
required to be available on the website for more than one year; or, if 
applicable, after it is superseded by a subsequent version of the 
covered document. This addition is to make sure that covered 
individuals are put on notice as they transition to a notice-and-access 
disclosure framework that covered documents may not be available online 
indefinitely.
    The Department did not adopt, as requirements, any of the other 
content suggested by commenters; the Department notes, however, that 
the content requirements for initial notices in the final rule, unlike 
for NOIAs, are not limiting. As long as additional content on the 
initial notice is relevant and not inaccurate or misleading, plan 
administrators may personalize and further enhance the initial notice 
to better communicate the plan's transition to electronic disclosure 
under the safe harbor. Finally, the Department added one additional, 
non-content, requirement to paragraph (g), that the initial notice must 
be written in a manner calculated to be understood by the average plan 
participant; this change is intended merely to confirm that the initial 
notice must satisfy the same general readability standard as the NOIA 
and other required ERISA disclosures.

[[Page 31902]]

    One commenter raised an issue with respect to the prominence of the 
initial notification required by paragraph (g) of the proposal. This 
commenter was concerned that initial notifications might be packaged or 
combined with other disclosures, including non-ERISA employment 
materials, distributed during the onboarding process and that newly 
hired individuals might lose track of them. This commenter requested 
that the final rule include a requirement that an initial notice be 
furnished alone and not, for example, with enrollment or other 
materials. Others disagreed with this commenter and believed that 
initial notices should be contained in plan enrollment materials, or 
for instance in a new employee packet or with other onboarding human 
resource documents. The Department understands the concerns of the 
former commenter, but believes it may be impractical to mandate that 
the initial notice be furnished alone. The Department agrees with the 
latter commenter that it makes common sense for plan administrators to 
distribute initial notices with standard enrollment materials. It is 
customary for plan administrators to consolidate or package different 
documents or disclosures into a single enrollment package for 
organizational purposes and for the sake of efficiency. The requirement 
in paragraph (g) that the initial notification be in writing is 
sufficient protection against the possibility that covered individuals 
will overlook such notices. Accordingly, no change to paragraph (g) of 
the proposal is made in response to this comment.

(6) Special Rule for Severance From Employment With Plan Sponsor

    Paragraph (h) of the final rule continues, as proposed, to include 
a special requirement for plan administrators who wish to use the safe 
harbor for furnishing ERISA pension plan disclosures to employees who 
have severed from employment.\60\ As explained in the proposal, this 
special rule focuses on circumstances when there is a heightened 
concern about the accuracy of electronic contact information in 
connection with an employee's severance from employment. As proposed, 
paragraph (h) provided that, at the time a covered individual who is an 
employee severs from employment with the employer, the plan 
administrator must take measures reasonably calculated to ensure the 
continued accuracy of the electronic address described in paragraph (b) 
of the rule or to obtain a new electronic address that enables receipt 
of covered documents following the employee's severance from service.
---------------------------------------------------------------------------

    \60\ As explained in the preamble to the proposal, the phrase 
``severance from employment'' in paragraph (h) is intended to have 
its ordinary meaning. A severance from employment occurs when an 
employee dies, retires, is dismissed, or otherwise terminates 
employment with the employer that maintains the plan, including when 
the employee continues on the same job for a different employer as a 
result of a liquidation, merger, consolidation or other similar 
corporate transaction. Whether a severance from employment has 
occurred is determined based on the facts and circumstances of the 
particular situation.
---------------------------------------------------------------------------

    Many commenters suggested eliminating this provision in its 
entirety, arguing that it is unnecessary and duplicative, because 
paragraph (f) of the proposal, which required a plan administrator to 
take curative steps if the electronic address of a covered individual 
becomes invalid or inoperable (i.e., the ``bounce back'' provision) 
will remedy problems with electronic addresses of former employees. The 
Department intends to ensure a seamless transition for the 
dissemination of ERISA pension plan information when an employee leaves 
employment. And as such, the Department disagrees that paragraph (f) 
will address every circumstance in which an electronic address becomes 
inoperable or no longer associated with a covered employee who severs 
from employment. For example, emails sent to employer-provided email 
addresses of employees who have severed employment will not necessarily 
bounce back in a timely fashion, or ever, as would be necessary to give 
the plan administrator time to furnish documents within applicable 
timeframes. As a result, the Department is retaining the ``severance 
from employment'' rule, subject to a few revisions.
    Other commenters recommended limiting the rule to severing 
employees who are receiving covered documents through an employer-
provided electronic address, not a personal electronic address. These 
commenters argued that a special provision for severance is necessary 
only for employees who have an employer-assigned electronic address. If 
the electronic address being used by a terminated employee is not one 
that has been assigned by their employer, these commenters argued, 
there is no obvious reason that the address would cease to be valid or 
used by the individual merely because of cessation of employment. That 
is not the case with employer-provided addresses, which are likely to 
cease working at termination of employment or at some point thereafter, 
either because the employer deletes the email account or the severing 
employee no longer uses or has access to the employer-provided email 
account. The Department agrees that the special severance provision is 
not necessary when a personal electronic address is being used to 
provide covered documents to a covered individual. Therefore, the 
Department has revised paragraph (h) to read as follows: ``At the time 
a covered individual who is an employee, and for whom an electronic 
address assigned by an employer pursuant to paragraph (b) of this 
section is used to furnish covered documents, severs from employment 
with the employer, the plan administrator must take measures reasonably 
calculated to ensure the continued accuracy and availability of such 
electronic address or to obtain a new electronic address that enables 
receipt of covered documents following the individual's severance from 
employment.''
    This revision also addresses concerns raised by representatives of 
multiemployer plans. These representatives stated that the Department 
should adjust paragraph (h) to better reflect and accommodate the 
experiences of individuals covered by a multiemployer plan, who may 
work for multiple different employers in the same year, if not the same 
month. These representatives also stated that it is not typically the 
case that employees are provided email addresses through their 
employers in the multiemployer sector and that those multiemployer 
plans who do deliver notices electronically, do not typically use 
employer-provided emails. Thus, this revision in practice will usually 
exclude plan administrators of multiemployer plans from the 
requirements of paragraph (h) of the final rule.
    The special rule for ``severance from employment'' requires a plan 
administrator to take measures reasonably calculated to ensure the 
continued accuracy of the electronic address following a severance from 
employment, or to obtain a new address that enables receipt of covered 
documents following the severance. Many commenters requested 
clarification on what types of procedures would constitute such 
reasonable measures. One commenter suggested that the Department should 
require plan administrators to furnish, on paper, an additional, post-
termination notice, with content similar to the NOIA. Covered 
individuals terminating their employment should already be familiar 
with their plan's notice-and-access framework for delivery, so the 
Department disagrees that the rule should include an additional notice 
requirement at termination. Requiring another notice,

[[Page 31903]]

especially in paper form, would increase the costs of compliance with 
the safe harbor overall, and, in the Department's view, unnecessarily. 
Employees separating from service are sufficiently protected under this 
provision to the extent the rule requires plan administrators to have 
procedures in place to ensure they have a correct electronic address to 
which notices will be furnished. As an example, procedures that include 
requesting and receiving an updated personal email address for future 
notifications as part of a company's standard off-boarding process 
ordinarily would be sufficient to meet this standard. If these measures 
fail, the participant or beneficiary is no longer a ``covered 
individual'' under paragraph (b) of the final rule.

(7) Special Rule for Annual Combined Notices of Internet Availability

    Although the proposal generally required, in paragraph (d)(1), that 
a plan administrator furnish an NOIA for each covered document, a 
special rule in paragraph (i) of the proposal allowed a plan 
administrator to furnish one annual combined NOIA (combined NOIA), 
subject to the timing requirements in paragraph (d)(2), that 
incorporates or combines the content required by paragraph (d)(3) with 
respect to one or more of a subset of covered documents. These 
documents included, as applicable (1) a SPD; (2) a SMM; (3) a summary 
annual report (SAR); (4) an annual funding notice; (5) an investment-
related disclosure under 29 CFR 2550.404a-5(d); (6) a QDIA notice; and 
(7) a pension benefit statement. The Department proposed a special rule 
for these covered documents because they represent the most common and 
recurring disclosures that are made to pension plan participants, and 
are triggered by no event other than the passage of time.\61\
---------------------------------------------------------------------------

    \61\ The proposal included the SMM even though it does not 
technically fit under the passage-of-time descriptor. An SMM's 
timing requirement sets it apart from, and warrants different 
treatment than, other event-triggering disclosures, the timing for 
which more closely corresponds to the particular event. See 29 CFR 
2520.104b-3(a) (requiring the plan administrator to furnish the SMM 
``not later than 210 days after the close of the plan year in which 
the modification or change was adopted''). In response to negative 
commentary on its inclusion in this paragraph, the SMM is excluded 
from the special rule in paragraph (i) of the final rule. Despite 
this exclusion, the SMM remains a covered document and may be 
furnished under the safe harbor, but it must have its own NOIA.
---------------------------------------------------------------------------

    The Department excluded other required ERISA disclosures from this 
special rule, because, for example, they are event-specific disclosures 
and might communicate information that requires or invites specific and 
timely action on behalf of a participant or beneficiary. The special 
rule excluded contingent or irregular documents that are furnished 
based on an individual transaction or plan-status basis, or that are 
not regularly furnished to participants and beneficiaries. For example, 
a participant who receives notice of a blackout period, as required by 
ERISA section 101(i), may consider changing their investment directions 
and, if so, must do so within the timeline specified. Similarly, a 
participant who receives notice of an adverse benefit claim 
determination, as required by ERISA section 503(1), may wish to appeal 
or take other action following such determination, in which case they 
similarly must act within defined periods of time. In either example, 
the timing of the annual combined NOIA may not align with, and may even 
post date, the timing of the specific act required or invited by the 
covered document. Additional examples include a qualified domestic 
relations order determination under ERISA section 206(d)(3)(G)(i)(II), 
and a notice of failure to meet minimum funding standards under ERISA 
section 101(d).
    In short, the Department excluded documents that it believes do not 
lend themselves, primarily because of their timing, irregularity, or 
requirement of potentially timely action by a covered individual, to a 
framework that permits combination into one annual NOIA. The Department 
solicited comments on whether, and why, the subset of covered documents 
eligible for paragraph (i) should be expanded or narrowed, and the 
criteria that would justify an expansion or narrowing. In addition, the 
Department asked for commenters' views on whether, instead of an 
explicit list of the covered documents to which paragraph (i) applies, 
any final safe harbor should adopt a principles-based or categorical 
approach, describing the type or nature of covered documents that may 
be combined.
    Paragraph (d)(2), as proposed, required that a combined NOIA for 
more than one covered document under paragraph (i) be furnished at 
least once each plan year, and, if the combined NOIA was used for the 
prior plan year, no more than 14 months following the prior year's 
notice. The Department intended this combined NOIA to be an annual 
disclosure; to provide flexibility to plan administrators and avoid 
potential compliance issues associated with a strict 12-month standard, 
however, the proposal provided that an ``annual'' combined NOIA may be 
furnished up to 14 months following the prior ``annual'' combined NOIA. 
Commenters did not object to the timing standard for this notice, and 
paragraph (d)(2) has been adopted as proposed to provide for this 
``annual'' combined NOIA.
    The special rule in paragraph (i) of the proposal elicited a large 
number of comments. Some of the commenters opposed paragraph (i) and 
argued that permitting consolidation is insufficient because it fails 
to provide notice to participants about important documents that are 
due at different times. Without an NOIA each time a document is posted 
online, these commenters worry that covered individuals will have no 
reason to go to the website. One commenter pointed out that the very 
documents that may be consolidated are the documents that are most 
critical to covered individuals understanding their most basic 
retirement plan rights and benefits. Another commenter asserted that 
this concern is heightened for covered individuals in a participant-
directed individual account plan who would receive only one notice per 
year that covers all four of their quarterly pension benefit 
statements. This commenter argued that this framework may not, as a 
legal matter, constitute adequate ``furnishing'' of the quarterly 
pension benefit statements. Further, since the cost of sending an NOIA 
by email, for example, is or should be insignificant, argued one 
commenter, plans will realize very little savings under the proposed 
special rule.
    Other commenters, however, not only supported the consolidation of 
notices permitted by paragraph (i) of the proposal, but in some cases 
requested that the Department expand the consolidation permitted for 
the final rule to include additional disclosures. Commenters offered a 
variety of suggestions, including any information that must be 
furnished annually (e.g., the general plan information required by 
paragraph (c) of the Department's 404a-5 participant-level fee 
disclosure regulation \62\) or any covered documents that would be 
furnished at the same time, such as disclosures based on plan 
events.\63\ Several commenters also

[[Page 31904]]

requested inclusion of specified plan-related notices required by the 
Internal Revenue Code, such as the Code automatic contribution 
arrangement notices that currently may be furnished with the 
Department's QDIA notice.\64\
---------------------------------------------------------------------------

    \62\ 29 CFR 2550.404a-5, ``Fiduciary requirements for disclosure 
in participant-directed individual account plans'' (Oct. 20, 2010).
    \63\ For example, one commenter suggested if a plan 
administrator changes investment providers, a required blackout 
notice, pursuant to 29 CFR 2520.101-3, and the disclosure of changes 
to plan investment options, pursuant to 29 CFR 2550.404a-
5(c)(1)(ii), should be permitted to be announced in a combined NOIA. 
The Department did not accept this suggestion. The final safe 
harbor's special rule generally is intended to apply to routine 
disclosures that are furnished on a regular basis and that do not 
invite action in response to the disclosure. The blackout notice and 
disclosure of changes to plan investment options do not satisfy 
these criteria; in the Department's view these disclosures warrant 
separate notice.
    \64\ See Code sections 401(k)(13)(E), 414(w)(4), and 
401(k)(12)(D); see also FAB 2008-03 as to furnishing the Code 
notices with the Department's QDIA notice.
---------------------------------------------------------------------------

    Other commenters responded favorably to the concept of a 
principles-based category of documents that may be consolidated, beyond 
the seven included in the proposal, and that might be flexible enough 
to accommodate future disclosure requirements. A different commenter 
argued that a principles-based standard for covered documents that may 
be consolidated is not workable, because plan administrators may 
interpret the language differently creating unnecessary confusion, 
including for covered individuals. Commenters also disagreed on whether 
plan administrators should be able to consolidate notices of more than 
one plan when offered by a plan sponsor and asked for clarification on 
this point. In this connection, the Department notes that the final 
rule applies to ``an'' employee benefit plan, and its requirements must 
be satisfied with respect to each such plan, even if sponsored by the 
same employer. Allowing covered documents for more than one plan to be 
included on a combined NOIA could create confusion for covered 
individuals and would result in an even longer, less concise notice, 
especially to the extent notices for multiple covered documents for 
each plan already may be consolidated.
    Paragraph (i) of the final rule is appreciably different than the 
paragraph as proposed, based on the Department's reevaluation of the 
combined NOIA concept in light of commenters' many ideas and points of 
view. Paragraph (i) continues to provide that plan administrators can 
furnish one annual NOIA that incorporates or combines the content 
required by paragraph (d)(3) of the rule with respect to more than one 
document. As opposed to the proposed list of seven covered documents, 
though, the group of documents for which a single annual combined NOIA 
is permitted has been revised.
    As revised, paragraph (i) of the final rule permits one annual 
combined NOIA that incorporates the content required by paragraph 
(d)(3) with respect to four categories of documents and information. 
The first category is the SPD, as required pursuant to section 104(a) 
of ERISA. The second category is any covered document or information 
that must be furnished annually, rather than upon the occurrence of a 
particular event, and does not require action by a covered individual 
by a particular deadline. The third category is any covered document, 
not in the first and second categories, if authorized in writing by the 
Secretary of Labor, by regulation or otherwise, in compliance with 
section 110 of ERISA. The fourth category is any applicable notice 
required by the Code if authorized in writing by the Secretary of the 
Treasury.
    Paragraph (i)(1) of the final rule deals with the first category of 
permissible documents, which consists solely of the SPD. The Department 
finds that the SPD lends itself to inclusion on an annual, combined 
NOIA, especially because its inclusion generally will remind covered 
individuals as to its availability more often than it otherwise would 
have to be furnished. Most commenters supported inclusion of this 
document.
    Paragraph (i)(2) of the final rule deals with the second category 
of permissible documents and information. This category includes 
certain annual disclosures meeting certain conditions. Rather than 
listing the covered documents, however, the final rule describes this 
category as ``any covered document or information that must be 
furnished annually, rather than upon the occurrence of a particular 
event, and that does not require action by a covered individual by a 
particular deadline.'' The NOIA for any covered document meeting this 
description may be consolidated onto an annual combined NOIA. This 
category includes many of the covered documents that were listed in the 
proposal, for example, an SAR, an annual funding notice, a QDIA notice, 
an annual (but not quarterly) pension benefit statement, and annual 
investment-related information required by paragraph (d)(2) of the 
Department's Sec.  2550.404a-5 regulation. In response to public 
comments, this new category also includes information that must be 
furnished annually to comply with paragraph (c) of the 404a-5 
regulation, for example the general plan information in paragraph 
(c)(1)(i) or the description of fees for plan administrative services 
in paragraph (c)(2)(i)(A).
    Paragraph (i)(3) of the final rule deals with the third category of 
permissible documents. This category includes any covered document ``if 
authorized in writing by the Secretary of Labor, by regulation or 
otherwise, in compliance with section 110 of the Act.'' This category 
is intended to provide the Department with flexibility to accommodate 
additional or future covered documents that do not fit in the second 
category in paragraph (i)(2), but that may be beneficial to include, 
for example to reduce administrative burdens on plans and improve the 
effectiveness of disclosures to covered individuals.\65\
---------------------------------------------------------------------------

    \65\ Section 110 of ERISA permits the Secretary to prescribe for 
pension plans alternative methods of complying with any of the 
reporting and disclosure requirements if the Secretary finds that 
(1) The use of the alternative method is consistent with the 
purposes of Title I of ERISA, provides adequate disclosure to plan 
participants and beneficiaries, and provides adequate reporting to 
the Secretary; (2) application of the statutory reporting and 
disclosure requirements would increase costs to the plan or impose 
unreasonable administrative burdens with respect to the operation of 
the plan; and (3) the application of the statutory reporting and 
disclosure requirements would be adverse to the interests of plan 
participants in the aggregate. Section 110 provides both procedural 
and substantive requirements that the Department incorporates by 
reference.
---------------------------------------------------------------------------

    The fourth category, in paragraph (i)(4) of the final rule, deals 
with applicable notices required by the Internal Revenue Code if 
authorized in writing by the Secretary of the Treasury. This category 
was added in response to the many commenters who requested a safe 
harbor that aligns with the Treasury Department's electronic media 
regulation for applicable notices at 26 CFR 1.401(a)-21(c), especially 
for disclosing Code automatic contribution arrangement notices and 
ERISA QDIA notices.
    Unlike the proposal, the special rule no longer permits an annual 
NOIA to cover quarterly benefit statements within the meaning of 
section 105(a)(1)(A)(i) of ERISA. The Department was persuaded by 
commenters that an annual NOIA, for example furnished on January 15 of 
a given year, may be insufficient to adequately alert covered 
individuals as to the availability of subsequent benefit statements 
furnished later in that same year, for example, on April 15, July 15, 
and October 15. That view was not unanimous among the commenters, 
however, with many commenters suggesting that a single annual notice of 
availability is likely a very common practice, if not the norm, for 
plan administrators relying on FAB 2006-03. Given the lack of consensus 
among the commenters, and the Department's concern that an annual NOIA 
may not effectively promote covered individuals' access to and review 
of covered documents that will not be posted until months later, it 
makes sense to treat these recurring covered documents differently than 
other recurring documents. Accordingly, a separate NOIA must be 
furnished for each of

[[Page 31905]]

these covered documents. The Department intends, however, to give 
further consideration to this issue in the future, and reserves the 
ability to take action pursuant to paragraph (i)(3) of the final rule, 
discussed above.

