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Electronic Disclosure Safe Harbor for Retirement Plans

Fulcrum Partners. Human Resources

Last week, the Department of Labor (DOL) finalized regulations for the new “notice and access” safe harbor for retirement plans. Known as “NOA Safe Harbor,” the new guidelines permit plan administrators to send required disclosures to plan participants and beneficiaries via email or other electronic means, including allowing employers to post retirement plan disclosures online. This safe harbor is estimated to save retirement plans covered by ERISA (the Employee Retirement Income Security Act of 1974) a collective $3.2 billion in net costs over the next decade, according to the factsheet issued by the DOL. 

The revisions to previous guidelines for furnishing required notices and disclosures is a direct response to President Trump’s August 31, 2018 Executive Order, “Strengthening Retirement Security in America”.  The Executive Order stated:

“The costs and potential liabilities for employers and plan fiduciaries of complying with existing disclosure requirements may discourage plan formation or maintenance. Improving the effectiveness of required notices and disclosures and reducing their cost to employers promote retirement security by expanding access to workplace retirement plans.”

President Trump’s Executive Order directed the Secretary of the Treasury and the Secretary of Labor to take the following actions within one year of the Executive Order:

“…complete a review of actions that could be taken through regulation or guidance, or both, to make retirement plan disclosures required under ERISA and the Internal Revenue Code of 1986 more understandable and useful for participants and beneficiaries, while also reducing the costs and burdens they impose on employers and other plan fiduciaries responsible for their production and distribution. This review shall include an exploration of the potential for broader use of electronic delivery as a way to improve the effectiveness of disclosures and to reduce their associated costs and burdens.”

Scope of the Economic Benefits of this Safe Harbor for Retirement Plan

Currently, there are approximately 700,000 retirement plans covered by ERISA with roughly 137 million plan participants. All ERISA-covered plans must furnish multiple disclosures throughout the year to participants and beneficiaries, although the number of disclosures varies based on the type of plan, its features, and in some cases, the plan’s funding status. 

Expanding the ability of employers to furnish retirement plan disclosures electronically will not only improve accessibility for plan participants, it will greatly reduce expenses for plan administrators. The reduction in administrative time and the elimination of printing and mailing costs will create measurable savings for employers. 

Although the new regulations allow online posting and email to become the default delivery channel for retirement plan notices, plan participants and beneficiaries retain “the right to paper.” In other words, they may elect “snail mail” as their preferred method for receiving their retirement plan information, and if they do, it must be provided to them at no cost to them individually.

Guidelines and Protections for Plan Participants

The safe harbor is limited to retirement plan disclosures and is not intended to supersede the 2002 safe harbor, which remains in place. Instead, the new option for digital as the default delivery process becomes a choice for plan administrators. 

The final rule is effective 60 days after its publication in the Federal Register. However, the DOL has stated it will not take any enforcement action against a plan administrator that relies on this safe harbor before that date. The decision to provide this non-enforcement policy is deemed to be part of the Federal government’s broader effort to respond to COVID-19. 

Among other requirements, plan administrators must ensure that the electronic delivery system they use is designed to alert them if a participant’s electronic address is invalid or inoperable. Should that occur, the administrator must attempt to promptly cure the problem, or treat the participant as having opted out of electronic delivery.

Finally, regardless of their chosen means of delivery, plan participants are permitted to change their mind at any time regarding their preference for electronic or paper mail notification.

Oh yes, and how are plan participants and beneficiaries to receive notice of the new option for either website posting of notifications or direct email delivery?

…By snail mail, of course. 

Follow this link to read the complete update, from the Department of Labor: Electronic Disclosure Safe Harbor for Retirement Plans.

#safeharbor #ERISA #retirementplan #COVID19

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. Any tax advice contained herein is of a general nature. You should seek specific advice from your tax professional before pursuing any idea contemplated herein.

Securities offered through Lion Street Financial, LLC (LSF) and Valmark Securities, Inc. (VSI), each a member of FINRA and SIPC. Investment advisory services offered through CapAcuity, LLC; Lion Street Advisors, LLC (LSF) and Valmark Advisers, Inc. (VAI), each an SEC registered investment advisor. Please refer to your investment advisory agreement and the Form ADV disclosures provided to you for more information. VAI/VSI, LSF and BDO Alliance USA are non-affiliated entities and separate entities from Fulcrum Partners and CapAcuity, LLC. Unless otherwise noted, VAI/VSI, LSF and BDO Alliance USA are not affiliated, associated, authorized, endorsed by, or in any way officially connected with any other company, agency or government agency identified or referenced in this document.

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