Using Email for Participant Disclosures By

Using Email for Participant Disclosures
By: George M. Morrison, Esquire

www.cbginc.com

Sponsoring a tax-qualified plan obligates an employer to distribute various documents to participants and beneficiaries of the plan. Employers which use email in day-to-day operations often inquire whether email can be used to satisfy these distribution requirements. Over the past few years, the Department of Labor (“DOL”) and Internal Revenue Service (“IRS”) have issued guidance in this area.

The DOL and IRS have issued separate guidance relevant to the distribution of documents. The DOL’s guidance established a safe harbor that covers any disclosures required under Title I of ERISA which includes:

· Summary Plan Descriptions (“SPDs”);

· Summary of Material Modifications (“SMMs”);

· Summary Annual Reports (“SARs”);

· Participant Benefit Statements;

· Decisions on Benefit Claims;

· Investment information required for Section 404(c) compliance;

· Notices related to Qualified Domestic Relations Orders; and

· Notice of Investment Blackout Period.

Under the DOL’s guidance, distribution of documents via email will satisfy ERISA’s distribution requirement if each of the following requirements are met.

· The Employer seeks to ensure that email results in actual receipt by participants (e.g., return receipt or periodic participant survey);

· Emailed documents are consistent with the style, format and content required of paper forms;

· Each participant is provided notice, through paper or email, of:

- the documents being furnished;

- the documents’ significance; and

- the participant’s right to request paper copies free-of-charge; and

· Upon request, the sponsor furnishes paper copies free-of-charge.

In addition, email satisfies the distribution requirements only with respect to participants who access email in the ordinary course of employment and are able to print the email at the workplace. Thus, to the extent a document must be distributed to a terminated participant (e.g., SPDs, SMMs, and SARs must be distributed to all participants (including terminated employees) and beneficiaries), email cannot be utilized, even if an email address is available.

Under the IRS’ guidance, the following forms can be emailed:

· Notice of Plan’s 401(k) Safe Harbor Status;

· Notice of Eligibility for Rollover Distribution;

· Notice of Participant Consent Requirement for Distribution (when balance exceeds $5,000);

· Notice of Tax Withholding Election (for distributions which are not eligible for rollover treatment and thus not subject to the mandatory 20% withholding);

· Disclosure of Terms of a Participant Loan.

Under the IRS’ regulations, emailed documents must be no less understandable than a paper form, and a participant must have the option to request a paper copy at no charge.

In addition to the notices set forth above, the IRS’ guidance permits a participant to consent to a distribution or a participant loan via electronic means. A procedure for electronic consent to a loan or distribution must: 1) be reasonably designed to preclude any individual other than the participant from giving the consent, 2) provide the participant an opportunity to review, confirm, modify, or rescind the consent before the distribution becomes effective, and 3) provide a confirmation of the distribution (either in paper or electronic form).

Many institutions servicing retirement plans are developing methods of securing participant consent to loans and distributions via an electronic form. However, there remain significant hurdles. For instance, the guidance does not permit spousal consent via an electronic form. Spousal consent is often required for plan loans and/or distributions and often must be notarized.

While electronic loans and distributions may be a future development, employers can use email to satisfy at least some of the distribution requirements with which they must comply. Employers are strongly encouraged to seek the advise of counsel before proceeding as more specific requirements or restrictions may apply. In addition, failure to follow the correct procedure could subject the employer to liability for damages under ERISA, could threaten the tax-qualified status of the plan, and could result in penalties under ERISA of up to $110 per day, per participant.