(8) Reasonable Procedures for Compliance

    The Department included a provision in the proposal to ensure that 
plan administrators would not violate their disclosure obligations 
under ERISA when, for a variety of reasons beyond the control of the 
plan administrator, there may be temporary interruptions in the 
availability of covered documents on a website. Paragraph (j) of the 
proposal explained that, if certain requirements are satisfied, the 
conditions of the safe harbor are also satisfied, notwithstanding the 
fact that covered documents are temporarily unavailable for a period of 
time in the manner required by Sec.  2520.104b-31 due to unforeseeable 
events or circumstances beyond the control of the plan administrator. 
The plan administrator must have reasonable procedures in place to 
ensure that the covered documents are available in the manner required 
by Sec.  2520.104b-31. In the event that covered documents are 
temporarily unavailable, the plan administrator must take prompt action 
to ensure that the documents become available in the manner required by 
Sec.  2520.104b-31 as soon as practicable following the earlier of the 
time at which the plan administrator knows or reasonably should know 
that the documents are temporarily unavailable. Commenters generally 
agreed that, by including this relief from potential liability, the 
Department fairly recognized the practical reality of temporary 
technical disruptions in modern times while at the same time including 
sufficiently rigorous standards to make sure that, as a general matter, 
important ERISA information is available to participants and 
beneficiaries when they need it.
    A few commenters nonetheless made practical suggestions relating to 
the circumstances under which this relief should be triggered, and for 
how long the relief should be available. One commenter pointed out that 
covered documents also may periodically be offline for technical 
maintenance, upgrades, or similar activities to maintain or improve the 
website. The Department agrees that plan administrators should not fail 
the safe harbor during such times, and added the concept of ``technical 
maintenance'' to paragraph (j) to address these reasonable situations 
in which systems staff and other providers perform tasks necessary to 
maintain and improve the website on which covered documents are posted. 
These situations for the most part will be foreseeable, however, so 
plan administrators should take care to ensure that resulting service 
disruptions are reasonable. Another commenter suggested that the 
Department include a more specific parameter for how long the documents 
may be ``temporarily'' unavailable; for example, what if the problems 
occur during a blackout or similarly critical timeframe? The Department 
agrees that consideration should be given to facts and circumstances 
surrounding failure and that covered documents may be unavailable for 
only a ``reasonable'' period of time. The final rule has been modified 
accordingly.

(9) Direct Delivery Via Electronic Mail

    In response to a considerable amount of commentary on the proposal, 
the Department is persuaded that the proposed framework for disclosure 
would be enhanced by allowing the delivery of covered documents to 
covered individuals via email, with the covered document attached, in 
addition to allowing plan administrators to furnish covered documents 
on an internet website. As proposed, the safe harbor required that 
covered documents be posted on a website; the proposal did not 
specifically provide for (and its requirements did not accommodate), 
for example, the furnishing of an email to a covered individual that 
includes an attached PDF or similar version of a covered document. 
Providing covered individuals with an email that includes an attached 
covered document is, however, functionally similar to providing covered 
individuals with an email that includes a website link to a covered 
document. For the reasons discussed below, the Department has decided 
that direct delivery will provide covered individuals with comparable 
access to covered documents.
    A large number of commenters asked the Department to clarify, in 
the final rule, that the safe harbor also applies to the direct 
furnishing of documents in electronic form. These commenters believe 
the rule would be improved if plan administrators are not limited to 
sending to covered individuals an email with a website address or a 
hyperlink to a covered document that is posted on a website, but 
instead could also send an email to covered individuals with covered 
documents in the body of or as an attachment to the email. Commenters 
believe that this form of delivery is equally effective, and, for some 
individuals, perhaps preferable to hyperlinks and website postings. In 
fact, even commenters who generally oppose electronic disclosure as a 
default, nonetheless argue that directly sending covered documents is 
preferable to, and more protective than, a notice-and-access framework. 
According to these commenters, direct delivery is preferable because 
website access may require multiple steps (logons, passwords, opening 
hyperlinks, etc.) which, in their opinion, could result in a burdensome 
process that some individuals may not pursue. A significant benefit of 
direct delivery is immediate access to covered documents, while 
avoiding accessibility issues such as firewalls and forgotten 
passwords. Further, some plan administrators also may want to provide 
electronic delivery but cannot support, or have logistical concerns 
with supporting, a website.
    The Department is persuaded by the broad range of commenters 
supporting the direct delivery of covered documents. Therefore, the 
final rule includes a new provision, in paragraph (k), which allows 
plan administrators to furnish covered documents directly to covered 
individuals using email, in contrast to the proposal, which permitted 
emails to covered individuals with links to covered documents. As 
explained below, although it is set forth in paragraph (k), the direct 
delivery provision relies on cross-references to other provisions of 
the final rule to ensure that it maintains the applicable requirements 
and protections of the notice-and-access framework.\66\ The Department 
believes that this new provision better addresses commenters' requests 
for a direct delivery alternative, while ensuring that there are 
sufficient safeguards and other requirements necessary for application 
of the final rule when a plan administrator prefers delivery by email 
of the actual covered documents (as opposed to delivery by email of 
hyperlinks to a website that includes the covered documents).
---------------------------------------------------------------------------

    \66\ The final rule's website accessibility, maintenance, and 
other requirements do not apply to direct delivery by email. 
Paragraph (k) does, however, incorporate the relevant substantive 
requirements of paragraph (d), as well as the requirements of 
paragraphs (f), (g) (except the cautionary statement), and (h). 
Paragraph (k)(3) also includes formatting and searchability 
requirements similar to those imposed by paragraph (e). These cross-
references are discussed in greater detail in this section.
---------------------------------------------------------------------------

    Paragraph (k) provides that, notwithstanding any other provision of 
the safe harbor, a plan administrator will satisfy ERISA's general 
furnishing obligation by using an email address to furnish a covered 
document to a covered individual provided that the

[[Page 31906]]

requirements of paragraph (k) are satisfied. Although an electronic 
address for purposes of defining a ``covered individual'' in paragraph 
(b) of the rule is broader, for example encompassing mobile telephone 
numbers, paragraph (k) is limited to delivery to an electronic address 
that is an email address. Specifically, paragraph (k)(1) requires that 
the covered document be sent to a covered individual's email address no 
later than the date on which the covered document must be furnished 
under ERISA. Paragraph (k)(2) clarifies that, because the covered 
document will be furnished directly, the plan administrator does not 
need to comply with paragraph (d) and send an NOIA. Rather, the plan 
administrator must send an email that (i) includes the covered document 
in the body of the email or as an attachment; (ii) includes a subject 
line that reads: ``Disclosure About Your Retirement Plan''; (iii) 
includes the information described in paragraph (d)(3)(i)(C) if the 
covered document is an attachment (identification or brief description 
of the covered document), paragraph (d)(3)(i)(E) (statement of right to 
paper copy of covered document), paragraph (d)(3)(i)(F) (statement of 
right to opt out of electronic delivery), and paragraph (d)(3)(i)(G) (a 
telephone number); and (iv) complies with paragraph (d)(4)(iv) 
(relating to readability). Paragraph (k)(2) ensures that the 
substantive information required by paragraph (d) is provided in a 
clear manner to those covered individuals who receive disclosures 
directly under paragraph (k).
    Similar to paragraph (e)'s requirements for covered documents 
posted on a website, paragraph (k)(3) requires that the covered 
document be (i) written in a manner reasonably calculated to be 
understood by the average plan participant; (ii) presented in a widely-
available format or formats that are suitable to be read online, 
printed clearly on paper, and permanently retained in electronic format 
that satisfies the preceding requirements in this sentence; and (iii) 
searchable electronically by number, letters, or words. Finally, 
paragraph (k)(4) mandates that the plan administrator (i) take measures 
reasonably calculated to protect the confidentiality of personal 
information relating to the covered individual; and (ii) comply with 
paragraphs (f) (relating to copies of paper documents or the right to 
opt out); (g) (relating to the initial notification of default 
electronic delivery), except for the cautionary statement; and (h) 
(relating to severance from employment) of the rule. Administrators who 
use direct email delivery pursuant to paragraph (k) are not required to 
include the cautionary statement required in paragraph (g) (i.e., a 
statement that the covered 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 of the covered document), because plan 
administrators who use paragraph (k) are not required to maintain a 
website that would retain the covered documents that are delivered 
directly via email.
    The Department notes that because this method of delivery does not 
require that plan administrators furnish an NOIA, the corresponding 
provision of the rule in paragraph (i) does not apply either. Paragraph 
(i), discussed above, allows the combination of content of certain 
covered documents on one, annual NOIA. The Department anticipates that, 
although the annual NOIA concept does not apply when covered documents 
are delivered directly, plan administrators may wonder whether more 
than one covered document can be attached to one email, especially for 
annually required or other covered documents that the plan 
administrator wishes to send at the same time. Plan administrators 
should apply the same standard in this case that would apply if 
documents were to be furnished on paper. In some cases documents must 
be furnished separately, the required timing for different documents 
does not align, or the content of a particular document may not be 
combined with other documents. But the Department often permits plan 
administrators to furnish required disclosures at the same time (e.g., 
in the same envelope, the ``envelope rule''). In that case, plan 
administrators may treat the email to the covered individual as the 
``envelope'' and attach more than one document, as would otherwise be 
permitted.

(10) Dates; Severability

    The Department proposed in paragraph (k)(1) of the rule that the 
new alternative method for disclosure through electronic media, as 
finalized, would be effective 60 days following publication of a final 
rule in the Federal Register. The proposal included a separate 
applicability date in paragraph (k)(2), providing that the new safe 
harbor would apply to employee benefit plans on the first day of the 
first calendar year following the publication of the final rule in the 
Federal Register. The Department requested comments on the extent to 
which this applicability date should be sooner, given that the 
provision is optional, or later, if necessary to safeguard plan 
participants and beneficiaries from potential harm if plan 
administrators rely on the safe harbor too soon.
    Nearly all commenters on this provision asked the Department to 
allow plan administrators to rely on the safe harbor as soon as 
possible. Further, since publication of the proposal, governments, 
industries, and workers globally have had to respond to the coronavirus 
disease 2019 (COVID-19) outbreak, which President Donald J. Trump 
declared a National Emergency on March 13, 2020. The ability of plan 
administrators to use this rule will greatly assist employers, workers, 
and the retirement plan industry in managing the effects of COVID-19. 
Specifically, enhanced electronic delivery will immediately alleviate 
some of the current disclosure-related problems being reported by a 
great many retirement plans. Many retirement plan representatives and 
their service providers, for example, have indicated to the Department 
that they are experiencing increased difficulties and, in some cases, 
an inability to furnish ERISA disclosures in paper form. The reported 
problems, which are likely to persist for the foreseeable future, 
include temporary or permanent closure of printing and mailing centers, 
and disruptions in paper supply chains, among others. The 
infrastructure necessary to deliver information electronically in this 
country, however, remains largely intact.
    Given that it is a safe harbor, and that plan administrators must 
be in compliance with all requirements before relying on the safe 
harbor, there is no harm, and considerable benefits, associated with 
moving up the applicability date, especially for employers and plan 
service providers as they work toward economic recovery from COVID-19. 
To the extent reliance on the rule results in cost savings and other 
benefits, the Department should not delay these benefits. Commenters on 
the proposal suggested that the rule be applicable on the same day that 
the final rule becomes effective: Sixty days after its publication in 
the Federal Register. Only one commenter explicitly requested a delay 
in the application of the safe harbor, suggesting that a more 
appropriate timeline would be January 1 of the second year, rather than 
the first year, following the final rule's publication.
    The Department is persuaded that there is no sound reason to delay 
the anticipated benefits of this rule, especially because it is a safe 
harbor, rather than a requirement, and it has

[[Page 31907]]

now been revised based on rigorous analysis and thoughtful stakeholder 
input to ensure that it adequately addresses appropriate policy goals 
and concerns. Therefore, the Department has aligned the effective and 
applicability dates to be 60 days following today's publication in the 
Federal Register. This has been done in paragraph (l)(1), rather than 
paragraph (k), due to the addition of a new provision in paragraph (k). 
Further, although the rule is not effective or applicable until 60 days 
after its publication, the Department, as an enforcement policy, will 
not take any enforcement action against a plan administrator that 
relies on this safe harbor before that date. The Department's decision 
to provide this non-enforcement policy supports the Federal 
government's broader effort to respond to COVID-19. The Department 
understands the far-reaching effects of COVID-19, and the non-
enforcement policy provides flexibility and may reduce administrative 
burden on employers and pension plan service providers during this 
unprecedented time.
    The final rule also includes, in paragraph (l)(2), a severability 
provision, which provides that if any provision in the final rule is 
found to be invalid or unenforceable by its terms, or as applied to any 
person or circumstance, or stayed pending further agency action, such 
provision shall be severable and the remaining portions of the rule 
would remain operative and available to plan administrators. Thus, if a 
federal court were to find a specific provision, for example one of the 
NOIA content requirements, to be legally insufficient, then the 
remaining content requirements of the NOIA would remain applicable and 
in place.

(11) Changing Recordkeepers

    Several commenters representing recordkeepers and plan 
administrators raised questions about whether and how certain 
provisions of the final rule would apply when a plan changes its 
recordkeeper, plan administrator, or both. For example, a number of 
commenters asked whether the safe harbor allows a new recordkeeper to 
rely on a list of electronic addresses and opt-out elections that are 
transferred from the old recordkeeper, or whether the new recordkeeper 
must independently solicit or verify electronic addresses and furnish 
new initial notifications under paragraph (g) of the rule. 
Correspondingly, would covered individuals have to resubmit an opt-out 
request? Commenters also asked whether a plan's safe harbor status is 
lost if there are changes in business structure (e.g., mergers, 
consolidations, closings, acquisitions) of the plan sponsor, plan 
administrator, or plan recordkeeper, in any case resulting in a new 
recordkeeper. These commenters requested guidance on how plan 
administrators and other plan fiduciaries could navigate these issues 
under ERISA and maintain compliance with the new safe harbor.
    A change in recordkeeper or plan administrator is a rather common 
and very fact-specific event that may raise a variety of issues under 
ERISA, including record retention, fiduciary, reporting, and disclosure 
issues, that are generally beyond the scope of this safe harbor 
regulation, which addresses only a plan administrator's obligation 
under ERISA to furnish required disclosures. This becomes apparent when 
one considers that these questions apply upon a change in recordkeepers 
regardless of whether the disclosures are furnished to a physical 
address (in paper copy) or to an electronic address (in electronic 
copy). The same ERISA fiduciary obligations that apply when changing 
recordkeepers responsible for furnishing paper disclosures will apply 
when changing recordkeepers responsible for furnishing electronic 
disclosures. Accordingly, the Department in this document declines to 
render an opinion on the impact that changing a recordkeeper or plan 
administrator could have, as a general matter, on the status of a plan 
under ERISA and the safe harbor. Nothing in this safe harbor, however, 
prohibits a plan administrator from relying on the safe harbor in 
circumstances when the plan's recordkeeper transfers accumulated lists 
of electronic addresses and opt-out elections to a successor 
recordkeeper. This makes sense because changing a recordkeeper would 
seem to have little or no effect on the validity or operability of a 
covered individual's electronic address, in much the same way that 
changing recordkeepers would have no effect on a participant's physical 
mailing address or other contact information. To the contrary, it is 
the Department's belief that confusion to covered individuals, as well 
as economic inefficiencies, are likely results if participants lose 
their status as covered individuals, resulting in a return to paper 
delivery, solely because of the plan's decision to change its 
recordkeeper.\67\ Similarly, the Department is of the general view 
that, to the extent a plan participant or beneficiary is a ``covered 
individual'' who already is receiving disclosures electronically 
pursuant to the safe harbor (and therefore already received an initial 
notice and is accustomed to the notice-and-access delivery method 
permitted by this safe harbor), a new initial notice is not necessary.
---------------------------------------------------------------------------

    \67\ The Department nonetheless cautions that, to the extent a 
plan administrator changes the plan's recordkeeper based on 
incompetence, negligence, or fraud on the part of the current 
recordkeeper, a plan administrator (or other responsible plan 
fiduciary supervising the change in recordkeeper) may, as a 
fiduciary matter, have to intervene and take reasonable steps to 
ensure that the transfer of all plan records (not limited to 
electronic addresses and opt-out records for purposes of this safe 
harbor) adheres to the duties set forth in ERISA section 404.
---------------------------------------------------------------------------

