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Employee Benefits Security Administration

EBSA Final Rule

Final Rules Relating to Use of Electronic Communication and Recordkeeping Technologies by Employee Pension and Welfare Benefit Plans; Final Rule [04/09/2002]

[PDF Version]

Volume 67, Number 68, Page 17263-17276


[[Page 17263]]

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Part V





Department of Labor





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Pension and Welfare Benefits Administration



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29 CFR Part 2520



Final Rules Relating to Use of Electronic Communication and 
Recordkeeping Technologies by Employee Pension and Welfare Benefit 
Plans; Final Rule


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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

29 CFR Part 2520

RIN 1210-AA71

 
Final Rules Relating to Use of Electronic Communication and 
Recordkeeping Technologies by Employee Pension and Welfare Benefit 
Plans

AGENCY: Pension and Welfare Benefits Administration, Department of 
Labor.

ACTION: Notice of final rulemaking.

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SUMMARY: This document contains final rules under Title I of the 
Employee Retirement Income Security Act of 1974, as amended (ERISA), 
concerning the disclosure of certain employee benefit plan information 
through electronic media, and the maintenance and retention of employee 
benefit plan records in electronic form. The rules establish a safe 
harbor pursuant to which all pension and welfare benefit plans covered 
by Title I of ERISA may use electronic media to satisfy disclosure 
obligations under Title I of ERISA. The rules also provide standards 
concerning the use of electronic media in the maintenance and retention 
of records required by sections 107 and 209 of ERISA. The rules affect 
employee pension and welfare benefit plans, including group health 
plans, plan sponsors, administrators and fiduciaries, and plan 
participants and beneficiaries.

DATES: Effective Date: These regulations are effective October 9, 2002.
    Applicability Date: The requirements of Sec. 2520.107-1 apply as of 
the first day of the first plan year beginning on or after October 9, 
2002.

FOR FURTHER INFORMATION CONTACT: Katherine D. Lewis, Office of 
Regulations and Interpretations, Pension and Welfare Benefits 
Administration, U.S. Department of Labor, 200 Constitution Avenue, NW, 
Washington, DC, 20210, (202) 693-8523 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

A. Background

    Pursuant to section 1510(a) of the Taxpayer Relief Act of 1997 (TRA 
`97) \1\ and in recognition of a need generally to update the rules 
governing the distribution of disclosure materials by employee benefit 
plans under the Employee Retirement Income Security Act of 1974, as 
amended (ERISA or the Act), the Department of Labor, on January 28, 
1999, published a notice of proposed rulemaking and a request for 
public comments on electronic disclosure and recordkeeping issues (64 
FR 4506). In general, that notice contained a proposal to expand the 
electronic disclosure safe harbor applicable to group health plans, at 
Sec. 2520.104b-1(c), to all pension and welfare benefit plans covered 
by Title I of ERISA.\2\ The proposal also would expand the disclosure 
documents covered by the safe harbor to include, in addition to summary 
plan descriptions (SPDs) and related disclosures, the distribution of 
summary annual reports (SARs). In addition, the notice contained 
proposed standards applicable to the use of electronic media, including 
electronic storage and automated data processing systems, for the 
maintenance and retention of records required by sections 107 and 209 
of ERISA. As with the interim rule for group health plans, the 
Department indicated in the preamble to the proposal that the safe 
harbor was not intended to represent the exclusive means by which the 
requirements of Sec. 2520.104b-1 may be satisfied using electronic 
media. Rather, electronic disclosures meeting the conditions of the 
safe harbor would be deemed to satisfy the disclosure requirements 
under Sec. 2520.104b-1.
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    \1\ Section 1510(a) of the TRA '97 directs the Secretary of 
Labor and the Secretary of the Treasury to issue guidance designed 
to interpret the notice, election, consent, disclosure, time 
requirements, and related recordkeeping requirements of ERISA and 
the Internal Revenue Code, respectively, as applied to the use of 
new technologies by sponsors and administrators of retirement plans. 
Pub. L. 105-34, enacted August 5, 1997.
    \2\ The safe harbor was established in an interim rule for group 
health plans published in the Federal Register on April 8, 1997 (62 
FR 16979). The Department received five comments on the interim rule 
that addressed electronic disclosure issues. The proposed and 
interim rules are being finalized concurrently in this document to 
facilitate consideration of the full range of issues raised by 
public comments.
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    The following is an overview of the public comments received on the 
proposed and interim rules and the changes in the final regulations 
made in response to the comments.

