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Requirements for Distributing Participant Disclosures

July 18, 2012

The purpose of this alert is to outline the required format and the allowable methods of delivery for the participant disclosures under ERISA section 404a-5.

Format of the Disclosures

In order to satisfy the requirements of 404a-5, the Plan Administrator must deliver a consolidated fee disclosure package to all plan account holders and employees eligible to participate in the plan. As part of the disclosure package, the Plan Administrator must deliver a comparative chart of investments (see sample) offered to participants (also known as “Designated Investment Alternatives” or “DIA”). If there are non-DIA investments offered in your plan, the Plan Administrator must include the additional investment information along with the fee disclosure package. For example, a plan offering several self-directed brokerage account options would need to collect information about each brokerage option and then include this information as part of their overall participant fee disclosure package.

Delivery Requirements – Paper or Electronic

The disclosures may be delivered either electronically or in paper form. In order for electronic delivery to comply with the DOL’s requirements, there are several conditions that must be met. In Technical Release 2011-03R the DOL provided clarification with regard to the requirements for electronic delivery of these disclosures. Despite some useful clarifications, the DOL rules are not as supportive of electronic disclosure as many had hoped.

In general, disclosures required under Title I of ERISA must be furnished using “measures reasonably calculated to ensure actual receipt of the material.” The safe harbor for electronically delivery is limited to individuals who:

  • Have the ability to effectively access documents furnished in electronic form at work and with respect to whom access to the employer’s electronic information system is an integral part of their duties.
  • Other participants (e.g., retirees, former employees, and active employees who do not use a computer as an integral part of their duties), beneficiaries (e.g., surviving spouse, alternate payees), and other persons entitled to disclosures under Title I of ERISA who affirmatively consent to receiving disclosures through electronic media in the manner prescribed by the regulation.

In order to satisfy the affirmative consent rule, the participant must voluntarily provide an email address in response to a written request from the employer. The request must include a notice specifying that disclosures will be made electronically, instructions on accessing the information, identification of the information provided, the right to opt out of electronic communications, and an explanation that paper copies will be provided free of charge if opting out. This notice will need to be provided on paper. In addition, the participant needs to receive, on paper, an annual notice regarding electronic communications from the plan.

The annual notice may be sent through email if the participants’ electronic interactions with the plan are tracked and the participant has interacted electronically with the plan during the last year by confirming or updating their email address.

Conclusion

If a plan has individual brokerage accounts as part of its investment offering, the Plan Administrator will need to collect information about each brokerage firm and their respective fee schedule in order to comply with 404a-5. If a company does not provide email addresses to all account holders and employees who are eligible for the plan and a means for them to access their email at work as part of their job duties, that company is left with two options to deliver fee disclosure:

  • Mail or hand-deliver notices to all account holders and employees who are eligible for the plan requesting affirmative consent to receive fee disclosures electronically and then email them the fee disclosures assuming you received consent; or
  • Mail or hand-deliver fee disclosures to account holders and employees eligible to participate in the plan.

Sentinel will be developing a fulfillment service for those employers who do not wish to send the notices on their own. We will provide details of our solution along with pricing in a communication to our clients next week. We will be hosting a webinar on Tuesday, July 31st to provide more information on the participant fee disclosure rules.