Blue Ridge ESOP Associates Industry News

Electronic Disclosure Requirements for Plan Notices

Posted by Scott J. Freund, QPA, QKC

Feb 20, 2015 5:17:20 PM

email_vs_mailIn this day and age we are increasingly reliant on receiving information electronically. With the desires to “Go Green”, many companies rely on electronic delivery of information to their clients. With respect to required ESOP notices, however, it is important to understand the rules of what can be delivered electronically to participants, and how those notices must be delivered. As an example, just putting a copy of your Summary Plan Description (SPD) on your company website may not be a sufficient method of delivering that document to your employees.

The Department of Labor (DOL) issued a regulation in 2002 which is commonly referred to as a “Safe Harbor” method for delivery of plan disclosure documents. Documents such as the SPD, Summaries of Material Modification to the SPD (SMM) and Summary Annual Reports (SAR) can be electronically posted to a website for participants to access. These electronic accesses to those plan documents though are limited to two categories of participants:

1)      Participants with work-related computer access. These participants must have the ability to effectively access documents furnished in electronic form at any location where they can perform their duties as an employee, and their access to electronic information must be an integral part of their employment duties.

 2)      Participants without work-related computer access who consent to receiving plan disclosures via electronic delivery. The consent needs to be completed via an actual consent document which demonstrates their ability to access information electronically, along with several other consent requirements.

Participants who do not have work-related computer access, or who do not provide consent cannot receive disclosures electronically under the safe harbor method. Their disclosures have to be provided either via first-class mail or hand delivery.

As an example, while putting a copy of your Summary Plan Description (SPD) on your company website may seem like a good way to distribute it, its not sufficient for those employees who don’t have regular work related computer access or for former employees, unless they provide an actual consent to acknowledge that they will access documents electronically.

In December of 2006, the DOL issued Field Assistance Bulletin (FAB) 2006-03, which expanded the use of electronic disclosures for the delivery of benefit statements. This FAB allows for electronic delivery of benefit statements to participants who have the “effective availability” to receive those statements, as long as the participant is advised that they may receive a paper copy at no cost.

With respect to secure continuous website access to benefit statements, the DOL will view the availability of pension benefit statement information through such media as good faith compliance with the requirement to furnish benefit statement information. However, the DOL also requires participants to be furnished with notification that explains the availability of the benefit statements, how to access those statements, and contains information on their right to request a paper version of the statement. This notification must be provided on an annual basis.

What this means is that, while you can provide access to your ESOP statements on a website that employees have access to, just publishing the statements to the website without any additional notification to all participants is not sufficient. This is why most ESOP companies should provide a paper copy of the ESOP statement to their employees annually to ensure you comply with the notice requirement.

The Internal Revenue Service (IRS) also has rules regarding electronic delivery of notices. Some of the types of notices which apply under IRS rules include distribution notices to participants, notices of tax treatment applicable to distribution options available, and safe harbor 401(k) notices. The IRS permits two methods of providing notices to participants

1)      Consumer Consent Method. Under this method, the plan must provide the participant with a statement which describes the scope of the consent, the participants right to revoke their consent, their right to receive a paper copy of a notice, and the computer requirements for accessing the notice. The participant must then consent to receive the notice electronically, and the consent must be either through an electronic consent or by using a written paper consent.

2)      Consumer Consent Exception Method. Under this method, the participant is not required to complete an actual consent document as long as they are effectively able to access the notice electronically.

These IRS requirements are similar to the DOL requirements summarized earlier in this article. It’s important to keep these requirements in mind when providing distribution materials to your former employees. To the extent any of them do not have the ability to access information electronically, you need to make sure to provide them with paper versions of required distribution notices.

Providing plan notices to participants electronically can be very convenient and cost effective. However, as these rules summarize, it’s not as easy as it may seem to stay in compliance with the DOL or IRS guidelines. If you would like to distribute notices electronically, please make sure to work closely with your plan advisors to ensure you comply with the electronic disclosure rules.

Article originally published in The ESOP Report - Written By: Scott Freund & the ESOP Association's Advisory Committee on Administration


Topics: Government & ESOPs