B. Disclosure Through Electronic Media--29 CFR 2520.104b-1(c)

    As proposed, the availability of the safe harbor was limited to 
participants who have effective access to electronically furnished 
documents at their work place. Most of the commenters supported 
broadening the scope of the safe harbor to encompass disclosures to 
individuals (i.e., both participants and beneficiaries) beyond worksite 
locations and expanding the covered disclosures to include all 
documents required to be disclosed under Title I of ERISA, rather than 
just SPDs and related documents and SARs.

Expand Safe Harbor To Include Distributions to Participants and 
Beneficiaries Outside the Workplace

    Most of the commenters supported expanding the safe harbor to 
permit the electronic delivery of documents to places other than 
worksite locations when a participant or beneficiary voluntarily elects 
to have documents furnished by such means. A number of these commenters 
suggested that any such electronic notice should include a reminder to 
participants and beneficiaries of the need to apprise the plan 
administrator of any changes that may affect the receipt of the 
disclosures (e.g., a change in e-mail address). One commenter indicated 
that, if electronic distributions beyond the worksite are permitted at 
the election of participants and beneficiaries, participants and 
beneficiaries should be afforded the opportunity to change their 
election at any time. Another commenter argued that electronic 
distributions beyond worksite locations should not be included in the 
safe harbor because plan sponsors have no means of determining whether 
participants and beneficiaries have the electronic technology necessary 
for receiving such information.
    The Department is persuaded that where participants and 
beneficiaries have access to electronic information systems beyond the 
workplace (e.g., Internet-based systems) that will, as determined by 
the participant or beneficiary, provide an acceptable means by which to 
access plan information, neither plans nor participants and 
beneficiaries should be discouraged from utilizing such systems for 
plan-related communications. Accordingly, the Department has modified 
and expanded the safe harbor to encompass electronic delivery of plan 
information beyond the workplace to participants, beneficiaries and 
other persons entitled to disclosures under Title I of ERISA where, as 
discussed below, certain conditions designed to protect participants, 
beneficiaries and such other persons are satisfied. Because the 
proposal was limited to the furnishing of information electronically to 
individuals at worksite locations, the proposed safe harbor necessarily 
applied only to disclosures furnished to participants. With the 
expansion of the safe harbor to include the electronic distribution of 
documents beyond worksite locations, the Department sees

[[Page 17265]]

