ELECTRONIC DELIVERY COULD SAVE BILLIONS
NEW VOLUNTARY SAFE HARBORM
The final rule, which was effective July 26, 2020, establishes a voluntary safe harbor for retirement plan administrators who elect to use electronic media to furnish retirement plan disclosures to “covered individuals.” For plan sponsors interested in taking advantage of the new safe harbor, there are three rules to which they must comply:- The safe harbor only applies to retirement plan disclosures and does not include any document that must be furnished only if it is requested.
- Covered individuals must provide an electronic delivery address such as an email address or smartphone number. An employer assigned email address, such as a company email address, may be treated as provided by the individual if the email address has a separate employment related purpose.
- The initial notification of electronic delivery must be on paper. For those plans that would like to rely on the new safe harbor, the plan administrator must distribute a paper notice to covered individuals advising them of the intended electronic delivery and providing an opportunity for the individual to opt out.
“EBSA projects that electronic delivery could save retirement plan sponsors an estimated $3.2 billion over the next 10 years”
The rule allows two methods for delivering retirement plan disclosures electronically:
- Website posting. Referred to as the Notice and Access model, administrators may post participant disclosures on a website if an appropriate Notice of Internet Availability (NOIA) is furnished to the electronic addresses of covered individuals. These documents must remain on a website until superseded by a subsequent version but never for less than one year. The NOIA must include a description of the covered document(s), the electronic address (or hyperlink to the address) where the individual can access the document, and a required statement that advises individuals of their right to opt out of electronic delivery and to receive free paper copies along with the administrator’s or a designated representative’s phone number. The NOIA must generally be provided each time a new covered document is available for review on the website. However, the final rule permits an annual NOIA to include information about multiple covered documents instead of requiring that plan sponsors provide multiple NOIAs throughout the year.
- Email delivery. Alternatively, administrators may send required disclosures directly to the email addresses of plan participants. Required documents must be sent to participants’ email addresses no later than the date by which the document must be furnished under ERISA.
DOCUMENTS ELIGIBLE FOR ELECTRONIC DELIVERY
Under the final rule, documents that may be provided electronically include:- Annual disclosure notices such as safe harbor, Qualified Default Investment Alternative (QDIA), Fee Disclosures, and automatic enrollment.
- Summary Plan Descriptions (SPDs)
- Summaries of Material Modifications (SMMs)
- Summary Annual Reports (SARs)
- Notice of blackout period for participant investment direction
- Notices relating to Qualified Domestic Relations Orders (QDROs)
- Individual benefit statements required by the Pension Protection Act
Upcoming Compliance Deadlines for Calendar-Year Plans
September 15th, 2020
Required contribution to Money Purchase Pension and Target
Benefit Pension.
Contribution deadline for deducting 2019 employer contributions
for those sponsors who filed a tax extension for Partnership or
S-Corporation returns for the March 15, 2020 deadline.
Single employer DB plans were provided relief under the CARES
Act to extend any required contributions due during 2020 (both
quarterly and year-end contributions) to January 1, 2021.
September 30th, 2020
Deadline for certification of the Annual Funding Target Attainment Percentage (AFTAP) for DB plans for the 2020 plan year.
October 1st, 2020
401(k) Plan Safe Harbor Notice (must be provided between October 1 and December 1 for plans with a 12/31 plan year-end).
October 15th, 2020
Extended due date for the filing of Form 5500 and Form 8955.
Due date for filing 2020 PBGC Comprehensive Premium Filing.
Contribution deadline for deducting 2019 employer contributions for those sponsors who filed a tax extension for C-Corporation or
Sole-Proprietor returns for the April 15, 2020 deadline.
COVERED INDIVIDUALS
The final rule allows the use of electronic media to furnish retirement plan disclosures to “covered individuals.” Covered individuals include plan participants (employees or former employees covered by the plan), beneficiaries (e.g., spouses and dependents covered by the plan), and other persons entitled to documents under Title I of ERISA who have provided the plan administrator or other appropriate designee with an email address or smartphone number. Electronic addresses previously provided to the plan administrator may be used without verifying the address if such reliance is in good faith and otherwise complies with the new safe harbor rule.
Covered individuals must be able to globally opt out of electronic delivery and receive paper copies at no cost to the individual. For administrative ease, the plan sponsor may continue to provide electronic copies in tandem with paper delivery. When a participant who has elected electronic delivery terminates employment, administrators must “take measures reasonably calculated to ensure the continued accuracy and availability” of electronic addresses used to deliver required documents, or take steps to obtain new, valid electronic addresses from plan participants.”
Additionally, the plan administrator must have a system for identifying bounce backs or delivery attempts to a covered individual that have been returned as “undeliverable.” If a bounce back is received, the plan administrator must promptly take reasonable steps to cure the problem by sending the NOIA or email to a secondary electronic address on file, obtaining a new valid and operable electronic address, or treating the covered individual as having globally opted out of electronic disclosures and distributing paper notices from that point forward.
PRE-EXISTING ELECTRONIC DELIVERY RULE
The new safe harbor is an additional option for electronic disclosure and does not replace the prior DOL e-disclosure rule that allowed for electronic delivery to those employees that were “wired at work.” The new safe harbor rule only applies to retirement plans (and is voluntary) and not employee welfare benefit plans, such as plans providing group health or disability benefits.“A 2019 survey found that 90% of U.S. adults use the internet, representing a substantial increase from 2000 when 52% of U.S. adults reported using the internet.”
IRS ISSUES ADDITIONAL PANDEMIC RELIEF
- If the employer is operating at an economic loss, or
- If the plan’s safe harbor notice (due 30 days prior to the beginning of the plan year) includes a statement that the plan may be amended during the plan year to suspend or reduce safe harbor contributions (sometimes referred to as a “safe harbor maybe” notice).
Notice 2020-52 provides guidance in three main areas. First, it provides relief related to COVID-19, allowing plan sponsors to adopt mid-year amendments between March 13, 2020 and August 31, 2020 to eliminate safe harbor matching contributions or mid-year nonelective contributions for the remainder of the year and be deemed to have satisfied the threshold for “operating at an economic loss” or providing the “safe harbor maybe” notice. The amendment must be adopted no later than the date that the reduction/suspension occurred. It is important to note that this special relief regarding the suspension of safe harbor contributions does not eliminate the requirement that the plan will become subject to non-discrimination testing for the entire plan year.
Secondly, it provides helpful clarification that sponsors can eliminate safe harbor 401(k) contributions for highly compensated employees (HCEs) only and retain the plan’s safe harbor status provided that the safe harbor 401(k) contributions continue to be made for non-highly compensated employees (NHCEs). A revised safe harbor notice should be delivered to the affected HCEs.
Finally, the Notice provides temporary relief to the 30-day advance notice requirement for suspensions or reductions to safe harbor nonelective contributions as long as the updated safe harbor notice is provided no later than August 31, 2020 and the plan amendment is adopted prior to the effective date of the suspension. Plan sponsors should keep in mind that the IRS continues to require at least 30 days advance notice for mid-year suspensions or reductions to safe harbor matching contributions; whether or not these contributions are provided can influence the employee’s decision to make elective deferrals.
“A 2018 study concluded that 93% of households owning defined contribution accounts had access to, and used, the internet in 2016.”