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Wednesday, December 14, 2011

UPDATE – The Department of Labor (“DoL”) has updated its previous guidance on electronic disclosures to clarify that investment-related information, including the required comparative chart, may be provided through a secure, continuous-access website, subject to the other requirements in the guidance, as described in our updated post below.   The ability to use a secure continuous-access website for these purposes was unclear in the prior guidance.

In September, the DoL released interim guidance on electronic delivery of certain participant fee disclosures which was recently updated. Remember that account balance plans (like 401(k) plans) that allow participant direction of investments have to provide new participant-level fee disclosures beginning in April-May of 2012. Some disclosures can be included in quarterly benefit statements, like the amount and description of administrative and individual fees charged to a participant’s or beneficiary’s account. Other disclosures are required before a participant or beneficiary can first direct his or her investments or at other times and these generally cannot be included in quarterly benefit statements (either for legal or practical reasons).

When the DoL issued these final fee disclosure regulations last year, it intentionally did not address how the information would be furnished. However, given that the compliance deadline is forthcoming, the DoL issued Technical Release 2011-03 that addresses how these disclosures can be provided in an electronic form until more permanent guidance can be issued.  Plan sponsors and administrators can choose either to follow this new guidance or use the existing DoL-approved method for providing disclosures electronically.

The Good: Under the Technical Release, those disclosures that are expressly permitted to be included in quarterly benefit statements can be provided on a secure website with the quarterly statement. Participants must be notified that the statement (and disclosures) are available there and be advised of their right to obtain a paper copy, among other requirements. This is consistent with a prior safe harbor the DoL announced for pension benefit statements in 2006.

The Bad: For those disclosures that cannot be included in quarterly statements, participants must voluntarily provide an email address where they can receive the statements electronically to qualify for the safe harbor. Just because an employee is assigned an email address as a part of his or her job does not count. The employee has to affirmatively provide the address to the plan administrator, even if it is the same one he or she has been assigned. Participants must also be provided a notice that tells them what they are receiving electronically and gives them the opportunity to opt out and receive a paper copy, among other requirements. This notice must be provided both before the participant receives the disclosures electronically and annually thereafter. Compliance with this procedure will require some legwork (or perhaps, more appropriately, keyboard work) on the part of plan sponsors and administrators.

The Not so Bad: The not so bad news is that if a participant already has an email address on file with the employer, sponsor or administrator, then the requirement to “voluntarily provide” the email address does not apply. However, he or she must receive a paper notice that includes the information described above, among other requirements.

The Bottom Line: The rules are complex and, frankly, a mixed bag for plan sponsors and administrators. Care should be taken in implementing the rules and benefits counsel should be consulted regarding the disclosures and the timelines for providing them.

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