no basis for continuing to limit the safe harbor to participants.
    As revised, the safe harbor applies to communications through 
electronic media with two categories of individuals (described in 
paragraph (c)(2) of Sec. 2520.104b-1). The first category of 
individuals is participants who, similar to the proposed safe harbor, 
have the ability to effectively access documents furnished in 
electronic form at any location where the participant is reasonably 
expected to perform his or her duties as an employee and with respect 
to whom access to the employer's or plan sponsor's electronic 
information system is an integral part of those duties. See 
Sec. 2520.104b-1(c)(2)(i). The second category of individuals is 
participants, beneficiaries and other persons entitled to plan 
disclosures under Title I of ERISA who consent to receiving documents 
electronically. A discussion of comments received and the application 
of the regulation to each of these categories follows.
    The provisions governing the first category of individuals have 
been modified from the proposal in two respects. As indicated by the 
foregoing description, the Department has eliminated use of the term 
``worksite,'' but has retained the general concept. In this regard, the 
revised language--``any location where a participant is reasonably 
expected to perform his or her duties as an employee''--is intended to 
make clear that the safe harbor extends to employees who work at home 
or who may be on travel, provided that they have ready access to the 
employer's information system.
    Some commenters recommended eliminating the requirement that access 
to the employer's or plan sponsor's information system be an integral 
part of the participant's duties. The commenters argued that the 
availability of a computer kiosk in a common area at a participant's 
workplace should be sufficient to satisfy the access requirement. The 
Department disagrees. As stated in the proposal, the Department 
believes that the actual location of an employee's work is less 
important than the employee being expected to regularly access the 
employer's electronic information system and, therefore, more likely to 
receive timely communication of plan information. The Department has 
long held the view that, where documents are required to be furnished 
to participants, it is not acceptable merely to make the documents 
available in a location frequented by participants. See Sec. 2520.104b-
1(b). The Department believes that, even where a participant is 
otherwise provided notice of the availability of a document, requiring 
participants to physically seek out the documents in common areas of 
the workplace will be a disincentive for participants to obtain and 
review important information affecting their rights, benefits, and 
obligations under their plan. Accordingly, while the use of electronic 
information systems in common areas of the workplace may be an 
appropriate means by which to make plan information available for 
inspection, as a supplemental method of disclosure, or as a way to 
access additional non-mandated materials, it is not an appropriate 
means by which to deliver documents required to be furnished to 
participants.
    Second, the Department has eliminated the requirement that 
participants have the opportunity to readily convert furnished 
documents from electronic form to paper form free of charge. A number 
of commenters questioned the need for this requirement if participants 
have the ability to obtain paper versions of electronically furnished 
documents. Commenters also raised questions as to the application of 
this requirement when employees are on travel or worksite locations 
where printers are not readily available. The Department is persuaded 
that this requirement is not necessary where participants have the 
right to request and obtain paper versions of the electronically 
furnished documents.\3\
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    \3\ If a document is required by the Act, or regulations issued 
thereunder, to be furnished without charge to participants and 
beneficiaries, plan administrators availing themselves of the safe 
harbor must furnish to participants and beneficiaries without charge 
a paper version of any such document transmitted electronically. On 
the other hand, if an administrator is permitted to impose a 
reasonable charge for a document, the administrator may impose a 
reasonable charge for furnishing a paper version of the document 
under this safe harbor (Sec. 252.104b-1(c)). Also see: 29 CFR 
2520.104b-30.
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    The second category of individuals to whom documents may be 
furnished electronically under the expanded safe harbor is 
participants, beneficiaries and other persons entitled to disclosure 
documents under Title I who consent to receive such documents 
electronically. See Sec. 2520.104b-1(c)(2)(ii). The furnishing of 
documents to this category of individuals assumes the furnishing of 
documents electronically beyond the workplace and, therefore, the 
utilization of electronic information systems beyond the control of the 
plan or plan sponsor. For this reason, the safe harbor establishes 
conditions that are intended to ensure the adequacy of the information 
system for the individuals to whom disclosures will be made 
electronically. The established conditions take into account both 
suggestions of the commenters and provisions of the Electronic 
Signatures in Global and National Commerce Act (the E-SIGN Act) 
relating to consumer disclosure and consent with regard to electronic 
communications.\4\
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    \4\ Pub. L. 106-229, 114 Stat. 464 (2000) (codified at 15 U.S.C. 
7001 et seq.)
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    As expanded, the safe harbor conditions electronic communications 
beyond the workplace on the individual to whom disclosure is being made 
affirmatively consenting to receive documents electronically. In the 
case of documents to be furnished through the Internet or other 
electronic communication network, the individual must, in addition to 
providing an address for the receipt of documents electronically, 
consent or confirm consent electronically in a manner that reasonably 
demonstrates the individual's ability to access information in the 
electronic form that will be used. Such confirmation will not only 
ensure the compatibility of the hardware and software of the individual 
and the plan, but will also serve to evidence that the administrator 
has taken appropriate and necessary measures reasonably calculated to 
ensure that the system for furnishing documents results in actual 
receipt, as required by paragraph (c)(1)(i)(A). See Sec. 2520.104b-
1(c)(2)(ii)(B). The requirement for an e-mail address and electronic 
confirmation would not apply where the means of electronic 
communication is via CD, DVD or similar media not dependent on 
electronic transmission of the documents to the participant or 
beneficiary. See Sec. 2520.104b-1(c)(2)(ii)(A)
    As noted earlier, making electronic information systems available 
in common areas of the workplace (e.g., computer kiosks) is not, in the 
Department's view, a permissible means by which to deliver documents 
required to be furnished to participants.
    In an effort to ensure that all parties understand the nature of, 
and requirements for, such communications, reliance on the safe harbor 
also is conditioned on the individual being provided, prior to his or 
her consent, a clear and conspicuous statement containing certain 
specified information. The statement must identify the documents or 
categories of documents to which the consent would apply; explain that 
consent may be withdrawn at any time without charge; describe 
procedures for withdrawing