(12) Transition Issues

(i) Delay in Superseding Prior Subregulatory Guidance
    Although the 2002 safe harbor remains in effect, the Department 
occasionally has issued guidance in limited circumstances allowing, as 
a non-enforcement policy or otherwise, the use of electronic delivery 
methods other than the 2002 safe harbor. In the preamble to the 
proposed rule, the Department stated that although the new safe harbor 
would have no impact on the current electronic delivery rule at 29 CFR 
2520.104b-1(c), the new safe harbor would, if finalized, supersede the 
relevant portions of this prior interpretive guidance. Specifically, 
the relevant documents are FAB 2006-03, FAB 2008-03 (Q&A 7), and 
Technical Release 2011-03R (Dec. 8, 2011) (TR 2011-03R).\68\
---------------------------------------------------------------------------

    \68\ 84 FR 56894, at 56900, footnote 60.
---------------------------------------------------------------------------

    The Department issued FAB 2006-03 to help plan administrators 
comply with amendments to ERISA's pension benefit statement 
requirements made by the Pension Protection Act of 2006. In relevant 
part, FAB 2006-03 provides that plan administrators may satisfy their 
obligation to furnish pension benefit statements by providing 
continuous access to benefit statement information through one or more 
secure websites. FAB 2006-03 included a variety of conditions, 
including notification to participants and beneficiaries explaining how 
to access their statements online. FAB 2008-03 later provided 
interpretive guidance on the Department's final QDIA regulation, which 
includes an initial and annual notice requirement. The QDIA notice may 
be combined with the Code's notice requirement for automatic 
contribution arrangements in Code sections 401(k)(13)(E) and 414(w)(4). 
This FAB 2008-03 allows plan administrators that wish to furnish QDIA 
notices electronically to rely on either the Department's 2002 safe 
harbor or the Treasury Department's rule at 26 CFR 1.401(a)-21(c), 
relating to use of

[[Page 31908]]

electronic media. Finally, TR 2011-03R sets forth an interim 
enforcement policy regarding the use of electronic media to satisfy the 
disclosure requirements under 29 CFR 2550.404a-5, the participant-level 
disclosure regulation. TR 2011-03R allows plan administrators to 
furnish this information through electronic media (including through a 
continuous access website) if participants voluntarily provide an email 
address and other conditions are satisfied.
    Many commenters objected to the Department's statement that this 
prior guidance would be superseded. They argued that the Department 
should codify and permanently preserve the guidance to avoid 
unnecessary disruptions to systems already in place in reliance on such 
guidance. Further, commenters urged, if the Department is not willing 
to codify and permanently preserve the guidance, then the Department 
should, at a minimum, provide a transition period during which plan 
administrators could continue to rely on this prior guidance, while 
they adjust to the terms of the new safe harbor. A transition period 
would provide more time for plan administrators and plan service 
providers to make necessary systems and other changes and thereby 
reduce the costs and administrative burden that would result from 
having to do so immediately.
    The Department disagrees that this prior guidance should be 
maintained permanently. In the interest of creating uniformity in the 
delivery of ERISA disclosures electronically, the Department believes 
that, rather than a piecemeal approach permitting different standards 
for different documents in a variety of subregulatory documents, a 
sounder approach is to require that, over time, plan administrators who 
wish to disclose information electronically follow a consistent 
standard. The final rule is intended to be such a standard, which, 
unlike the prior guidance, benefits from the regulatory process in 
which the Department engaged, including public notice and comment. The 
Department is persuaded, however, that it may be unnecessarily 
disruptive and costly, as well as harmful, or at least confusing, to 
participants and beneficiaries, if established disclosure procedures 
are suddenly invalid as of the applicability date of the final rule. 
The Department agrees with commenters that a reasonable transition 
period, during which plan administrators may continue to rely on prior 
guidance as they make necessary system changes and acquire electronic 
addresses to comply with the final rule, is appropriate. Accordingly, 
for 18 months following the effective date of this final rule, plan 
administrators may continue to rely on the guidance set forth above. 
Thereafter, the relevant portions of such guidance are superseded. 
Commenters suggested transition periods generally ranging from one to 
two years. It makes sense that a transition period should be greater 
than one year, because many plan and participant communication cycles 
are annual; allowing one full communication cycle will enable plan 
administrators to rely on their general communication cycle to solicit 
electronic addresses from plan participants and beneficiaries. An 18-
month extension accommodates this cycle and adds a reasonable cushion 
for unanticipated events. The Department will take no enforcement 
action against plan administrators who comply with the requirements of 
such guidance to satisfy their delivery obligations for the specified 
disclosures during this transition period.
(ii) Electronic Addresses Obtained Prior to the Effective Date of This 
Final Rule
    Some commenters raised an additional issue as to whether and how 
plan administrators may use electronic addresses already in the plan's 
possession before transitioning to the new safe harbor. These 
commenters explained that plan administrators and sponsors in many 
cases already have extensive lists of email addresses, which they have 
compiled over time for various employment-related reasons and in the 
normal course of business operations. These addresses most likely were 
provided to the plan administrator or sponsor directly by the employee, 
or assigned by the plan administrator or sponsor for employment 
purposes. However, prior to this new safe harbor, plan sponsors and 
administrators have had no reason, at least in the context of ERISA 
disclosure requirements, to document the precise source of any 
particular electronic address. Commenters were concerned that paragraph 
(b) of the proposal, which required that an electronic address be 
provided by the individual, would prevent plan administrators from 
using such electronic addresses if they do not have records that 
definitively indicate where or from whom the plan obtained the 
electronic address. These commenters asked whether a plan administrator 
may treat electronic addresses already obtained as having been provided 
by the participant, beneficiary, or other individual entitled to 
covered documents for purposes of treating such person as a covered 
individual under the safe harbor, even in the absence of documentation 
that such previously attained address was, in fact, provided by such 
person to the employer, plan sponsor, or plan administrator.
    The requirement in paragraph (b) of the final rule is intended to 
prevent plan administrators from obtaining and using unreliable 
electronic addresses from sources that are too far removed from the 
covered individual. The Department nonetheless appreciates the concern 
raised by commenters as to the potential challenge of verifying the 
source of electronic addresses that a plan administrator already has in 
a plan's records. For transition purposes, therefore, a plan 
administrator may rely on these electronic addresses, provided that the 
plan administrator acts reasonably, in good faith, and otherwise 
complies with the requirements of the safe harbor. This includes 
compliance with the new provision in paragraph (g) of the final rule, 
which requires the initial notice to identify the electronic address to 
which NOIAs (or emails pursuant to paragraph (k)) will be furnished 
under the safe harbor. The plan administrator also would have to comply 
with the protections in paragraph (f)(4) of the safe harbor, which 
require a system to alert the plan administrator of an invalid or 
inoperable electronic address. Absent compliance with these provisions, 
the Department has less assurance of the reliability of the electronic 
addresses at issue, in which case the Department may have a different 
view about relying on such addresses. Under these circumstances, and 
only as a transition matter, a plan administrator may rely on a 
preexisting list of electronic addresses that is in existence on the 
effective date of this final rule.
    A plan administrator would not satisfy the good faith condition of 
this transition policy with respect to the use of any particular 
electronic address from such a list if the plan administrator has 
reason to know that such address is or may be invalid, inoperable, or 
obtained from a person or entity other than the participant, 
beneficiary, or employer, or acquired outside of the employment context 
in which the plan exists. For example, many commercial entities with 
diversified lines of business and affiliations serve as recordkeepers 
and plan administrators, within the meaning of section 3(16) of ERISA, 
for multiple retirement plans. These entities may acquire an electronic 
address for a person, who is plan participant, in the routine course of 
a business transaction unrelated to his or her retirement plan 
participation. The person for instance

[[Page 31909]]

may have purchased an investment or insurance product in his or her 
personal capacity. Although the address may be valid and operable, it 
was not provided to the entity in the entity's capacity as a plan 
administrator under section 3(16) of ERISA. Therefore, this address may 
not be used under this transition policy. Commenters also explained 
that these commercial entities sometimes use one or more locator 
services or technologies to find and obtain electronic addresses for 
individuals. Although addresses located through these services may be 
valid and operable, they were obtained from a person other than the 
participant, beneficiary, or employer, and perhaps without the 
participant's knowledge. In these examples, the electronic addresses 
were obtained in a manner or from a source that is too far removed from 
the covered individual and the employment relationship to be 
sufficiently reliable for use under the safe harbor.

C. E-SIGN Act

    For the reasons discussed below, covered documents for purposes of 
this final rule are exempt from the consumer consent requirements of 
the Electronic Signatures in Global and National Commerce Act, Public 
Law 106-229 (114 Stat. 464) (2000) (E-SIGN Act), and this rule provides 
an alternative method of complying with the requirement that covered 
documents be furnished in writing. Section 101(c) of the E-SIGN Act 
sets forth special protections that apply when a statute, regulation, 
or other rule of law requires that information relating to a 
transaction be provided or made available to a consumer in writing. 
Section 101(e) of the E-SIGN Act provides that if a statute, 
regulation, or other rule of law requires that a contract or other 
record relating to a transaction in or affecting interstate or foreign 
commerce be in writing, the legal effect, validity, or enforceability 
of an electronic record of the contract or other record may be denied 
if the contract or other record is not in a form that is capable of 
being retained and accurately reproduced for later reference by all 
parties or persons who are entitled to retain the contract or other 
record.
    Under section 104(d)(1) of the E-SIGN Act, a federal regulatory 
agency may exempt, without condition, a specified category or type of 
record from the consumer consent requirements in section 101(c) if the 
exemption is necessary to eliminate a substantial burden on electronic 
commerce and will not increase the material risk of harm to consumers. 
The final rule published today is an alternative method of compliance 
which would satisfy section 104(d)(1) of the E-SIGN Act and, in 
accordance with section 104 of the E-SIGN Act, the Department has 
determined that there is substantial justification for this regulatory 
exemption from the consent requirements of the E-SIGN Act because the 
rule is necessary to eliminate a substantial burden on electronic 
commerce and the rule will not pose a material risk of harm to 
consumers. In the preamble to the proposed rule, the Department 
requested comments as to whether there are additional, or different, 
steps it could take to ensure that these proposal was consistent with 
the requirements of section 104(d)(1) of the E-SIGN Act. The Department 
stated that it was particularly interested in receiving comments that 
provided suggestions or evidence related to whether the proposed rules 
would (or would not) impose unreasonable costs on the acceptance and 
use of electronic records. The Department did not receive substantive 
commentary on these questions in response to the proposed rule. The 
Department has determined that this final rule will not require (or 
accord greater legal status, or effect to) the use of any specific 
technology and that the rule is exempt from the consent requirements of 
the E-SIGN Act.

D. Regulatory Impact Analysis

(1) Relevant Executive Orders for Regulatory Impact Analyses

    Executive Orders 12866 \69\ and 13563 \70\ direct agencies to 
assess all costs and benefits of available regulatory alternatives and, 
if regulation is necessary, to select regulatory approaches that 
maximize net benefits (including potential economic, environmental, 
public health and safety effects; distributive impacts; and equity). 
Executive Order 13563 emphasizes the importance of quantifying costs 
and benefits, reducing costs, harmonizing rules, and promoting 
flexibility.
---------------------------------------------------------------------------

    \69\ Regulatory Planning and Review, 58 FR 51735 (Oct. 4, 1993).
    \70\ Improving Regulation and Regulatory Review, 76 FR 3821 
(Jan. 21, 2011).
---------------------------------------------------------------------------

    Under Executive Order 12866, ``significant'' regulatory actions are 
subject to review by the Office of Management and Budget (OMB). Section 
3(f) of the Executive Order defines a ``significant regulatory action'' 
as any regulatory action that is likely to result in a rule that may:
    (1) Have an annual effect on the economy of $100 million or more or 
adversely and materially affect a sector of the economy, productivity, 
competition, jobs, the environment, public health or safety, or state, 
local, or tribal governments or communities (also referred to as 
``economically significant'');
    (2) Create a serious inconsistency or otherwise interfere with an 
action taken or planned by another agency;
    (3) Materially alter the budgetary impacts of entitlement grants, 
user fees, or loan programs or the rights and obligations of recipients 
thereof; or
    (4) Raise novel legal or policy issues arising out of legal 
mandates, the President's priorities, or the principles set forth in 
the Executive Order.
    The Department anticipates that this final regulatory action will 
likely have economic impacts of $100 million or more in any one year, 
and therefore meets the definition of an ``economically significant 
rule'' within the meaning of section 3(f)(1) of Executive Order 12866. 
Therefore, the Department has provided an assessment of the potential 
benefits, costs, and transfers associated with this final rule. In 
accordance with Executive Order 12866, this final rule was reviewed by 
OMB. Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.), 
OIRA has designated this rule as a ``major rule,'' as defined by 5 
U.S.C. 804(2).

(2) Need for Regulatory Action

    Technology has changed substantially since the Department first 
published the 2002 safe harbor.\71\ Broadband and wireless networks 
have expanded. More people rely on email. Servers and personal 
computers have improved. Smartphones, tablets, and other mobile devices 
have become predominant modes of communication. In 2003, one year after 
the existing safe harbor was established, approximately 62 percent of 
households had one or more computers.\72\ In 2016, about 89 percent of 
households had a computer, smartphone, or tablet.\73\ The share of U.S. 
adults who own a smartphone increased from 35 percent in 2011 to 81 
percent in 2019.\74\ The share of households with internet access at 
home also increased, from 55 percent in 2003 \75\ to 82 percent in 
2016.\76\
---------------------------------------------------------------------------

    \71\ 29 CFR 2520.104b-1(c) (2002).
    \72\ Jennifer Cheeseman Day, Alex Janus, and Jessica Davis, 
Computer and Internet Use in the United States: 2003, U.S. 
Department of Commerce, Economics and Statistics Administration, 
U.S. Census Bureau (2005).
    \73\ Camille Ryan, Computer and Internet Use in the United 
States: 2016, American Community Survey Reports, ACS-39, U.S. Census 
Bureau, August 2018.
    \74\ Monica Anderson, Mobile Technology and Home Broadband 2019, 
Pew Research Center (June 13, 2019).
    \75\ See Cheeseman Day et al., supra note 72.
    \76\ See Ryan, supra note 73.

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[[Page 31910]]

    Consumers use the internet, smartphones, and other electronic 
devices for a wide range of activities, including for conducting 
financial transactions. According to a 2018 survey, a majority of 
banked households used electronic banking services. Slightly fewer than 
two-thirds accessed their accounts online in the past 12 months, and 
about two in five accessed their accounts through their mobile 
phones.\77\ The most common mobile banking activities were checking 
emails from banks (44 percent) and checking account balances or recent 
transactions online (35 percent).
---------------------------------------------------------------------------

    \77\ 2017 FDIC National Survey of Unbanked and Underbanked 
Households, Federal Deposit Insurance Corporation, October 2018, 
https://www.fdic.gov/householdsurvey/.
---------------------------------------------------------------------------

    As technological capabilities, internet access, and internet use 
have increased, other government agencies have issued rules encouraging 
wider use of electronic disclosure. The Social Security Administration 
no longer sends paper statements to most workers. Instead, workers 
register on the Administration's website for a ``my Social Security'' 
account to access their statements.\78\ The TSP uses paperless delivery 
as the default for its quarterly statements.\79\ Annual TSP statements 
are available both on a website and delivered by mail unless an 
individual requests only electronic annual statements. TSP reported 
that electronic paperless delivery saved about $7 to $8 million in 
2006.\80\ On October 20, 2006, the Treasury Department and the IRS 
published 26 CFR 1.401(a)-21, setting forth standards for electronic 
notices and participant elections with respect to retirement plans and 
similar employee benefit arrangements.\81\ Similarly, the SEC has 
issued several regulations on electronic disclosure.\82\
---------------------------------------------------------------------------

    \78\ See Frequently Asked Questions, Social Security 
Administration, https://faq.ssa.gov/en-us/Topic/article/KA-01741. 
The Social Security Administration does, however, mail paper social 
security statements to workers age 60 and older if they do not 
receive social security benefits and they have not yet set up a ``my 
social security'' account.
    \79\ 5 CFR 1640.6 (2003) (``The TSP will furnish the information 
described in this part to participants by making it available on the 
TSP website. A participant can request paper copies of that 
information from the TSP by calling the ThriftLine, submitting a 
request through the TSP website, or by writing to the TSP record 
keeper''). See also Federal Thrift Savings Plan: Customer Service 
Practices Adopted by Private Sector Plan Managers Should Be 
Considered, U.S. Government Accountability Office, GAO-05-38, Jan. 
2005, at 12, n. 21, http://www.gao.gov/new.items/d0538.pdf 
(providing statistics on cost savings experience with TSP).
    \80\ See Minutes of the Meeting of the Board Members, Federal 
Retirement Thrift Investment Board (Feb. 20, 2007), https://www.frtib.gov/MeetingMinutes/2007/2007Feb.pdf.
    \81\ Use of Electronic Media for Providing Employee Benefit 
Notices and Making Employee Benefit Elections and Consents, 71 FR 
61877 (Oct. 20, 2006).
    \82\ E.g., Optional Internet Availability of Investment Company 
Shareholder Reports, 83 FR 29158 (June 22, 2018); Internet 
Availability of Proxy Materials, 72 FR 4148 (Jan. 29, 2007); and 
Updated Disclosure Requirements and Summary Prospectus for Variable 
Annuity and Variable Life Insurance Contracts, Investment Company 
Act Release No. 33814 (Mar. 11, 2020).
---------------------------------------------------------------------------

    The ERISA Advisory Council has, over the years, recommended 
improving the 2002 safe harbor. The Council's 2017 report recommended a 
move toward electronic delivery.\83\ Electronic delivery, according to 
the report, is more helpful to participants and reduces disclosure 
costs.\84\ The Council's 2009 report recommended that the Department 
adopt electronic disclosure regulations more aligned with 26 CFR 
1.401(a)-21(c).\85\
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    \83\ Mandated Disclosure for Retirement Plans--Enhancing 
Effectiveness for Participants and Sponsors, ERISA Advisory Council 
on Employee Welfare and Pension Benefit Plans, Nov. 2017, at 34, 
https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/about-us/erisa-advisory-council/2017-mandated-disclosure-for-retirement-plans.pdf.
    \84\ Id. at 17.
    \85\ Advisory Council Report on Promoting Retirement Literacy 
and Security by Streamlining Disclosures to Participants and 
Beneficiaries, ERISA Advisory Council on Employee Welfare and 
Pension Benefit Plans, 2009, https://www.dol.gov/agencies/ebsa/about-ebsa/about-us/erisa-advisory-council/2009-promoting-retirement-literacy-and-security-by-streamlining-disclosures-to-participants-and-beneficiaries.
---------------------------------------------------------------------------

