On January 27, 1999, the Department of Labor (the "DOL") issued a proposed
rule concerning the disclosure of certain employee benefit plan information
through electronic media and standards for maintenance and retention of employee
benefit plan records in electronic form. 64 Fed. Reg. 4,506 (Jan. 28, 1999). The
DOL's proposed rule follows a notice and proposed regulations issued by the
Internal Revenue Service (the "IRS") on the use of electronic media for plan
transactions. Notice 99-1 (Dec. 17, 1998); 63 Fed. Reg. 70,071 (Dec. 18,
1998).
The DOL's proposed rule establishes a safe harbor pursuant to which all
pension and welfare benefit plans covered by Title I of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") may satisfy their obligations
to furnish summary plan descriptions ("SPDs"), summaries of material
modifications ("SMMs"), updated SPDs and summary annual reports ("SARs") using
electronic media. With respect to recordkeeping, the proposal provides standards
concerning the use of electronic media, including electronic storage and
automatic data processing systems, for the maintenance and retention of records.
The DOL indicates that, in the absence of final regulations or other guidance,
good faith compliance with the standards set forth in the proposed regulations
will, with respect to the disclosure and recordkeeping requirements specifically
addressed in the proposed regulations, constitute compliance with ERISA.
The IRS guidance makes it clear that plan administrators may use electronic
media for a variety of plan transactions, except those requiring spousal
consent.
Delivery of Documents
Under the DOL's proposed rule, plan administrators who use electronic media
to deliver required plan disclosures must permit participants to obtain the
disclosures in paper form, free of charge. Moreover, plan participants must have
the ability at their worksite to effectively access documents furnished in
electronic form and convert furnished documents from electronic form to paper
form free of charge.
Under the safe harbor, plans also must satisfy the following conditions:
(1) Plan administrators must take appropriate and necessary measures to
ensure that the system for furnishing documents results in the actual receipt by
the participants of transmitted information, such as through the use of a
return-receipt electronic mail feature or periodic reviews of surveys by the
plan administrator to confirm the integrity of the delivery system;
(2) Plan administrators must make sure that electronically delivered
documents are prepared and furnished in a manner consistent with the style,
format and content requirements applicable to disclosure; and
(3) Plan administrators must notify each participant, either through
electronic means or by paper, of the specific disclosure documents that will be
furnished electronically, the significance of the documents and the
participant's right to request and receive, free of charge, a paper copy of each
document from the plan administrator.
Recordkeeping
The DOL's proposed regulations generally provide that electronic media may be
used for the purposes of complying with the records maintenance and retention
requirements of ERISA, provided:
(1) The recordkeeping system has reasonable controls to ensure the integrity,
accuracy, authenticity and reliability of the records kept in electronic
form;
(2) The electronic records are maintained in reasonable order, in a safe and
accessible place, and in such manner as they may be readily inspected or
examined;
(3) The electronic records can be readily converted into legible and readable
paper copy as may be needed to satisfy reporting and disclosure requirements or
any other obligation under Title I of ERISA; and
(4) Adequate records management practices are established and
implemented.
The DOL emphasized in the proposed rule that the duty to maintain records
cannot be avoided by contract, delegation or otherwise. And, persons subject to
recordkeeping obligations under ERISA will be required to provide the
Department, upon request, with the necessary equipment and resources needed for
inspection, examination and conversion of electronic records into legible
readable paper copy or other usable form.
Transactions
In its proposed rule, the DOL indicated that, after receiving comments, it
would be issuing rules regarding notice, election, consent, disclosure, time
requirements and related recordkeeping requirements over which it, and not the
IRS, has jurisdiction.
As to transactions within its purview, the IRS already has issued its
guidance.
In Notice 99-1, the IRS specifically mentions the following transactions as
suitable for electronic media:
- enrolling in the plan
- designating rates of elective and after-tax contributions
- designating beneficiaries
- electing direct rollovers
- electing investment allocations for future contributions
- changing investment allocations for amounts held under the plan
- inquiring about general plan information such as investment options
distribution options
- inquiring about account information
And, under its proposed regulations, the IRS permits the electronic delivery
of:
- the notice of distribution options and the right to defer under section
411(a)(11) of the Internal Revenue Code of 1986, as amended (the "Code")
- the rollover notice under Code section 402(f)
- the voluntary tax and withholding notice under Code section 3405(e)(10)(b)
- participant consent to distribution under Code section 411(a)(11)
The IRS's proposed rule on plan transactions provides, just like the DOL's
proposed rule on disclosure documents, that a participant should be able to
receive a paper form of notice from the plan on request free of charge, and that
a participant who is given an electronic notice should be advised at the time
the notice is given that he or she may request and receive the notice on paper
free of charge. In contrast to the DOL's proposed rule, however, the IRS's
proposed rule states that merely making paper notices available through the
electronic medium used to deliver the notice or another electronic medium (for
example, by including a "print" option on an e-mail system or a web site) is not
adequate because of the uncertainty in determining whether a participant will in
fact be able to generate the paper version of the notice.
Under the proposed regulations, participant consent transmitted through an
electronic media must be given under a system that is reasonably designed (for
example, with passwords or personal identification numbers) to preclude an
individual other than the participant from giving the consent and that provides
the participant a reasonable opportunity to review and to confirm, modify or
rescind the terms of the distribution before the consent to the distribution
becomes effective.
The proposed regulations also provide that a plan should give the participant
a confirmation of the terms of the distribution within a reasonable time after
the participant has given consent through an electronic medium. If the
confirmation is given electronically, the participant must be given the right to
request and receive the confirmation on paper
The Employee Benefits Alert is intended to kee readers current on
matters affecting employee benefits, and is not intended to be legal advice. If
you have any questions, please call Kathryn A. English at 412/566-1226,
Laurie S. DuChateau at 412/566-5960, John J. Kearns, III at
412/566-2075, John R. Owen, III at 412/566-6852, Paul M. Yenerall
at 412/566-1944, or any other attorney with whom you have been working.
