Department of Labor Provides Guidance on Electronic Disclosures of Required Fee and Administrative Information

Starting May 31, 2012, the Department of Labor (DOL) will require employers to give participants and beneficiaries of 401(k) and similar plans disclosures regarding participant fees, expenses, and plan administrative costs.   

The DOL recently released its Interim Policy on Electronic Disclosure under 29 CFR 2550.404a-5 ("Interim Policy").  In that Interim Policy, the DOL clarified which fee, expense, and administrative disclosures may be provided electronically to participants and beneficiaries without violating ERISA's requirement that these disclosures be furnished using "measures reasonably calculated to ensure actual receipt of the material." 

The Interim Policy permits electronic disclosures of plan-related information if the plan's pension benefit statement is also provided electronically.  Plans may provide this information through a secure continuous access Internet site or via email.  The following information is defined as plan-related information:

• An explanation of the circumstances under which participants and beneficiaries may give investment instructions;
• An explanation of any specific limits on such instructions;
• A description of, or reference to, plan provisions relating to voting, tender and similar rights;
• A list of investment alternatives under the plan;
• A description of any options allowing participants to select investments;
• An explanation of the plan's fees and expenses for general plan administration;
• A statement of the actual amount of fees and expenses charged to the participant's account with an accurate description of the services rendered;
• A statement of any individual expenses charged to the participant's account; and
• The plan's annual disclosure. 

For fee disclosures not furnished with the pension benefit statement, the Interim Policy prohibits electronic disclosure unless the plan meets the following safe harbor requirements:

• The participant or beneficiary voluntarily provides an email address;
• The plan provides an Initial Notice, in the same form that the plan requests participants' and beneficiaries' email addresses, advising them of their rights not to provide an email address, to opt out of electronic disclosures, and to obtain a paper copy of any related disclosure (the Initial Notice must also include a summary of the types of information that will be provided electronically);
• The plan provides participants and beneficiaries with an Annual Notice similar to the Initial Notice; and 
• The plan takes appropriate measures to ensure participants and beneficiaries are receiving the electronic disclosures and that their personal information is kept confidential.

The Interim Procedure also provides a transition option for participants and beneficiaries who have already provided the plan with their email addresses.  Before sending electronic disclosures to those individuals, the plan needs to provide a Transition Group Initial Notice on paper providing similar information as in the Initial Notice.    

The Interim Policy is solely a temporary enforcement policy.  The DOL anticipates releasing additional permanent guidance regarding electronic disclosure.  Until that guidance is released, however, the DOL will not take any enforcement action against a plan administrator who complies with the Interim Policy.