    The Government Accountability Office (GAO) has also made 
recommendations to the Department. In 2013, GAO recommended that SPDs 
and SMMs be posted on continuous access websites.\86\ GAO also 
recommended adding ``clear, simple, brief highlights'' of required 
disclosures.\87\ GAO noted that ``the quantity of information 
diminishes the positive effects.'' \88\
---------------------------------------------------------------------------

    \86\ Private Pensions: Clarity of Required Reports and 
Disclosures Could Be Improved, Government Accountability Office, 
GAO-14-92, Nov. 2013, at 40, https://www.gao.gov/assets/660/659211.pdf.
    \87\ Id. at 41.
    \88\ Id. at 29.
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    On August 31, 2018, President Trump's Executive Order 13847 \89\ 
instructed the Department to make retirement plan disclosures required 
under ERISA more understandable and useful for participants, while 
reducing the costs and burdens imposed on plan sponsors. The Executive 
Order also directed the Department to explore increasing electronic 
disclosures, to improve their effectiveness and reduce costs and 
burdens.
---------------------------------------------------------------------------

    \89\ 83 FR 45321 (Aug. 31, 2018).
---------------------------------------------------------------------------

    In October 2019, the Department responded to Executive Order 13847 
by publishing a proposed rule to establish an alternative electronic 
disclosure safe harbor. The proposed rule does not disturb the 
Department's 2002 safe harbor for electronic delivery.
    According to the Private Pension Plan Bulletin, there were 
approximately 710,000 private retirement plans, with over 137 million 
participants in 2017.\90\ Many participants were already receiving 
disclosures electronically under the Department's 2002 safe harbor for 
electronic delivery. Under the Department's new rule, plan 
administrators will have still more flexibility to electronically 
deliver covered documents, either by furnishing an NOIA directing 
participants to a website, or by furnishing covered documents directly 
by email.
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    \90\ Private Pension Plan Bulletin, Abstract of 2017 Form 5500 
Annual Reports, Employee Benefits Security Administration, September 
2019, at 2, https://www.dol.gov/sites/dolgov/files/EBSA/researchers/statistics/retirement-bulletins/private-pension-plan-bulletins-abstract-2017.pdf.
---------------------------------------------------------------------------

(3) Impacts

    The Department expects the final rule to increase electronic 
delivery and save money by reducing the production and mailing costs 
associated with paper disclosures. The Department estimates that it 
costs plans approximately $514 million annually to mail seven specific 
disclosures.\91\ The Department estimates that switching to electronic 
disclosures will likely save plans $419 million in the first year. Such 
savings would be partly offset by the estimated $232 million plans may 
pay to maintain websites, prepare NOIAs, and produce and distribute 
initial notifications. These added costs bring net savings to $187 
million, a 36 percent reduction from the current $514 million burden. 
In the second year, net savings increase to $338 million, a 66 percent 
reduction. Over 10 years, the new rule saves approximately $3.2 billion 
net, annualized to $371 million per year

[[Page 31911]]

(using a 3 percent discount rate).\92\ Using a perpetual time horizon 
(to allow the comparisons required under E.O. 13771), the annualized 
cost savings in 2016 dollars are $319 million at a 7 percent discount 
rate.\93\ Since long-term projections are inherently uncertain, 
however, the Department cautions against relying on the perpetual 
annualized cost savings estimate for purposes other than the required 
analyses under E.O. 13771. The fast pace of technological innovation 
makes it especially difficult to project cost savings into the distant 
future.
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    \91\ Pursuant to paragraph (i) of the proposed rule, seven 
disclosures could be included in a single annual combined NOIA. 
Those seven disclosures were the SPD, SMM, SAR, annual funding 
notice, 404(a)(5)/404(c) disclosure, annual QDIA notice, and pension 
benefit statement. In response to public comments, however, the 
Department revised paragraph (i) in the final rule. As a result, 
some of these seven disclosures can be no longer included in a 
single annual NOIA. For example, a single annual combined NOIA does 
not include a SMM and a quarterly pension benefit statement. Despite 
this change in the final rule, for the purposes of estimating cost 
savings associated with this new safe harbor, the Department 
included all seven disclosures because all these seven disclosures 
can still be delivered electronically, just not with one single 
annual combined NOIA. In its burden estimates, the Department 
accounted for the fact that some plan administrators will email 
NOIAs multiple times per year under the final rule instead of 
emailing one single annual combined NOIA, as would have been 
permitted under the proposal. The Department updated these burden 
estimates using 2019 wage rates and 2017 retirement plan-related 
data.
    \92\ The net cost savings will be an estimated $2.6 billion over 
10-year period, annualized to $365 million per year, if a 7 percent 
discount rate is applied.
    \93\ The cost savings in years 11 and beyond are estimated using 
the same methodology as for years 1 to 10, which is explained in the 
following section.
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(i) 10-Year Cost Saving Projection
    The Department based its projections on two assumptions: (1) The 
number of participants will grow at 0.5 percent per year; \94\ and (2) 
the percentage of participants opting out of the default electronic 
delivery system will gradually decrease, from 18.5 percent to 7.5 
percent, over the 10-year period.\95\ The Department's 10-year 
projection may overstate cost savings because the number of 
participants receiving electronic disclosures could increase on its own 
under the 2002 safe harbor, even without this final rule. Similarly, 
plans could cut costs related to producing and mailing paper 
disclosures even without this final rule. On the other hand, the 
Department's 10-year projection may understate savings if there are a 
smaller than assumed number of electronic delivery failures for NOIAs 
over time, as plan administrators develop and maintain the most up-to-
date lists of covered individuals' electronic addresses. (The 
Department based its current projection on the assumption that the 
rates of undelivered NOIAs will remain constant over the 10-year 
period.) If undelivered NOIAs decrease, production and mailing costs 
for covered documents will decrease and net cost savings will increase 
over the 10-year period. These cost savings may indirectly benefit 
covered individuals, as they may defray plan expenses and lower direct 
or indirect participant fees.
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    \94\ The U.S. Bureau of Labor Statistics projects that total 
employment will grow at 0.5 percent annually from 2018 to 2028. 
Based on this projection, the Department assumes that the total 
number of participants will also increase at 0.5 percent each year. 
See Kevin S. Dubina, Teresa L. Morisi, Michael Rieley, and Andrea B. 
Wagoner, Projection overview and highlights, 2018-2028, Monthly 
Labor Review, U.S. Bureau of Labor Statistics, October 2019, https://www.bls.gov/opub/mlr/2019/article/pdf/projections-overview-and-highlights-2018-28.pdf.
    \95\ The Department assumes that approximately 18 percent of 
participants currently receiving disclosures by mail will opt out of 
default electronic delivery in the first year and 16.2 percent will 
opt out in the second year. The Department projects the opt-out 
rates will decrease gradually at rates consistent with exponential 
decay function, a * b(t-1), where a is the 
initial opt-out rate, 18 percent, t is year, and b is the decay 
rate, 0.9 (= 16.2/18). The Department further projects that in the 
10th year, only 7 percent of participants currently receiving paper 
disclosures by mail will continue to do so. Then the Department made 
an additional adjustment by adding 0.5 percentage point annually to 
account for the requirement in paragraph (f)(4) of the final rule 
regarding invalid or inoperable electronic addresses for covered 
individuals. For more detailed discussion, see Quantified Costs, 
below.
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(ii) Cost Savings
    The Department's cost savings estimates understate the potential 
savings generated from this final rule, because they account for the 
production and mailing costs of only seven covered documents.\96\ The 
seven documents are among the most costly because they affect a lot of 
plans and plans must provide them to participants regularly.\97\ But 
the final rule will cover other pension documents, such as blackout 
notices, which are provided irregularly because they are triggered by 
certain events. The cost savings associated with these disclosures is 
relatively small because they affect far fewer plans and individuals. 
For that reason, the Department estimated cost savings using only the 
seven regularly distributed, covered documents. If all covered 
documents are included, the cost savings generated by the final rule 
will likely be larger.
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    \96\ The seven covered documents are the SPD, SMM, SAR, annual 
funding notice, 404(a)(5)/404(c) disclosure, annual QDIA notice, and 
pension benefit statement.
    \97\ Out of these seven disclosures, all but one (pension 
benefit statement) have associated information collection requests 
under the Paperwork Reduction Act. To estimate cost savings 
attributable to this final rule, the Department estimated the 
current cost burden associated with pension benefits statements, 
although it is not a part of the Department's information collection 
inventory.
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    In estimating cost savings, the Department assumes that slightly 
more than half (56 percent) of disclosures are already delivered 
electronically under the 2002 safe harbor.\98\ According to one 
commenter, 40 to 50 percent of participants receive disclosures 
electronically, likely from plans relying on the Department's 2002 safe 
harbor. One service provider reported 62 percent of participants 
elected electronic delivery in 2018.\99\ Another commenter reported 58 
percent of defined contribution (DC) plan participants accessed plan 
information, including legal notices, electronically.
---------------------------------------------------------------------------

    \98\ This is consistent with the assumption used for information 
collections.
    \99\ Default Electronic Delivery Works: Evidence of Improved 
Participant Outcomes form Electronic Delivery of Retirement Plan 
Documents, Quantria Strategies, prepared for The SPARK Institute, 
November 2019, at 25, https://www.sparkinstitute.org/wp-content/uploads/2019/12/SPARK-Institute-Default-Electronic-Delivery-Works.pdf.
---------------------------------------------------------------------------

    For its cost savings estimate, the Department used the same 
methodology it uses to estimate the cost of distributing printed 
disclosures for information collections subject to the Paperwork 
Reduction Act.\100\ Preparation costs generally include costs required 
to develop the content and format of disclosures. Distribution costs 
generally include materials, printing, and mailing costs as well as 
burden hours associated with providing disclosures to participants and 
beneficiaries. The Department's estimates assume that preparation costs 
will be unchanged by the final rule, because the rule does not change 
the content disclosures.
---------------------------------------------------------------------------

    \100\ The distribution costs were estimated using the most 
recent data available, including updated 2019 wage rates and 2017 
retirement-plan related data.
---------------------------------------------------------------------------

(iii) Quantified Costs
    While the Department expects the final rule to reduce costs 
associated with distributing covered disclosures, these savings are 
partly offset by costs related to the following requirements:
    (1) Furnishing the NOIA (paragraph (d) of the final rule);
    (2) Providing the website for covered individuals to access covered 
documents (paragraph (e) of the final rule); and
    (3) Distributing the initial notifications of default electronic 
delivery and right to opt out in paper to each individual before he or 
she becomes a covered individual (paragraph (g) of the final rule).
    The Department assumes plans will incur one-time start-up costs to 
develop the NOIA and initial notifications. Such costs include ensuring 
the notifications comply with final regulatory requirements. The 
Department also assumes that costs for distributing NOIAs will be 
modest, because they may be distributed electronically. However, the 
initial notification of default electronic delivery and right to opt 
out would impose production and mailing costs. Plans that rely on the 
new email alternative, permitted under paragraph (k) of the rule, will 
email disclosures to participants rather than furnishing NOIAs. Certain 
types of plans will furnish NOIAs more often than other plan types, as 
required under

[[Page 31912]]

paragraph (i) of the rule. For example, participant-directed DC plans 
must provide NOIAs more often than non participant-directed DC plans, 
because they must notify participants quarterly rather than annually.
    The initial notification and right to opt out is a transitional 
notice that informs participants who are existing employees of changes 
in default delivery system to electronic delivery.\101\ Administrators 
must furnish this notice in paper form to each person before they 
become a covered individual. The notice informs them that covered 
documents will be furnished electronically, that they have the right to 
request paper copies of the covered documents free of charge, and how 
they may exercise such rights. The Department anticipates that most 
plans will rely on this final rule, delivering covered documents 
electronically to participants who were not eligible under the existing 
safe harbor without disrupting the current electronic delivery system 
under the Department's 2002 safe harbor. Thus, plans are mostly likely 
to furnish initial notices to those participants who currently receive 
disclosures by mail.
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    \101\ For newly hired employees, the Department assumes they 
will receive the notice required by paragraph (g) of the final rule 
in their new employee packets; thus, employers will incur only 
negligible costs in subsequent years.
---------------------------------------------------------------------------

    Retirement plans will incur one-time costs to develop and design an 
initial notice. Because the final rule clearly describes the specific 
information required of this notice, the Department expects initial 
costs to be modest, about $40 million on aggregate assuming all 
retirement plans decide to rely on this final alternative.\102\ The 
Department estimates that approximately 60 million retirement plan 
participants received the covered documents by mail in 2017.\103\ These 
participants could potentially receive the initial notice from their 
plan administrators. Assuming a one-page notice is mailed to these 60 
million participants, the Department estimates the costs of 
distributing and mailing the initial notice will be about $97 
million.\104\ Therefore, the Department estimates that retirement plans 
will incur approximately $138 million in one-time costs to develop and 
mail the initial notice. In subsequent years, the Department estimates 
that retirement plans will incur approximately $12 million each year to 
deliver the initial notice to new hires.\105\
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    \102\ The Department estimates that attorneys will take 
approximately 296,000 hours to develop and review the initial 
notice. Assuming an hourly rate of $138.41 for in-house attorneys, 
the Department estimates developing the initial notice will cost 
approximately $41 million (295,636 hours * $138.41). Then $41 
million is discounted at three percent, which leads to $40 million.
    \103\ Information collection requests associated with the SPD, 
SMM, SAR, and 404(a)(5)/404(c) disclosures assume that approximately 
56 percent of participants electronically receive those disclosures 
from plans that rely on the 2002 safe harbor. According to the 2017 
Private Pension Bulletin, there are approximately 137 million 
participants. Therefore, the Department estimates that approximately 
60 million participants (44 percent of 137 million) receive 
disclosures by mail.
    \104\ This estimate is based on $36 million mailing costs 
(approximately 60 million notices * $0.60) and $64 million 
production costs, assuming an hourly rate of $64.11 for in-house 
mailing clerks (approximately 998,000 hours * $64.11). Then $36 
million mailing costs and $64 million preparation costs are 
discounted at three percent, which lead to $35 million and $62 
million respectively.
    \105\ According to the Current Population Survey (CPS) in 2018, 
approximately 16.8 percent of wage and salary workers aged 25 or 
older stayed with their current employers for a year or less. Based 
on this information, the Department estimates approximately 13 
million workers will receive the initial notice each year as new 
hires.
---------------------------------------------------------------------------

    Paragraph (g) of the final rule provides that the initial notice 
must identify the recipient's electronic address where NOIAs are to be 
delivered. Although this revision requires personalization of the 
notice, the Department does not expect this change to significantly 
impact costs because many plan administrators already incorporate this 
process as common business practice.\106\
---------------------------------------------------------------------------

    \106\ Because it contains personally identifiable information, 
such as email address, the Department assumes employers will mail 
notice in a sealed letter rather than a postcard, even though a 
postcard is a less expensive option.
---------------------------------------------------------------------------

    Paragraph (e) of the final rule requires plan administrators to 
ensure the existence of a website at which plan participants can access 
covered disclosures. In the proposed rule, the Department assumed this 
requirement would impose modest one-time costs. However, the Department 
was particularly concerned about burdening small plans and so solicited 
comments regarding the fraction of plans, particularly small plans, 
that would need to develop or modify a website. One commenter claimed 
that small plans have websites and not burdened by the proposed 
``notice and access'' approach. However, another commenter suggested 
that small plans are less likely to have their own websites. A 
different commenter suggested that the impacts of paragraph (e) would 
vary by types of plans and that the vast majority of participant-
directed DC plans already have access to or actively maintain a 
website, while many defined benefit plans or nonparticipant-directed DC 
plans may not.\107\
---------------------------------------------------------------------------

    \107\ According to a commenter, this is because 29 CFR 
2550.404a-5 currently requires that participant-directed individual 
account plans maintain a website to provide certain information to 
participants and beneficiaries. Defined benefit and nonparticipant-
directed DC plans are not subject to 29 CFR 2550.404a-5.
---------------------------------------------------------------------------

    According to a recent poll of plan sponsors, the majority already 
have websites, in-house (70 percent) or via service providers (62.5 
percent), and many have both.\108\ One study suggests that 
approximately 18 percent of profit sharing and 401(k) plans did not 
provide any services via internet in 2017.\109\ Based on these comments 
and study, the Department estimates that approximately 25,000 plans 
currently do not have, directly or indirectly through a plan service 
provider, a website where they can post the covered documents.\110\
---------------------------------------------------------------------------

    \108\ Plan Sponsor Council of America (PSCA) conducted a poll to 
plan sponsors in November 2019 to obtain the plan sponsors' 
perspectives on the proposed rule and received responses from 56 
plan sponsors.
    \109\ 61st Annual Survey, Reflecting 2017 Plan Experience, Plan 
Sponsor Council of America, 2018. (In this survey, plan sponsors 
were asked to indicate if any services--enrollment, plan inquiries, 
contribution changes, balance inquiries, investment changes, loans, 
hardship distribution, retirement distributions, or no services--
were provided to participants via internet. Responding to this 
question, about 18 percent of plan sponsors indicated they did not 
provide any services to participants through the internet. The 
Department used this as a proxy for plans that do not have a 
website.)
    \110\ According to Private Pension Plan Bulletin 2017, there 
were over 143,000 defined benefit plans and nonparticipant-directed 
defined contribution plans. Applying an assumption of 18 percent, 
the Department estimates approximately 25,984 (143,558 * 0.181) 
plans currently lack websites. This estimate may understate the 
total number of plans that lack websites because the PSCA study 
examined profit-sharing plans and 401(k) plans. As discussed, most 
401(k) plans are expected to have their own websites. Therefore, the 
fraction of defined benefit plans and nonparticipant-directed DC 
plans that lack websites would be likely higher than 18 percent.
---------------------------------------------------------------------------

    Although approximately 25,000 plans do not currently have a 
website, the Department expects the impact of paragraph (e) of the 
final rule to be minimal, in part, because paragraph (k) of the final 
rule allows plans to furnish covered documents by email. Commenters 
recommended the direct delivery approach in paragraph (k) for a number 
of reasons, one being that plans may not currently have a website.\111\ 
The Department assumes plans that do not have a website for posting the 
covered documents will most likely email the covered documents 
directly. The direct delivery option will likely ease the burden on 
small plans, as they are less likely to have, or have access to, a 
website. However, paragraph (k) of the final rule is still subject to 
the requirements of paragraph (f)(4) of the

