Electronic Delivery of Proxy Materials to Plan Participants

If you sponsor an employee benefit plan that holds employer securities with pass-through voting rights, you may have received an alert from your plan provider recently. Plan providers are notifying employers of a potential conflict between new Securities and Exchange Commission electronic delivery rules for proxy materials and Department of Labor rules regarding electronic delivery of plan materials to participants.

These alerts have employers now wondering whether they can rely on the new SEC notice and access model for participants in plans that hold employer stock and pass through the right to vote the stock.

New SEC rules allow Internet delivery of proxy materials

Under final SEC rules adopted in July 2007 (Rel. No. 34-55146; IC-27671), issuers are now permitted to satisfy the delivery requirement for proxy materials by posting their proxy materials to a publicly accessible Web, sending a notice to shareholders informing them of the availability of the proxy materials and explaining how to access them. The notice must also permit shareholders to request a paper or e-mail copy of the proxy materials.

With the 2008 proxy season now underway, issuers' focus has turned to this new "notice and access" model as a faster and less expensive means of distributing proxy materials than traditional methods.

Plan providers suggest Internet delivery may run afoul of DOL rules and plan-provider agreement terms

Plan providers have identified at least two concerns with the new SEC Internet model of proxy materials delivery. The first is the question of whether the model satisfies the DOL's rules regarding electronic delivery of plan materials to participants. The second is that the trust or recordkeeping agreement between the plan provider and the employer does not permit Internet delivery to participants because those agreements generally provide that materials will be "sent."

Employers using Internet delivery may have to give direction letters

Plan providers are requiring employers who want to proceed with the SEC notice and access method of Internet proxy materials delivery to sign and deliver a direction letter to the plan provider.

In the letter, the employer represents it has sought legal advice about the notice and access method of delivery of plan materials to participants. The letter also serves as an amendment to the trust or recordkeeping agreement between the plan provider and the employer to allow use of this method, versus "sending" materials.

If you receive an alert from your plan provider regarding this matter, please contact us to discuss the appropriate response for your plan. We can also evaluate your concerns pertaining to use of the notice and access model for plan participants.