[[Page 31913]]

final rule, pertaining to invalid or inoperable electronic addresses. 
Therefore, plans that do not have software to detect invalid or 
inoperable electronic addresses will likely incur costs to add such 
software.
---------------------------------------------------------------------------

    \111\ The direct delivery provision in paragraph (k) is not 
subject to the website standards in paragraph (e) of the safe 
harbor.
---------------------------------------------------------------------------

    Paragraph (e)(2)(ii) of the final regulation establishes how long 
covered documents must remain on a website. It generally requires 
covered documents to remain on the website for at least one year.\112\ 
Once a covered document is posted on a website, the Department assumes 
that the storage cost of retaining such document on the website is 
nominal.\113\ The Department requires plan administrators to include a 
cautionary statement in the NOIA relating to how long the covered 
document is required to be available on the website. The Department 
expects this statement can benefit both participants and plan 
administrators. The statement will encourage participants to download 
covered documents while they are available on the website rather than 
contacting plan administrators to request them. Plan administrators 
will benefit because they will likely receive fewer document requests.
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    \112\ As discussed above in section B, paragraph (e)(2)(ii) of 
the final rule does not alter a plan administrator's general 
recordkeeping requirements under ERISA.
    \113\ As more documents remain on a website, plans may need more 
electronic storage. However, storage space prices have decreased 
substantially as cloud services become more widely available. In 
terms of adding storage space cloud services are available, on 
average, at a rate of $0.018 to $0.021 per GB per month. Some 
estimate that approximately 250,000 PDF files or other typical 
office documents can be stored on 100GB. Accordingly, the Department 
does not believe electronic storage will significantly increase cost 
burden. (For more detailed pricing information of three large cloud 
service providers, see https://cloud.google.com/products/calculator; 
or https://azure.microsoft.com/en-us/pricing/calculator/; or https://calculator.s3.amazonaws.com/index.html. Augmenting other features 
such as enhanced security services may increase costs of cloud 
service. However, plan administrators sometimes may find it 
appropriate to provide enhanced security features for participants 
despite increased costs.) Also, plan administrators that currently 
store documents electronically to satisfy general recordkeeping 
requirements under ERISA may already have sufficient electronic 
storage space; thus, the burden increase from this condition would 
not be significant.
---------------------------------------------------------------------------

    Paragraph (f)(4) of the final rule requires plan administrators to 
take certain actions when alerted that a covered individual's 
electronic address has become invalid or inoperable. For example, if an 
NOIA is returned as undeliverable, the plan administrator must try to 
locate the correct address. Accordingly, plans may incur costs to 
detect invalid or inoperable electronic addresses and update them. If 
an accurate electronic address cannot be found, plan administrators may 
treat those covered individuals as if they opted out of electronic 
disclosure and furnish their documents via mail.
    To meet the requirements of paragraph (f)(4), plan administrators 
may purchase software to detect the validity and operability of 
electronic addresses. The Department invited comments about such costs 
and received none. The Department assumes that, while most plans 
already have such features built into their current electronic delivery 
systems, slightly less than 26,000 plans will purchase software to 
comply with the provision.\114\ The Department estimates these costs 
will run approximately $8.8 million per year.\115\
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    \114\ The Department understands that software is commercially 
available to produce a list of email addresses that have bounced 
back with the owners' name, export the list into different formats, 
and, in certain circumstances, remove invalid email addresses from 
the list. Such software also generates and reports relevant 
statistics such as bounce rate, open rate, and click-through rate. 
Some software automatically re-attempts delivery depending on the 
reasons of failed delivery. Given the lack of data, the Department 
used the percentage of plans without their own websites as a proxy 
for plans that lack email tracking capability.
    \115\ The Department gathered pricing information for five 
commercial software packages that ranged from $10 per month to $320 
per month, depending on the volume and sophistication of features 
available. Taking the average of basic level prices of these five 
products, the Department assumes that it would cost $28.20 per month 
($338.40 per year) to subscribe. Assuming 25,984 plans would 
purchase this type of product, the Department estimates that the 
aggregate costs will total $8.8 million (25,984 plans * $338.40).
---------------------------------------------------------------------------

    The Department assumes that before mailing out covered documents to 
the recipients of an undelivered NOIA, plan administrators will attempt 
to resolve issues that are relatively easy to fix, such as redelivering 
bounced emails or reaching out to covered individuals to update 
electronic addresses. Plan administrators may treat covered individuals 
who are more difficult to locate, such as those who have separated from 
service, as having opted out of electronic delivery. Although the 
Department acknowledges that plan administrators may spend time 
attempting to correct failed delivery, as provided in paragraph (f)(4) 
of the proposal, it does not have sufficient data to quantify 
associated costs. The Department assumes, however, that plan 
administrators will likely select the least costly and most efficient 
option. Therefore, the Department assumes that plan administrators will 
mail documents when unable to locate a covered participant's electronic 
address.
    For this regulatory impact analysis, the Department assumes that 
the requirement to remediate failed delivery will increase the global 
opt-out rate by 0.5 percentage points.\116\ The Department assumes that 
plan administrators will exercise due diligence by reaching out to 
participants with invalid or inoperable electronic addresses rather 
than immediately treating them as having opted out of electronic 
delivery. If true, the global opt-out rate should not increase over 
time. The 0.5 percentage point increase in the global opt-out rate is 
reflected in the cost savings estimates for the seven covered 
documents.
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    \116\ One industry report indicates that a well-targeted and 
maintained email list yields, on average, a 1.06% bounce rate. (See 
Update Email Marketing Benchmarks for 2020: By Day and Time, 
Campaign Monitor, https://www.campaignmonitor.com/resources/guides/email-marketing-benchmarks/.) EBSA's newsletter email deliveries 
yield a 4% bounce rate. Although the Department's assumed 0.5% 
bounce rate is lower than the information discussed here, the 
Department believes that, in general, plan administrators are able 
to generate and maintain more accurate and current electronic 
addresses for covered individuals.
---------------------------------------------------------------------------

    This final rule provides a comprehensive alternative to the 2002 
safe harbor. As a result, many more participants and beneficiaries may 
be easily covered. Although some plan sponsors using the 2002 safe 
harbor may switch entirely to the final rule, the Department assumes 
that most will maintain existing systems and use the final rule to 
cover individuals that fall outside of the existing safe harbor.
(iv) Quantified Net Cost Savings
    The Department's estimates of the net cost savings from the final 
regulations are summarized in Table 1 below.

                         Table 1--Estimated Cost Savings Attributable to the Final Rule
                                                   [$ million]
----------------------------------------------------------------------------------------------------------------
                                                                                                   Total over 10
                                                     1st Year        2nd Year        3rd Year          years
----------------------------------------------------------------------------------------------------------------
Cost Savings from Eliminating Printing & Mailing
 Costs:

[[Page 31914]]

 
Summary Plan Description........................             $68             $69             $68            $663
Summary of Material Modification................              18              18              18             172
Summary Annual Report...........................              61              61              60             585
Annual Funding Notice...........................              40              40              40             390
404(a)(5)/404(c) Disclosure.....................             106             106             105           1,021
Annual QDIA Notice..............................              16              16              16             156
Pension Benefits Statement......................             110             109             109           1,058
                                                 ---------------------------------------------------------------
    Subtotal: Gross Cost Savings [1]............             419             419             416           4,046
----------------------------------------------------------------------------------------------------------------
Costs Imposed by the Final Rule:
Website.........................................             -27             -27             -26            -240
Initial Notification and Right to Opt Out.......            -138             -12             -12            -235
Notice of Internet Availability.................             -67             -42             -41            -404
                                                 ---------------------------------------------------------------
    Subtotal: Costs of the final rule [2].......            -232             -81             -78            -880
----------------------------------------------------------------------------------------------------------------
        Total Net Cost Savings: [1]-[2].........             187             338             338           3,166
----------------------------------------------------------------------------------------------------------------
Note: Totals in table may not sum precisely due to rounding.
Total over 10 years and all other costs and cost savings estimates are discounted at three percent annually.

    The estimated cost savings of each covered disclosure reflects an 
assumption about participant behavior. The Department assumes that 
approximately 81.5 percent of participants who currently receive paper 
copies will switch to electronic documents, while the remaining 18.5 
percent will choose paper.\117\ This assumption is based on the 
American Community Survey (ACS) estimate that about 82 percent of U.S. 
households had internet subscriptions in 2016.\118\ This assumption may 
overstate the cost savings because some participants with internet 
access at home may prefer to receive paper copies, and thus opt 
out.\119\ On the other hand, this assumption may understate the cost 
savings, because households with DC plans tend to have higher internet 
access rates and may be more comfortable online, which could lead to a 
lower opt-out rate.\120\ In projecting cost savings for 10 years, the 
Department assumes that by the 10th year this opt-out rate will 
gradually decrease to 7.5 percent of participants currently receiving 
paper.\121\
---------------------------------------------------------------------------

    \117\ Among participants who currently receive paper disclosures 
by mail (rather than electronically under the existing 2002 safe 
harbor), the Department assumes 18.5 percent of these participants 
will opt out of electronic delivery under this final rule and 
receive paper copies. This 18.5 percent global opt-out rate reflects 
a 0.5 percentage point upward adjustment due to failed deliveries of 
internet availability NOIAs, such as bounced emails. Without this 
adjustment, the global opt-out rate would be 18 percent, which is 
consistent with the data from American Community Survey 2016.
    \118\ Ryan, supra note 73.
    \119\ Some commenters argued that individuals, particularly 
retirees and individuals older than 55, prefer paper and, in certain 
cases, comprehend better if financial information is presented in 
paper form.
    \120\ According to one study, among households owning DC plan 
accounts, 92 percent used the internet at home, work, or other 
location in 2018. (See 2019 Investment Company Fact Book, A Review 
of Trends and Activities in the Investment Company Industry, 
Investment Company Institute (April 2019), https://www.ici.org/pdf/2019_factbook.pdf.). Another survey suggests that 99 percent of 
respondents have a computer at home or work that is connected to the 
internet, and 84 percent agree that employers can provide retirement 
plan information electronically if they can opt out at any time. 
This implies approximately 83 percent (99% * 84%) have internet 
access and would agree to receive plan information electronically, 
which is similar to the Department's assumption of 82 percent. (See 
Quantria Strategies, supra note 97, at 3, 5.) Note that in these 
studies, ``use the internet'' includes access to the internet at 
home, work or other locations. Thus, the share of households using 
the internet in these studies are higher than the share of 
households accessing the internet at home that the Department relies 
on in estimating opt-out rates.
    \121\ Based on the American Community Survey (ACS) data from 
2016 and 2017, the Department assumes the opt-out rate for the 2nd 
year is 16 percent. The Department's opt-out rate projections are 
based on these two recent years of ACS data and, while the rates 
gradually decline each year, they do not reach zero at any point in 
the future. This also reflects the 0.5 percentage point upward 
adjustment due to bounced emails.
---------------------------------------------------------------------------

    Table 2 shows the Department's estimates of the number of 
participants who currently receive disclosures on paper.

   Table 2--Estimated Number of Participants Currently Receiving Paper
                               Disclosures
------------------------------------------------------------------------
                                                             Number of
                       Disclosures                         participants
                                                             (million)
------------------------------------------------------------------------
Summary Plan Description................................              19
Summary of Material Modification........................              17
Summary Annual Report...................................              45
Annual Funding Notice...................................              29
404(a)(5)/404(c) Disclosure.............................              33
Annual QDIA Notice......................................              17
Pension Benefits Statement..............................              50
------------------------------------------------------------------------

    Table 3 summarizes the Department's projected number of 
participants who will receive disclosures electronically due to the 
final rule.

[[Page 31915]]



      Table 3--Projected Number of Participants Receiving Disclosures Electronically Due to the Final Rule
                                                    [million]
----------------------------------------------------------------------------------------------------------------
                   Disclosures                       1st Year        2nd Year        3rd Year        10th Year
----------------------------------------------------------------------------------------------------------------
Summary Plan Description........................              16              16              17              19
Summary of Material Modification................              14              15              15              17
Summary Annual Report...........................              36              37              38              43
Annual Funding Notice...........................              23              24              25              28
404(a)(5)/404(c) Disclosure.....................              27              28              28              32
Annual QDIA Notice..............................              14              14              15              17
Pension Benefits Statement......................              41              42              43              48
----------------------------------------------------------------------------------------------------------------

    Table 4 provides the estimated average per-participant cost of 
distributing disclosures on paper.

     Table 4--Estimated Average Per-Participant Cost of Distributing
                          Disclosures on Paper
------------------------------------------------------------------------
                                                               Per-
                       Disclosures                          participant
                                                               cost
------------------------------------------------------------------------
Summary Plan Description................................           $4.48
Summary of Material Modification........................            1.28
Summary Annual Report...................................            1.72
Annual Funding Notice...................................            1.79
404(a)(5)/404(c) Disclosure.............................            4.07
Annual QDIA Notice......................................            1.18
Pension Benefits Statement..............................            2.79
------------------------------------------------------------------------

(v) Non-Quantified Costs (Potential Adverse Impacts)
    While overall, 82 percent of U.S. households had access to the 
internet at home in 2016, the following groups had lower rates: Limited 
English speaking households (63 percent), households with income less 
than $25,000 (59 percent), households where the head of the household 
is age 65 or older (68 percent), Black households (73 percent), 
households in nonmetropolitan areas of the South (69 percent), and 
households where the head of the household obtained a high school 
diploma or less (56 percent).\122\ Responding to these relatively low 
rates, some commenters pointed out that households with DC plan 
accounts tend to have higher internet access rates. For example, an ICI 
report found that among households with DC accounts, 79 percent with 
income less than $50,000 and 81 percent with a senior (65 or older) 
head of the household use the internet at home, work, or other 
locations.\123\ Although these internet access figures are only 
slightly lower than those of all U.S. households (82 percent), they are 
significantly lower than those of all DC plan account holding 
households (93 percent).
---------------------------------------------------------------------------

    \122\ Ryan, supra note 73.
    \123\ 2019 Investment Company Fact Book, A Review of Trends and 
Activities in the Investment Company Industry, Investment Company 
Institute (April 2019), https://www.ici.org/pdf/2019_factbook.pdf.
---------------------------------------------------------------------------

    Another group worth noting is households connected to the internet 
only through smartphones. Racial/ethnic minorities and low-income 
households are overrepresented in this group.\124\ In 2015, 
approximately 8 percent of households in the United States were 
``handheld- device-only'' households, but 16 percent of households 
where the head of the household obtained a high school diploma or less 
were handheld-device-only households. In contrast, only 3 percent of 
households where the head of the household obtained a bachelor's degree 
or higher were handheld-device-only households.\125\ Although connected 
to the internet, these households may not be able to fully harness the 
efficiency, capacity, and convenience of the internet. Therefore, 
accessing disclosures online for these households may not be as 
convenient as for other households.
---------------------------------------------------------------------------

    \124\ Ryan, supra note 73.
    \125\ Jamie M. Lewis, Handheld Device Ownership: Reducing the 
Digital Divide? Social, Economic, and Housing Statistics Division, 
U.S. Census Bureau, Working Paper 2017-04, Mar. 2017, .https://
www.census.gov/content/dam/Census/library/working-papers/2017/demo/SEHSD-WP2017-04.pdf.
---------------------------------------------------------------------------

    In response to numerous comments, the Department added paragraph 
(e)(4) to the final rule, which defines ``website'' to include internet 
websites and other electronic-based information repositories, such as 
mobile applications. With this change, the Department believes that the 
final rule can better accommodate advances in technology. This change 
also requires that covered documents delivered through mobile 
applications be presented in a format that can be read using a handheld 
device. Consequently, these handheld-device-only households will be 
able to access their plan information with ease. Ensuring handheld-
device-only households are able to access the same information as other 
households may help bridge the digital divide because the gaps in 
smartphone ownership are less prominent than in home internet access. 
For example, there is almost no disparity in smartphone ownership rates 
by race. According to a 2019 survey, Whites, Blacks, and Hispanics own 
smartphones at nearly the same rate (82 percent, 80 percent, and 79 
percent, respectively).\126\
---------------------------------------------------------------------------

    \126\ Mobile Fact Sheet, Pew Research Center, June 12, 2019, 
https://www.pewresearch.org/internet/fact-sheet/mobile/.
---------------------------------------------------------------------------

    For participants without ready internet access, this final rule may 
create additional impediments to accessing critical plan information. 
Those who fail to opt out and request paper documents will have to 
leave home (e.g., visit a public library or the home of a friend or 
family member) to access plan information. One of the Department's 
goals in establishing the final framework was to be certain that, 
regardless of delivery method, covered individuals who wish to receive 
paper copies would be able to do so without undue burden. For this 
reason, the final rule allows for global opt out. That is, a covered 
individual who prefers to receive all covered documents in paper may 
choose to do so through a single request.
    If covered individuals in groups with low internet access rates 
fail to request paper copies of covered documents or exercise their 
opt-out rights, the negative impacts they suffer may offset some 
benefits of this final regulation. The Department does not have 
sufficient data to quantify these negative impacts. If these unintended 
consequences occur, plan administrators may take steps to limit their 
impact. Such steps may include reaching out to these groups; 
communicating the plan's electronic disclosure policy effectively; 
providing sufficient time for participant education before implementing 
electronic disclosure changes; and employing simple processes for 
requesting print documents, opting out of electronic disclosure, and 
establishing and resetting passwords. Such steps might

[[Page 31916]]

help ensure that the cost savings discussed above is realized without 
burdening vulnerable groups.
    As with all agencies facing heightened cybersecurity concerns, the 
Department recognizes that increased electronic disclosures may expose 
covered participants' information to intentional or unintentional data 
breach. Paragraph (e)(3) of the proposal requires the plan 
administrator to take measures reasonably calculated to ensure that the 
website protects the confidentiality of personal information relating 
to any covered individual. As required under ERISA section 404, the 
Department expects that many plan administrators, or their service or 
investment providers, already have secure systems in place to protect 
covered individuals' personal information. Such systems should reduce 
covered individuals' exposure to data breaches.
    Some commenters asserted that the Department should consider 
participants' preferences for paper disclosures before finalizing the 
rule. According to these commenters, investors prefer to receive 
disclosures by mail and comprehend paper documents better than 
electronic documents. Commenters with opposing views criticized these 
claims and stated that they are based on dated studies. The Department 
reviewed several reports concerning the issue as to whether investors 
prefer paper disclosures. According to a recent FINRA report, investor 
preference was almost evenly split between paper delivery (36 percent) 
and electronic delivery (33 percent) in 2018. The share of investors 
who prefer paper delivery has declined considerably since 2015, 
however, while the share of investors who prefer electronic delivery 
has increased.\127\ (This study is based on a survey of investors who 
hold nonretirement accounts.) According to a different study performed 
in 2019, almost half of 401(k) plan participants (49 percent) preferred 
reviewing 401(k) account information through their 401(k) provider's 
website, while 13 percent preferred a hard copy of account 
information.\128\ Even the eldest group studied (70 and older) 
preferred a 401(k) provider website (40 percent) to direct mail (31 
percent).\129\ Similarly, other studies found that participants prefer 
to receive communications related to their benefits through electronic 
media such as personal emails or websites.\130\ Based on these studies, 
the Department reasonably believes that the final rule generally lines 
up with most participants' preferences. And since participants retain 
the right to opt out of electronic delivery, those who prefer paper 
disclosures are adequately protected under the final rule.
---------------------------------------------------------------------------

    \127\ See Investors in the United States, A Report of the 
National Financial Capability Study, FINRA Investor Foundation, 
December 2019, p. 1, https://www.usfinancialcapability.org/downloads/NFCS_2018_Inv_Survey_Full_Report.pdf. (A survey of 2,000 
investors shows that, in 2015, 49 percent preferred paper delivery, 
while 27 percent preferred electronic delivery).
    \128\ U.S. Retirement End-Investor 2019, Driving Participant 
Outcomes with Financial Wellness Programs, Cerulli Report, 2019, at 
18.
    \129\ Id.
    \130\ See Boosting the Effectiveness of Retirement Plan 
Communications, Empower Institute, January 2019, at 9, https://docs.empower-retirement.com/Empower/institute/Effective-Communication.pdf. See also What Your Employees Think About Your 
Benefits Communication, The Jellyvision Lab, 2016, at 12, https://www.jellyvision.com/wp-content/uploads/Survey-Report_What-Your-Employees-Think-About-Your-Benefits-Communication.pdf.
---------------------------------------------------------------------------

(vi) Benefits
    The final rule will not require plan administrators to develop new 
formats or content beyond what is required in printed form. 
Nonetheless, some plan administrators may elect to develop new formats 
and content for electronic disclosures. Such formats could include more 
interactive content, with hotlinks and multimedia presentations, which 
might improve the quality and accessibility of information. DC account 
information often is available continuously and updated in real-time, 
which may help participants to effectively manage their accounts. Using 
assistive technology, such as screen readers, electronic disclosures 
could be made more accessible to the visually impaired. Online 
translation may help covered individuals with limited English skills 
better understand their disclosures. Some plans may provide mobile apps 
with interactive features, which will allow participants to navigate 
the site and conduct account transactions with ease.
    Some commenters predicted that the final rule might contribute to 
higher retirement savings. According to these commenters, digitally 
engaged participants or those with electronic delivery have, on 
average, higher deferral rates and larger account balances than their 
counterparts who are not digitally engaged or receive paper 
disclosures. These commenters seem to attribute this higher retirement 
savings to electronic delivery. This interpretation, however, requires 
some caution. Participants who are more motivated to save are also more 
likely to actively use their plan's website than other participants. 
This self-selection, with the most motivated savers being the most 
digitally engaged, may explain their higher deferral rates and larger 
account balances. One study acknowledged this possibility, yet still 
contended that electronic delivery could nudge investors towards 
increased savings.\131\ The Department agrees that participants can be 
nudged to save more as they interact more with various website tools 
and gain more financial knowledge. The Department is encouraged to find 
that many plan administrators now offer on their websites various 
financial education tools, including retirement income planning tools 
and budgeting tools. However, it is difficult to compare the relative 
impacts on retirement savings of nudging participants (through 
electronic delivery and digital engagement) versus self-selection. To 
the extent that electronic delivery increases retirement savings and 
better prepares participants for retirement, this rule will produce 
even greater benefits.
---------------------------------------------------------------------------

    \131\ See Quantria Strategies, supra note 99.
---------------------------------------------------------------------------

    Several commenters had varying opinions on how cost savings 
generated by this rule would be distributed. Some commenters estimated 
that the rule would generate significant cost savings, with most going 
directly to participants. Others, however, expressed skepticism. Many 
suggested participants would experience minimal benefit, particularly 
because the Department does not require plan administrators to pass the 
cost savings onto participants.
    Cost savings in theory could be retained by service providers as 
profit, or passed on to plan sponsors or participants as lower 
fees.\132\ The disposition of savings is uncertain, in part because in 
the long run the savings' nominal incidence may differ from its 
economic incidence. The Department believes that a large portion of the 
savings will reach participants. Such savings are additional to the 
benefits participants may realize from improvements in the quality and 
accessibility of disclosures.
---------------------------------------------------------------------------

    \132\ Instead of lowering fees, cost savings can be passed on to 
plan sponsors or to participants in the form of augmented services.
---------------------------------------------------------------------------

    Competition among service providers can ensure cost savings to 
benefit plan sponsors and participants, in the form of lower fees. One 
commenter stated that 4,694 establishments offered third-party 
administrative services in 2016. She described the market as having a 
high volume of entry and exit, and high concentration.\133\ The 
commenter estimated that, because of the competitive environment,

[[Page 31917]]

approximately 60 percent of cost savings would be passed to 
participants in lower fees. (Stickiness in service provider 
relationships in some cases may slow the flow of savings, however. 
Large 401(k) plan sponsors (with $250 million or more in assets) most 
frequently identified ``10 years or longer'' when asked how long they 
had been with current recordkeepers.\134\ Another study finds a similar 
pattern: a majority of plan sponsors reported having been with their 
current recordkeepers for 10 years or longer.\135\ )
---------------------------------------------------------------------------

    \133\ This commenter indicated that this estimate was based on 
data from U.S. Census Bureau, County Business Patterns by Employment 
Size Class, 2010-2016.
    \134\ Cerulli, supra note 128.
    \135\ 2019 Defined Contribution Benchmarking Survey Report, 
Deloitte, 2019.
---------------------------------------------------------------------------

    Fees associated with disclosures sometimes are bundled into 
investment costs, such as the fees internal to mutual funds on DC plan 
menus. Savings from reductions in such fees generally will accrue to 
participants. Other times, disclosure and other administrative fees are 
charged separately. These charges sometimes are allocated to DC 
participants' accounts, again suggesting that savings will accrue to 
participants. Other times such separate charges may be allocated to 
plan forfeiture accounts or paid directly by plan sponsors. In these 
cases, savings may accrue to plan sponsors rather than directly to 
participants. Such savings nonetheless may benefit participants in the 
long run, for example if sponsors pass on savings in the form of richer 
matching contributions or other means, in response to labor market 
forces. Surveys and comments help illustrate how frequently common fee 
arrangements may result in savings to participants.
    In one survey, one in three DC plan sponsors reported that 
administrative fees are bundled into investment costs. This is a 
smaller fraction than in 2015, when one-half of plan sponsors reported 
using this arrangement.\136\ Another report identifies a similar 
downward trend for bundled fee arrangements.\137\ Such bundled fees may 
be less transparent than fees that are charged separately, so in some 
cases service providers may be slower to pass on savings from this rule 
by reducing such fees. Nonetheless, competition from other service 
providers, including those offering both bundled and unbundled fee 
arrangements, will put downward pressure on bundled fees, and savings 
from reductions in such fees generally will accrue to participants.
---------------------------------------------------------------------------

    \136\ 2019 Defined Contribution Benchmarking Survey Report, 
Deloitte, 2019, at 20. (In 2015, 50 percent of plan sponsors 
reported to have this ``no additional fee'' arrangement, which has 
declined to 33 percent in 2019.)
    \137\ U.S. Retirement Markets 2019, Looking Toward Holistic 
Solutions for Participants and Plan Sponsors, Cerulli Report, 2019, 
at 69.
---------------------------------------------------------------------------

    Other times administrative fees are charged separately. The most 
common fee arrangement is a direct fee paid to the recordkeeper, one 
survey found. A majority (52 percent) of plan sponsors had this 
arrangement in 2019, up from 41 percent in 2015. An additional 15 
percent used separate wrap fees or charges on investment.\138\ Separate 
fees or charges generally are transparent and therefore likely to 
promote competition, so it is likely that savings from this rule 
largely will translate into reductions in such fees, benefitting plan 
sponsors or participants.
---------------------------------------------------------------------------

    \138\ Deloitte, supra note 135, at 20.
---------------------------------------------------------------------------

    Separate administrative fees or charges often are allocated to DC 
participants' accounts. In 2019, 57 percent of plan sponsors reported 
that participants pay such fees either based on their account balances 
(29 percent) or in equal amounts (28 percent).\139\ Under such 
arrangements, savings will likely accrue to participants. Other times 
such separate charges may be allocated to plan forfeiture accounts (6 
percent) or paid directly by plan sponsors (25 percent), according to 
the same survey.\140\ In these cases, savings may accrue to plan 
sponsors rather than directly to participants. Such savings nonetheless 
may benefit participants in the long run, for example if sponsors pass 
on savings in the form of richer matching contributions or other means, 
in response to labor market forces.
---------------------------------------------------------------------------

    \139\ Id.
    \140\ Id.
---------------------------------------------------------------------------

    Commenters offered different views on the costs of paper delivery 
at the participant level and the amount that participants will save 
from reducing those costs. Some commenters stated the costs of paper 
delivery, per participant, were minimal, suggesting participants would 
save little. Others took the opposite view, asserting that savings from 
electronic delivery would significantly increase participants' account 
balances. One commenter suggested that a participant in a 401(k) plan 
receives, on average, 6 to 8 documents per year and the average cost to 
print and mail a single notice is $0.83. Assuming this is true, mailing 
disclosures to participants costs between $4.98 and $6.64 per year. If 
after eliminating these costs, 60 percent of the cost savings flow to 
participants, as one commenter suggests, participants on average would 
save $3 to $4 each year.
    A recent study estimated that the per-participant direct fee for 
recordkeeping services was, on average, $54 in 2019, up from $50 in 
2017.\141\ Then, eliminating recordkeeping fees would save participants 
about 6 to 7 percent of direct fees that they pay to 
recordkeepers.\142\ Some commenters characterized this savings as 
minimal. Others suggested the savings could be considerable, especially 
for young and newly enrolled participants, who will benefit most from 
the compounding effects.
---------------------------------------------------------------------------

    \141\ Id. at 5. But according to a different, the average 
recordkeeping/administration costs per participant was $35 in 2017 
(see Stephen Miller, 401(k) Sponsors Focus on Benchmarking--and 
Lowering--Fees (Feb. 22, 2018), https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/401k-fee-benchmarking.aspx.).
    \142\ These are calculated by ($3/$54) and ($4/$54) 
respectively. If the average recordkeeping/administration costs per 
participant were $35, as one study suggested, participants would 
save approximately 9 to 11 percent of direct fees. These are 
calculated by ($3/$35) and ($4/$35).
---------------------------------------------------------------------------

(4) Regulatory Alternatives

    To conform with Executive Order 12866, the Department considered 
several regulatory approaches while developing this final rule.
(i) Covering Welfare Benefit Plan Disclosures
    As discussed in section (B)(2)(ii), the Department received 
numerous comments about whether to expand this final rule to cover 
health and welfare plans. After careful analysis and lengthy 
deliberation, the Department decided not to expand the rule at this 
time. The Department is reviewing the information provided in response 
to its RFI, and will continue to explore this option and may undertake 
rulemaking in the future. The Department has decided to take this two-
step approach so that retirement plans can accrue cost savings without 
delay and to give the Department more time to analyze unique issues 
about health and welfare plans. Extending the scope of the final rule 
to health and welfare plans raises unique challenges regarding the tri-
agency consultation process that warrant careful consideration. 
Accordingly, the Department intends to take more time, obtain public 
comments, and develop a rule that can maximize benefits to health and 
welfare plans and participants as part of a future project.
(ii) Conforming With Electronic Delivery Approaches Adopted by Other 
Agency
    Executive Order 13847 directed the Department to coordinate with 
the Treasury Department to explore expanding electronic delivery. The 
goal of expanding electronic delivery is to

[[Page 31918]]

improve the effectiveness of disclosures and to reduce their associated 
costs and burdens. Following discussions with Treasury Department 
staff, the Department considered adopting an approach similar to that 
of 26 CFR 1.401(a)-21, the IRS rule for electronic disclosures.\143\ 
This rule generally provides that a plan may use an electronic medium 
to provide applicable notices only for a participant who affirmatively 
consents to receive the notice electronically or who has the 
``effective ability to access'' the electronically delivered 
notice.\144\ A number of parties have encouraged the Department to 
adopt this approach, which they believed to be more flexible than the 
Department's 2002 safe harbor.\145\ The final rule does not adopt 26 
CFR 1.401(a)-21(c) verbatim, but it does, however, align with the 
regulation in large part. The Department considers this a logical 
outcome, because plan administrators have to comply with requirements 
of both ERISA and the Code. Thus, the more coordination and alignment 
among potentially overlapping regulatory requirements, the less 
regulatory burden overall.
---------------------------------------------------------------------------

    \143\ The Treasury Department and the IRS have issued a series 
of guidance on electronic disclosures, beginning with IRS Notice 99-
1, and more recently in 26 CFR 1.401(a)-21(c) (2006), on the ``Use 
of Electronic Media for Providing Employee Benefit Notices and 
Making Employee Benefit Elections and Consents.'' See e.g., Notice 
99-1 (1999-2 I.R.B. 8); Announcement 99-6 (1999-4 I.R.B. 24); T.D. 
8873, 65 FR 6001 (Feb. 8, 2000); and T.D. 9294, 71 FR 61877 (Oct. 
20, 2006).
    \144\ See 26 CFR 1.401(a)-21(b) and (c) (2006).
    \145\ See Written Statement of Michael Hadley, Partner, Davis & 
Harman LLP, to the ERISA Advisory Council (June 7, 2017), at 8, 
https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/about-us/erisa-advisory-council/2017-mandated-disclosure-for-retirement-plans-hadley-written-statement-06-07.pdf; see also Written Statement 
of David N. Levine and Brigen L. Winters, Principals, Groom Law 
Group (June 7, 2017), at 4, https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/about-us/erisa-advisory-council/2017-mandated-disclosure-for-retirement-plans-levine-and-winters-written-statement-06-07.pdf.
---------------------------------------------------------------------------

(iii) Keeping a Quarterly Pension Benefit Statement in a Single Annual 
Combined NOIA
    In the final rule, the Department revised the group of covered 
documents for which a single annual combined NOIA is permitted. In 
contrast to the proposal, under the final rule some covered documents, 
such as a quarterly pension benefit statement, can no longer be 
furnished with a single annual combined NOIA.\146\ The Department 
considered keeping the quarterly pension benefit statement as one of 
the disclosures that can be included in a single annual combined NOIA. 
Pension benefit statements must be furnished on a quarterly basis for 
participant-directed individual account plans, such as 401k plans. 
Thus, if an annual combined NOIA is emailed at the beginning of the 
year, some participants may not appreciate that subsequent quarterly 
statements also will be made available online. Furthermore, quarterly 
benefit statements can prompt participants to take actions, such as 
checking their account balances, increasing deferral rates, or 
reallocating investments. With one notice at the beginning of the year, 
covered individuals may less frequently check their accounts and make 
changes accordingly. In the Department's view, this may have 
detrimental impacts on participants' retirement savings, although it 
may bring administrative costs down slightly. Therefore, the Department 
determined that the approach taken in the final rule is a more balanced 
approach that provides sufficient protection for participants while 
generating substantial cost savings.
---------------------------------------------------------------------------

    \146\ An SMM is another document excluded from a single annual 
combined NOIA.
---------------------------------------------------------------------------

(5) Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995 (PRA 95) (44 
U.S.C. 3506(c)(2)(A)), the Department solicited comments on its new 
alternative safe harbor to use electronic media to satisfy the general 
furnishing requirement under Title 1 of ERISA. At the same time, the 
Department also submitted an information collection request (ICR) to 
OMB, in accordance with 44 U.S.C. 3507(d). The Department received no 
comment that specifically addressed the paperwork burden analysis of 
the information collections. The Department did, however, receive 
comments on costs and administrative burdens related to the proposal. 
The Department reviewed the comments and took them into account when 
making changes to the final rule, analyzing the economic impact of the 
proposal, and developing the revised paperwork burden analysis 
summarized below.
    In connection with the new rule, the Department is submitting an 
ICR to OMB requesting approval of a revised collection of information 
under OMB Control Number 1210-0121. The Department will notify the 
public when OMB approves the ICR.
    A copy of the ICR may be obtained by contacting the PRA addressee 
shown below or at https://www.RegInfo.gov.
    PRA Addressee: Address requests for copies of the ICR to James 
Butikofer, Office of Policy and Research, U.S. Department of Labor, 
Employee Benefits Security Administration, 200 Constitution Avenue NW, 
Room N-5718, Washington, DC 20210. Telephone: (202) 693-8410; Fax: 
(202) 219-5333. These are not toll-free numbers. ICRs submitted to OMB 
also are available at https://www.RegInfo.gov.
    As discussed above, the final regulation will create two new 
information collections that are subject to the PRA: The annual NOIA 
(29 CFR 2520.104b-31(d)(2)) and the initial notification (29 CFR 
2520.104b-31(g)). The final rule will also reduce costs for some of the 
Department's existing information collections.
    The Department is unaware of any data source that would directly 
identify the number of plans that will decide to use the final new 
alternative safe harbor. Therefore, for purposes of this analysis, the 
Department conservatively assumes that all plans will use the final 
alternative safe harbor for at least some of their covered individuals. 
As discussed in the Cost Savings section above, the Department 
estimates that plan administrators using the final rule will incur a 
one-time start-up cost to prepare and distribute the annual NOIA and 
the initial notification. The final rule's impact on the hour and cost 
burden associated with the Department's information collections are 
discussed below.

    Agency: Employee Benefits Security Administration, Department of 
Labor.
    Title: Consent to receive employee benefit plan disclosures 
electronically.
    Type of Review: Revision of currently approved collection of 
information.
    OMB Control Number: 1210-0121.
    Affected Public: Individuals or households; Business or other for-
profit; Not-for-profit institutions.
    Respondents: 710,000.
    Responses: 109,440,000.
    Estimated Total Burden Hours: 2,388,000.
    Estimated Total Costs: $44,737,000.

    On April 9, 2002, the Department published a notice of final 
rulemaking on electronic communication and recordkeeping technologies 
to establish a safe harbor for electronic disclosures.\147\ The 2002 
safe harbor generally covers disclosures under Title I. The final 
regulation also covered the receipt of required disclosures at 
locations other than the workplace. The 2002 safe harbor requires that 
plan administrators to obtain affirmative consent, in advance, before 
distributing electronic disclosures to participants and beneficiaries 
outside the workplace.\148\ In order to gain consent, the plan 
administrator must provide a

[[Page 31919]]

clear and conspicuous statement that includes the following: The types 
of documents to which the consent would apply; that consent may be 
withdrawn at any time; the procedures for withdrawing consent and 
updating necessary information; the right to obtain a paper copy, free 
of charge; and any hardware and software requirements.
---------------------------------------------------------------------------

    \147\ 67 FR 17263 (April 9, 2002).
    \148\ This requirement is incorporated at 29 CFR 2520.104b-
1(c)(2)(ii)(A), (B), and (C).
---------------------------------------------------------------------------

    The Department revises this information collection by adding the 
information collections required under the final rule to the 2002 safe 
harbor. This will increase the number of respondents by 710,000, the 
responses by 109,440,000, the hour burden by 2,388,000, and the cost 
burden by $44,737,000.
    The final rule will affect the Department's burden estimates for 
several existing information collections of covered disclosures. 
Specifically, the rule will reduce the burden associated with the 
following covered disclosures with information collections covered by 
the PRA: The SPD, the SMM, the SAR, the annual funding notice, 
disclosures for participant-directed individual account plans under 
ERISA section 404(a)(5), and the QDIA notice. The burden reduction 
estimates are based on the current cost and hour burdens for the 
Department's existing ICRs for the covered disclosures, adjusted for 
the number of plans and participants the Department assumes will use 
electronic disclosures. The Department discusses these ICRs and its 
revised estimates below. The Department has submitted the revised 
information collections for these covered disclosures to OMB for 
review, in accordance with 44 U.S.C. 3507(d).

    Agency: Employee Benefits Security Administration, Department of 
Labor.
    Title: Summary Plan Description Requirements under the ERISA.
    Type of Review: Revised Collection.
    OMB Control Number: 1210-0039.
    Affected Public: Businesses or other for-profits, Not-for-profit 
institutions.
    Respondents: 3,033,000.
    Responses: 112,733,000.
    Estimated Total Burden Hours: 163,000.
    Estimated Total Costs: $235,556,000.
    Description: Section 104(b) of ERISA requires the employee benefit 
plan administrators furnish participants and certain beneficiaries with 
an SPD that describes, in language understandable to an average plan 
participant, the benefits, rights, and obligations of participants in 
the plan. The SPD information requirements are set forth in section 
102(b) of ERISA. To the extent there is a material modification in the 
terms of the plan or a change in the required content of the SPD, 
section 104(b)(1) of ERISA requires plan administrators to furnish 
participants and certain beneficiaries with an SMM or summary of 
material reductions (SMR).\149\ The Department has issued regulations 
providing guidance on compliance with the requirements to furnish SPDs, 
SMMs, and SMRs. These regulations, codified at 29 CFR 2520.102-2, 
2520.102-3, 29 CFR 2520.104b-2, and 29 CFR 2520.104b-3, contain 
information collections for which the Department has obtained OMB 
approval under OMB Control No. 1210-0039.
---------------------------------------------------------------------------

    \149\ Because SMRs apply only to health plans, not retirement 
plans, they will not be affected by this new safe harbor.

    The Department estimates that the final alternative safe harbor 
will reduce the hour burden by 126,000 and the cost burden by 
$88,464,000.
    Agency: Employee Benefits Security Administration, Department of 
Labor.
    Title: ERISA Summary Annual Report Requirement.
    Type of Review: Revised Collection.
    OMB Number: 1210-0040.
    Affected Public: Not-for-profit institutions, Businesses or other 
for-profits.
    Respondents: 750,000.
    Responses: 166,350,000.
    Estimated Total Burden Hours: 1,185,000.
    Estimated Total Costs: $24,358,000.
    Description: ERISA Section 104(b)(3) and the regulation published 
at 29 CFR 2520.104b-10 require, with certain exceptions, that plan 
administrators furnish participants and certain beneficiaries with a 
SAR. The regulation prescribes the content and format of the SAR and 
the timing of its delivery. The SAR provides information about the 
plan's current financial operation and condition. It also explains 
participants' and beneficiaries' rights to receive further information 
on these issues. EBSA previously submitted the ICR provisions in the 
regulation at 29 CFR 2520.104b-10 to OMB, and OMB approved the ICR 
under OMB Control No. 1210-0040.

    The Department estimates that the final alternative safe harbor 
will reduce the hour burden by 607,000 and the cost burden by 
$23,661,000.

    Agency: Employee Benefits Security Administration, Department of 
Labor.
    Title: Annual Funding Notice for Defined Benefit Pension Plans.
    Type of Review: Amendment of a currently approved collection of 
information.
    OMB Control Number: 1210-0126.
    Affected Public: Businesses or other for-profits, Not-for-profit 
institutions.
    Respondents: 32,000.
    Responses: 65,527,000.
    Estimated Total Burden Hours: 197,000.
    Estimated Total Costs: $7,080,000.
    Description: Section 101(f) of the ERISA sets forth annual funding 
notice requirements. Before 2006, the year the Pension Protection Act 
(PPA) was enacted, section 101(f) applied only to multiemployer defined 
benefit plans. The Department has issued multiple final regulations 
with regard to this provision, most recently on February 2, 2015 (80 FR 
5625). Section 501(a) of the PPA amended section 101(f) of ERISA to 
change to the annual funding notice requirements. These amendments 
require plan administrators of all defined benefit plans subject to 
Title IV of ERISA to provide an annual funding notice to the Pension 
Benefit Guaranty Corporation (PBGC); plan participants and 
beneficiaries; labor organizations representing participants or 
beneficiaries; and, in the case of a multiemployer plan, all plan 
employers. The annual funding notice must include, among other things, 
the plan's funding percentage, assets and liabilities, asset 
allocation, and a description of the benefits under the plan that are 
eligible to be guaranteed by the PBGC. The ICR was approved by OMB 
under OMB Control Number 1210-0126.

    The Department estimates that the final alternative safe harbor 
will reduce the hour burden by 454,000 and the cost burden by 
$12,560,000.

    Agency: Employee Benefits Security Administration, Department of 
Labor.
    Title: Disclosures for Participant Directed Individual Account 
Plans.
    Type of Review: Revised Collection.
    OMB Control Number: 1210-0090.
    Affected Public: Businesses or other for-profits, Not-for-profit 
institutions.
    Respondents: 566,000.
    Responses: 769,693,000.
    Estimated Total Burden Hours: 5,914,000.
    Estimated Total Costs: $223,980,000.
    Description: Plan administrators must provide plan- and investment-
related fee and expense information to participants and beneficiaries 
in all participant-directed individual account plans (e.g., 401(k) 
plans) for plan years beginning on or after January 1, 2011. The 
Department previously requested review of this information collection 
and obtained approval from OMB under OMB control number 1210-0090.

    The Department estimates that the final alternative safe harbor 
will reduce the hour burden by 979,000 and the cost burden by 
$46,360,000.


[[Page 31920]]


    Agency: Employee Benefits Security Administration, Department of 
Labor.
    Title: Default Investment Alternatives under Participant Directed 
Individual Account Plans.
    Type of Review: Revised collection.
    OMB Control Number: 1210-0132.
    Affected Public: Not-for-profit institutions, Businesses or other 
for-profits.
    Respondents: 297,000.
    Responses: 39,549,000.
    Estimated Total Burden Hours: 76,000.
    Estimated Total Burden Costs: $2,074,000.
    Description: Section 404(c) of ERISA states that participants or 
beneficiaries who can hold individual accounts under their pension 
plans and exercise control over the assets ``as determined in 
regulations of the Secretary [of Labor]'' will not be treated as 
fiduciaries of the plan. Moreover, plan fiduciaries are not liable for 
any loss resulting from the participants' or beneficiary's exercise of 
control over their individual account assets.

    The PPA amended ERISA section 404(c) by adding paragraph (c)(5)(A). 
The new paragraph requires that participants who fail to make 
investment elections be treated as having exercised control over their 
account assets, so long as the plan provides appropriate notice and 
invests the assets ``in accordance with regulations prescribed by the 
Secretary [of Labor].'' As required under ERISA section 404(c)(5)(A), 
the Department issued a final regulation on the types of investment 
vehicles that plan fiduciaries may choose as a QDIA. The regulation 
also outlines two information collection requirements. First, it 
implements the statutory requirement that a fiduciary must provide 
annual notices to participants and beneficiaries whose account assets 
could be invested in a QDIA. Second, the regulation requires 
fiduciaries to pass certain pertinent materials they receive relating 
to a QDIA to those participants and beneficiaries with assets invested 
in the QDIA as well to provide certain information on request. The ICRs 
are approved under OMB Control Number 1210-0132.
    The Department estimates that due to fiduciaries' use of the final 
alternative safe harbor to provide disclosures to participants who 
currently are receiving them by mail, the hour burden will be reduced 
by 117,000 and the cost burden will be reduced by $9,135,000.

(6) Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) \150\ imposes certain 
requirements on rules subject to the notice and comment requirements of 
section 553(b) of the Administrative Procedure Act.\151\ Under section 
604 of the RFA, agencies must submit a final regulatory flexibility 
analysis (FRFA) for proposals that are likely to have a significant 
economic impact on a substantial number of small entities. Small 
entities include small businesses, organizations, and governmental 
jurisdictions.
---------------------------------------------------------------------------

    \150\ 5 U.S.C. 601 (2012).
    \151\ 5 U.S.C. 551 (2012).
---------------------------------------------------------------------------

    For purposes of analysis under the RFA, the Employee Benefits 
Security Administration (EBSA) considers an employee benefit plan with 
fewer than 100 participants a small entity.\152\ This definition is 
based on section 104(a)(2) of ERISA, which permits the Secretary of 
Labor to prescribe simplified annual reports for pension plans that 
cover fewer than 100 participants. Under section 104(a)(3), the 
Secretary may also provide for exemptions or simplified annual 
reporting and disclosure for welfare benefit plans. Pursuant to section 
104(a)(3), the Department has previously issued simplified reporting 
provisions and limited exemptions from reporting/disclosure 
requirements for small plans, including unfunded or insured welfare 
plans covering fewer than 100 participants and satisfying certain other 
requirements.\153\
---------------------------------------------------------------------------

    \152\ The Department consulted with the Small Business 
Administration Office of Advocacy in making this determination as 
required by 5 U.S.C. 603(c) and 13 CFR 121.903(c).
    \153\ See 29 CFR 2520.104-20 (2012), 29 CFR 2520.104-21 (2012), 
29 CFR 2520.104-41 (2012), 29 CFR 2520.104-46 (2012), and 29 CFR 
2520.104b-10 (2012).
---------------------------------------------------------------------------

    Further, while some large employers may have small plans, small 
employers generally maintain small plans. Thus, EBSA believes that 
assessing the impact of this final rule on small plans is an 
appropriate substitute for evaluating the effect on small entities. The 
definition of small entity considered appropriate for this purpose 
differs, however, from a definition of small business that is based on 
size standards promulgated by the Small Business Administration (SBA) 
\154\ pursuant to the Small Business Act.\155\ EBSA requested comments 
on the appropriateness of the size standard used to evaluate the impact 
of the proposed rule on small entities and received no comment on this 
issue. In particular, the Department did not receive any comment 
stating that it is inappropriate to use size standards different from 
those promulgated by the SBA.
---------------------------------------------------------------------------

    \154\ 13 CFR 121.201 (2011).
    \155\ 15 U.S.C. 631 (2013).
---------------------------------------------------------------------------

    The Department has determined that this final rule will 
significantly impact a substantial number of small entities: Employee 
benefit plans with fewer than 100 participants. The Department's FRFA 
follows.
(i) Need for and Objectives of the Rule
    Pursuant to section 505 of ERISA, the Secretary of Labor has broad 
authority ``to prescribe such regulations as he finds necessary or 
appropriate to carry out the provisions of [Title I] of ERISA.'' The 
final rule offers a voluntary, alternative method for electronic 
disclosures and, thus, reduces the costs and burdens of related to 
required disclosures. The final rule will reduce the cost of printing 
and mailing covered disclosures, benefitting plans regardless of the 
size. Therefore, the Department expects the final rule to deliver 
benefits to the participants of many small plans and their families, as 
well as the plans themselves.
(ii) Affected Small Entities
    The majority of private retirement plans are small plans with fewer 
than 100 participants. The 2017 Form 5500 filings show that out of 
total 710,000 private retirement plans, approximately 87 percent, or 
619,000, of ERISA-covered retirement plans were small plans with fewer 
than 100 participants.\156\ However, small plans cover only a fraction 
of total participants. In 2017, over 137 million individuals 
participated in private retirement plans. Out of these 137 million 
participants, over 12 million participants, less than 10 percent, were 
in small plans. The Department estimates that slightly more than half 
already receive disclosures electronically. The remaining half will 
likely receive electronic disclosures under this final rule.
---------------------------------------------------------------------------

    \156\ Private Pension Plan Bulletin 2016, Employee Benefits 
Security Administration, Department of Labor.
---------------------------------------------------------------------------

(iii) Projected Reporting, Recordkeeping, and Other Compliance 
Requirements
    As discussed above, by allowing more participants who access 
disclosures online, the final rule will save retirement plans, 
including small plans, money. These cost savings can in turn be used to 
defray other plan-related expenses, and thus lower the overall fees 
charged to participants. In addition, modern technology features may 
help participants with disabilities or limited English skills better 
understand the content of disclosures, which will allow

[[Page 31921]]

them to better manage their plan accounts. Both large and small plans 
will benefit from the cost savings and other benefits that result from 
wider use of electronic disclosure.
    This final rule is a voluntary safe harbor. Therefore, plan 
administrators will not be required to make any specific disclosures 
available on a website. This final rule simply provides an additional, 
optional method for plan administrators to deliver covered disclosures 
to participants and beneficiaries electronically and does not change 
any underlying reporting, disclosure, and recordkeeping requirements. 
Therefore, the Department does not believe this final rule will impose 
any additional compliance requirements on small entities.
(iv) Duplicate, Overlapping, or Relevant Federal Rules
    The final rule will provide retirement plan administrators with an 
alternative method to furnish covered disclosures electronically. In 
developing this alternative, the Department consulted with other 
relevant regulators, including the Treasury Department and the SEC. The 
Treasury Department has interpretive jurisdiction over certain notices 
relating to pension plans covered by Title 1 of ERISA, but the covered 
disclosures under the final rule are exclusively in the jurisdiction of 
the Labor Department. The SEC has jurisdiction over issuers of 
investment products that often are used as ERISA employee retirement 
plan investments as well as some service providers to ERISA-covered 
plans, but it has no jurisdiction over ERISA-covered pension plans.
(v) Significant Alternatives Considered
    The RFA directs the Department to consider significant alternatives 
that would accomplish the stated objective, while minimizing any 
significant adverse impact on small entities. As discussed above, the 
Department expects this final rule to save money for small and large 
plans by eliminating materials, printing, and mailing costs.
    The Department considered keeping the quarterly pension benefit 
statement as one of the disclosures that can be included in a single 
annual combined NOIA. Pension benefit statements must be furnished 
quarterly for participant-directed individual account plans, such as 
401k plans. Thus, if a single annual combined NOIA is emailed at the 
beginning of the year, some participants may not appreciate that 
subsequent quarterly statements will also be made available online. 
Furthermore, quarterly benefit statements can prompt participants to 
take actions such as checking their account balances, increasing 
deferral rates, or reallocating investments. With one single notice at 
the beginning of the year, participants may less frequently check their 
accounts and make changes accordingly. In the Department's view, this 
may have detrimental impacts on participants' retirement savings, 
although it may bring costs down. Therefore, the Department determines 
that the approach taken in the final rule is more balanced, protecting 
participants while saving money.
    Small plans, like large plans, will incur costs associated with 
emailing NOIAs and addressing invalid or inoperable electronic 
addresses quarterly, rather than annually. The Department, however, 
does not believe this burden will be disproportionally borne by small 
plans because small plans, having fewer participants, will have fewer 
electronic addresses to manage and an easier time updating electronic 
addresses due to the proximity between administrators and participants. 
The Department, thus, determines that this approach does not 
disadvantage nor unduly burden small plans.
    Paragraph (e) of the final rule requires plan administrators to 
ensure the existence of a website at which covered individuals can 
access covered documents. In the proposed rule, the Department 
solicited comments regarding the fraction of plans, particularly small 
plans, that would need to develop or modify a website in order to rely 
on this new safe harbor. The Department was particularly concerned 
about any potential disproportionate burden on small plans that this 
condition may inadvertently impose. One commenter suggested that small 
plans are less likely to have their own websites. In addition, one 
study suggests that slightly more than a quarter (27 percent) of small 
profit sharing and 401(k) plans (plans with fewer than 50 participants) 
did not provide any services via internet, whereas only 10 percent of 
large profit sharing and 401(k) plans (plans with 5,000 participants or 
more) did not provide any services via internet in 2017.\157\ In part 
to mitigate any potential negative impact on small plans, the 
Department added a new paragraph, paragraph (k), in the final rule and 
allows plan administrators to furnish covered documents directly by 
email as an alternative to the notice and access approach. Therefore, a 
plan administrator that does not have a website can rely on this new 
safe harbor to provide electronic disclosure without developing a 
website. The Department believes this change in the final rule will 
help more small plan administrators electronically deliver plan-related 
documents, reducing the administrative burden on small plans.
---------------------------------------------------------------------------

    \157\ See Plan Sponsors Council of America, supra note 109. 
(Because the Department expects most 401(k) plans to have their own 
websites, the fraction of small defined benefit plans and non-
participant-directed defined contribution plans that lack websites 
will likely be higher than that of small 401(k) plans.)
---------------------------------------------------------------------------

(7) Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 \158\ requires 
each federal agency to prepare a written statement assessing the 
effects of any federal mandate in a final rule that may result in an 
expenditure of $100 million or more (adjusted annually for inflation 
with the base year 1995) in any one year by state, local, and tribal 
governments, in the aggregate, or by the private sector. For purposes 
of the Unfunded Mandates Reform Act, as well as Executive Order 12875, 
this final rule does not include any federal mandate that will result 
in such expenditures. This is because the final rule merely provides an 
alternative, optional safe harbor for pension benefit plans subject to 
ERISA to use electronic media to furnish required disclosures to 
participants and beneficiaries.
---------------------------------------------------------------------------

    \158\ Public Law 104-4, 109 Stat. 48 (1995).
---------------------------------------------------------------------------

(8) Federalism Statement

    Executive Order 13132 outlines fundamental principles of 
federalism. E.O. 13132 requires federal agencies to follow specific 
criteria in forming and implementing policies that have ``substantial 
direct effects'' on the states, the relationship between the national 
government and states, or on the distribution of power and 
responsibilities among the various levels of government. Federal 
agencies promulgating regulations that have federalism implications 
must consult with state and local officials and describe the extent of 
their consultation and the nature of the concerns of state and local 
officials in the preamble to the final rule.
    In the Department's view, this final regulation does not have 
federalism implications because it does not have a direct effect on the 
states, the relationship between the national government and the 
states, or on the distribution of power and responsibilities among 
various levels of government.

[[Page 31922]]

List of Subjects in 29 CFR Parts 2520 and 2560

    Employee benefit plans, Pensions.

    For the reasons stated in the preamble, the Department of Labor 
amends 29 CFR parts 2520 and 2560 as follows:

PART 2520--RULES AND REGULATIONS FOR REPORTING AND DISCLOSURE

0
1. The authority citation for part 2520 continues to read as follows:

    Authority:  29 U.S.C. 1021-1025, 1027, 1029-1031, 1059, 1134 and 
1135; and Secretary of Labor's Order 1-2011 77 FR 1088 (Jan. 9, 
2012). Sec. 2520.101-2 also issued under 29 U.S.C. 1132, 1181-1183, 
1181 note, 1185, 1185a-b, 1191, and 1191a-c. Secs. 2520.102-3, 
2520.104b-1 and 2520.104b-3 also issued under 29 U.S.C. 1003, 1181-
1183, 1181 note, 1185, 1185a-b, 1191, and 1191a-c. Secs. 2520.104b-1 
and 2520.107 also issued under 26 U.S.C. 401 note, 111 Stat. 788. 
Sec. 2520.101-5 also issued under sec. 501 of Pub. L. 109-280, 120 
Stat. 780, and sec. 105(a), Pub. L. 110-458, 122 Stat. 5092.


0
2. Amend Sec.  2520.101-3 by revising paragraph (b)(3) to read as 
follows:


Sec.  2520.101-3   Notice of blackout periods under individual account 
plans.

* * * * *
    (b) * * *
    (3) Form and manner of furnishing notice. The notice required by 
paragraph (a) of this section shall be in writing and furnished to 
affected participants and beneficiaries in any manner consistent with 
the requirements of Sec.  2520.104b-1 of this chapter, including Sec.  
2520.104b-1(c) or Sec.  2520.104b-31 of this chapter relating to the 
use of electronic media.
* * * * *

0
3. Amend Sec.  2520.104b-1 by revising paragraph (c)(1) introductory 
text and adding paragraph (f) to read as follows:


Sec.  2520.104b-1   Disclosure.

* * * * *
    (c) * * *
    (1) Except as otherwise provided by applicable law, rule or 
regulation, including the alternative methods for disclosure through 
electronic media in paragraph (f) of this section, the administrator of 
an employee benefit plan furnishing documents through electronic media 
is deemed to satisfy the requirements of paragraph (b)(1) of this 
section with respect to an individual described in paragraph (c)(2) of 
this section if:
* * * * *
    (f) Alternative disclosure through electronic media. As an 
alternative to electronic media disclosure obligations in paragraph (c) 
of this section, the administrator of an employee benefit plan is 
deemed to satisfy the requirements of paragraph (b)(1) of this section, 
provided that the administrator complies with the obligations in 29 CFR 
2520.104b-31.

0
4. Add Sec.  2520.104b-31 to subpart F to read as follows:


Sec.  2520.104b-31   Alternative method for disclosure through 
electronic media--Notice-and-access.

    (a) Alternative method for disclosure through electronic media--
Notice-and-access. As an alternative to Sec.  2520.104b-1(c), the 
administrator of an employee benefit plan satisfies the general 
furnishing obligation in Sec.  2520.104b-1(b)(1) with respect to 
covered individuals and covered documents, provided that the 
administrator complies with the notice, access, and other requirements 
of paragraphs (b) through (k) of this section, as applicable.
    (b) Covered individual. For purposes of this section, a ``covered 
individual'' is a participant, beneficiary, or other individual 
entitled to covered documents and who--when he or she begins 
participating in the plan, as a condition of employment, or otherwise--
provides the employer, plan sponsor, or administrator (or an 
appropriate designee of any of the foregoing) with an electronic 
address, such as an electronic mail (``email'') address or internet-
connected mobile-computing-device (e.g., ``smartphone'') number, at 
which the covered individual may receive a written notice of internet 
availability, described in paragraph (d) of this section, or an email 
described in paragraph (k) of this section. Alternatively, if an 
electronic address is assigned by an employer to an employee for 
employment-related purposes that include but are not limited to the 
delivery of covered documents, the employee is treated as if he or she 
provided the electronic address.
    (c) Covered documents. For purposes of this section, a ``covered 
document'' is:
    (1) Pension benefit plans. In the case of an employee pension 
benefit plan, as defined in section 3(2) of the Act, any document or 
information that the administrator is required to furnish to 
participants and beneficiaries pursuant to Title I of the Act, except 
for any document or information that must be furnished only upon 
request.
    (2) [Reserved]
    (d) Notice of internet availability--(1) General. The administrator 
must furnish to each covered individual a notice of internet 
availability for each covered document in accordance with the 
requirements of this section.
    (2) Timing of notice of internet availability. A notice of internet 
availability must be furnished at the time the covered document is made 
available on the website described in paragraph (e) of this section. 
However, if an administrator furnishes a combined notice of internet 
availability for more than one covered document, as permitted under 
paragraph (i) of this section, the requirements of this paragraph 
(d)(2) are treated as satisfied if the combined notice of internet 
availability is furnished each plan year, and, if the combined notice 
of internet availability was furnished in the prior plan year, no more 
than 14 months following the date the prior plan year's notice was 
furnished.
    (3) Content of notice of internet availability. (i) A notice of 
internet availability furnished pursuant to this section must contain 
the information set forth in paragraphs (d)(3)(i)(A) through (H) of 
this section:
    (A) A prominent statement--for example as a title, legend, or 
subject line--that reads: ``Disclosure About Your Retirement Plan.''
    (B) A statement that reads: ``Important information about your 
retirement plan is now available. Please review this information.''
    (C) An identification of the covered document by name (for example, 
a statement that reads: ``your Quarterly Benefit Statement is now 
available'') and a brief description of the covered document if 
identification only by name would not reasonably convey the nature of 
the covered document.
    (D) The internet website address, or a hyperlink to such address, 
where the covered document is available. The website address or 
hyperlink must be sufficiently specific to provide ready access to the 
covered document and will satisfy this standard if it leads the covered 
individual either directly to the covered document or to a login page 
that provides, or immediately after a covered individual logs on 
provides, a prominent link to the covered document.
    (E) A statement of the right to request and obtain a paper version 
of the covered document, free of charge, and an explanation of how to 
exercise this right.
    (F) A statement of the right, free of charge, to opt out of 
electronic delivery and receive only paper versions of covered 
documents, and an explanation of how to exercise this right.

[[Page 31923]]

    (G) A cautionary statement that the covered 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 of the covered 
document.
    (H) A telephone number to contact the administrator or other 
designated representative of the plan.
    (ii) A notice of internet availability furnished pursuant to this 
section may contain a statement as to whether action by the covered 
individual is invited or required in response to the covered document 
and how to take such action, or that no action is required, provided 
that such statement is not inaccurate or misleading.
    (4) Form and manner of furnishing notice of internet availability. 
A notice of internet availability must:
    (i) Be furnished electronically to the address referred to in 
paragraph (b) of this section;
    (ii) Contain only the content specified in paragraph (d)(3) of this 
section, except that the administrator may include pictures, logos, or 
similar design elements, so long as the design is not inaccurate or 
misleading and the required content is clear;
    (iii) Be furnished separately from any other documents or 
disclosures furnished to covered individuals, except as permitted under 
paragraph (i) of this section; and
    (iv) Be written in a manner calculated to be understood by the 
average plan participant.
    (e) Standards for internet website. (1) The administrator must 
ensure the existence of an internet website at which a covered 
individual is able to access covered documents.
    (2) The administrator must take measures reasonably calculated to 
ensure that:
    (i) The covered document is available on the website no later than 
the date on which the covered document must be furnished under the Act;
    (ii) The covered document remains available on the website at least 
until the date that is one year after the date the covered document is 
made available on the website pursuant to paragraph (e)(2)(i) of this 
section or, if later, the date it is superseded by a subsequent version 
of the covered document;
    (iii) The covered document is presented on the website in a manner 
calculated to be understood by the average plan participant;
    (iv) The covered document is presented on the website in a widely-
available format or formats that are suitable to be both read online 
and printed clearly on paper;
    (v) The covered document can be searched electronically by numbers, 
letters, or words; and
    (vi) The covered document is presented on the website in a widely-
available format or formats that allow the covered document to be 
permanently retained in an electronic format that satisfies the 
requirements of paragraph (e)(2)(iv) of this section.
    (3) The administrator must take measures reasonably calculated to 
ensure that the website protects the confidentiality of personal 
information relating to any covered individual.
    (4) For purposes of this section, the term website means an 
internet website, or other internet or electronic-based information 
repository, such as a mobile application, to which covered individuals 
have been provided reasonable access.
    (f) Right to copies of paper documents or to opt out of electronic 
delivery. (1) Upon request from a covered individual, the administrator 
must promptly furnish to such individual, free of charge, a paper copy 
of a covered document. Only one paper copy of any covered document must 
be provided free of charge under this section.
    (2) Covered individuals must have the right, free of charge, to 
globally opt out of electronic delivery and receive only paper versions 
of covered documents. Upon request from a covered individual, the 
administrator must promptly comply with such an election.
    (3) The administrator must establish and maintain reasonable 
procedures governing requests or elections under paragraphs (f)(1) and 
(2) of this section. The procedures are not reasonable if they contain 
any provision, or are administered in a way, that unduly inhibits or 
hampers the initiation or processing of a request or election.
    (4) The system for furnishing a notice of internet availability 
must be designed to alert the administrator of a covered individual's 
invalid or inoperable electronic address. If the administrator is 
alerted that a covered individual's electronic address has become 
invalid or inoperable, such as if a notice of internet availability 
sent to that address is returned as undeliverable, the administrator 
must promptly take reasonable steps to cure the problem (for example, 
by furnishing a notice of internet availability to a valid and operable 
secondary electronic address that had been provided by the covered 
individual, if available, or obtaining a new valid and operable 
electronic address for the covered individual) or treat the covered 
individual as if he or she made an election under paragraph (f)(2) of 
this section. If the covered individual is treated as if he or she made 
an election under paragraph (f)(2) of this section, the administrator 
must furnish to the covered individual, as soon as is reasonably 
practicable, a paper version of the covered document identified in the 
undelivered notice of internet availability.
    (g) Initial notification of default electronic delivery and right 
to opt out. The administrator must furnish to each individual, prior to 
the administrator's reliance on this section with respect to such 
individual, a notification on paper that covered documents will be 
furnished electronically to an electronic address; identification of 
the electronic address that will be used for the individual; any 
instructions necessary to access the covered documents; a cautionary 
statement that the covered 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 of the covered document; a statement of the 
right to request and obtain a paper version of a covered document, free 
of charge, and an explanation of how to exercise this right; and a 
statement of the right, free of charge, to opt out of electronic 
delivery and receive only paper versions of covered documents, and an 
explanation of how to exercise this right. A notification furnished 
pursuant to this paragraph (g) must be written in a manner calculated 
to be understood by the average plan participant.
    (h) Special rule for severance from employment. At the time a 
covered individual who is an employee, and for whom an electronic 
address assigned by an employer pursuant to paragraph (b) of this 
section is used to furnish covered documents, severs from employment 
with the employer, the administrator must take measures reasonably 
calculated to ensure the continued accuracy and availability of such 
electronic address or to obtain a new electronic address that enables 
receipt of covered documents following the individual's severance from 
employment.
    (i) Special rule for annual combined notices of internet 
availability. Notwithstanding the requirements in paragraphs (d)(4)(ii) 
and (iii) of this section, an administrator may furnish one notice of 
internet availability that incorporates or combines the content 
required by paragraph (d)(3) of this section with respect to one or 
more of the following:
    (1) A summary plan description, as required pursuant to section 
104(a) of the Act;
    (2) Any covered document or information that must be furnished

[[Page 31924]]

annually, rather than upon the occurrence of a particular event, and 
does not require action by a covered individual by a particular 
deadline;
    (3) Any other covered document if authorized in writing by the 
Secretary of Labor, by regulation or otherwise, in compliance with 
section 110 of the Act; and
    (4) Any applicable notice required by the Internal Revenue Code if 
authorized in writing by the Secretary of the Treasury.
    (j) Reasonable procedures for compliance. The conditions of this 
section are satisfied, notwithstanding the fact that the covered 
documents described in paragraph (b) of this section are temporarily 
unavailable for a reasonable period of time in the manner required by 
this section due to technical maintenance or unforeseeable events or 
circumstances beyond the control of the administrator, provided that:
    (1) The administrator has reasonable procedures in place to ensure 
that the covered documents are available in the manner required by this 
section; and
    (2) The administrator takes prompt action to ensure that the 
covered documents become available in the manner required by this 
section as soon as practicable following the earlier of the time at 
which the administrator knows or reasonably should know that the 
covered documents are temporarily unavailable in the manner required by 
this section.
    (k) Alternative method for disclosure through email systems. 
Notwithstanding any other provision of this section, an administrator 
satisfies the general furnishing obligation in Sec.  2520.104b-1(b)(1) 
by using an email address to furnish a covered document to a covered 
individual, provided that:
    (1) The covered document is sent to a covered individual's email 
address, referred to in paragraph (b) of this section, no later than 
the date on which the covered document must be furnished under the Act.
    (2) In lieu of furnishing a notice of internet availability 
pursuant to paragraph (d) of this section, the administrator sends an 
email pursuant to this paragraph (k) that:
    (i) Includes the covered document in the body of the email or as an 
attachment;
    (ii) Includes a subject line that reads: ``Disclosure About Your 
Retirement Plan'';
    (iii) Includes the information described in paragraph (d)(3)(i)(C) 
of this section if the covered document is an attachment 
(identification or brief description of the covered document), 
paragraphs (d)(3)(i)(E) (statement of right to paper copy of covered 
document), (d)(3)(i)(F) (statement of right to opt out of electronic 
delivery), and (d)(3)(i)(H) (a telephone number) of this section; and
    (iv) Complies with paragraph (d)(4)(iv) of this section (relating 
to readability).
    (3) The covered document is:
    (i) Written in a manner reasonably calculated to be understood by 
the average plan participant;
    (ii) Presented in a widely-available format or formats that are 
suitable to be read online, printed clearly on paper, and permanently 
retained in an electronic format that satisfies the preceding 
requirements in this sentence; and
    (iii) Searchable electronically by numbers, letters, or words.
    (4) The administrator:
    (i) Takes measures reasonably calculated to protect the 
confidentiality of personal information relating to the covered 
individual; and
    (ii) Complies with paragraphs (f) (relating to copies of paper 
documents or the right to opt out); (g) (relating to the initial 
notification of default electronic delivery), except for the cautionary 
statement; and (h) (relating to severance from employment) of this 
section.
    (l) Dates; severability. (1) This section is applicable July 27, 
2020.
    (2) If any provision of this section is held to be invalid or 
unenforceable by its terms, or as applied to any person or 
circumstance, or stayed pending further agency action, the provision 
shall be construed so as to continue to give the maximum effect to the 
provision permitted by law, unless such holding shall be one of 
invalidity or unenforceability, in which event the provision shall be 
severable from this section and shall not affect the remainder thereof.

PART 2560--RULES AND REGULATIONS FOR ADMINISTRATION AND ENFORCEMENT

0
5. The authority citation for part 2560 continues to read as follows:

    Authority:  29 U.S.C. 1132, 1135, and Secretary of Labor's Order 
1-2011, 77 FR 1088 (Jan. 9, 2012). Section 2560.503-1 also issued 
under 29 U.S.C. 1133. Section 2560.502c-7 also issued under 29 
U.S.C. 1132(c)(7). Section 2560.502c-4 also issued under 29 U.S.C. 
1132(c)(4). Section 2560.502c-8 also issued under 29 U.S.C. 
1132(c)(8).


0
6. Amend Sec.  2560.503-1 by revising the second sentence of paragraph 
(g)(1) introductory text and the second sentence of paragraph (j)(1) to 
read as follows:


Sec.  2560.503-1   Claims procedure.

* * * * *
    (g) * * *
    (1) * * * Any electronic notification shall comply with the 
standards imposed by 29 CFR 2520.104b-1(c)(1)(i), (iii), and (iv), or 
with the standards imposed by 29 CFR 2520.104b-31 (for pension benefit 
plans). * * *
* * * * *
    (j) * * *
    (1) * * * Any electronic notification shall comply with the 
standards imposed by 29 CFR 2520.104b-1(c)(1)(i), (iii), and (iv), or 
with the standards imposed by 29 CFR 2520.104b-31 (for pension benefit 
plans). * * *
* * * * *

    Signed at Washington, DC, May 15, 2020.
Eugene Rutledge,
Assistant Secretary, Employee Benefits Security Administration, 
Department of Labor.
[FR Doc. 2020-10951 Filed 5-21-20; 8:45 am]
BILLING CODE 4510-29-P