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consent or updating address or other information; explain the right of 
the individual to request and obtain a paper version of the 
electronically furnished document(s), including whether the paper 
version will be provided free of charge; and identify any software and 
hardware requirements to access and retain the identified documents to 
be provided electronically. The Department believes that the foregoing 
will provide participants and beneficiaries with the basic information 
necessary to make an informed decision about receiving documents 
electronically.
    The Department recognizes that there may be additional information 
that administrators believe should or must be communicated in 
conjunction with this disclosure, including, as suggested by 
commenters, an explanation of the importance of keeping the plan or 
plan sponsor apprised of changes that may affect the communication of 
plan information. The requirements for a clear and conspicuous 
statement are not intended to limit the ability of plan administrators 
to include information, in addition to that required, they believe is 
important to participants and beneficiaries, but rather to ensure that 
the communicated information is both brought to the attention of the 
electing individual and set forth in a reasonably understandable 
manner.
    Recognizing that there may be system or other changes that may 
affect the electronic furnishing of documents, the safe harbor requires 
that where there are changes in hardware or software that may create a 
material risk that an individual will not be able to access documents 
electronically, the individual must be provided a statement of the 
revised hardware or software requirements for access to and retention 
of electronically furnished documents, as well as the right to withdraw 
consent without charge. Following notice of the hardware or software 
changes and the right to withdraw consent, the individual must again 
affirmatively consent to receive documents electronically. This 
condition is intended to afford participants and beneficiaries the 
opportunity to fully assess and reconfirm the compatibility of the 
system changes with their ability to access and retain documents.

Expand Scope of Safe Harbor To Cover Other Disclosures

    As proposed, the safe harbor covered the distribution of SPDs, 
summaries of changes to the SPD and summary annual reports. Many 
commenters requested that the scope of the safe harbor for electronic 
disclosures be expanded in the final regulation to include additional 
disclosures required under Title I of ERISA. The commenters 
specifically identified: individual benefit statements under section 
105(c) of ERISA; investment-related information required to be provided 
to participants and beneficiaries in the case of plan fiduciaries 
seeking to be covered by section 404(c) of ERISA; COBRA notifications 
under sections 606 of ERISA; qualified domestic relations order (QDRO) 
notifications under section 206(d)(3) of ERISA; qualified medical child 
support order (QMCSO) notifications under section 609 of ERISA; 
information concerning participant loans under section 408(b)(1) of 
ERISA; and information required to be furnished or made available for 
inspection under sections 104(b)(2) and 104(b)(4) of ERISA in response 
to a request from a participant or beneficiary.
    The Department is persuaded that, with safeguards to protect the 
confidentiality of personal information, the safe harbor should be 
expanded to include the transmittal of all documents required to be 
furnished or made available under Title I of ERISA and the regulations 
issued thereunder that are within the jurisdiction of the Department of 
Labor.\5\ In this regard, the Department believes that the general 
standard applicable to the distribution of documents under 
Sec. 2520.104b-1(b)--requiring plan administrators to use measures 
reasonably calculated to ensure actual receipt--would appear generally 
applicable to documents required to be distributed under Title I. The 
Department notes that when Sec. 2520.104b-1 was originally adopted in 
1977, the primary disclosure documents under Title I were set forth in 
Part 1 of Title I. Since that time, the statute has been amended to 
incorporate disclosure and notice requirements relating to qualified 
domestic relations orders under Part 2, qualified medical child support 
orders under Part 6, continuation coverage rights under Part 6, and 
creditable coverage and related disclosures under Part 7 of Title I, 
and the Department has adopted regulations under section 404(c), among 
others. The general application of the standards under Sec. 2520.104b-1 
was most recently recognized by the Department in the revised claims 
procedure regulations adopted on November 21, 2000. In those 
regulations, the Department specifically referenced the applicability 
of the electronic distribution safe harbor standards set forth in 
paragraph (c) of Sec. 2520.104b-1 to benefit determinations.\6\ For 
these reasons, the Department believes it is appropriate to amend 
Sec. 2520.104b-1 to apply to disclosures under Title I generally, 
rather than limiting its application to disclosures of SPDs and related 
disclosures and SARs. In this regard, the Department is making 
conforming amendments to paragraphs (a) and (b) of Sec. 2520.104b-1 to 
accommodate the extension of the safe harbor to Title I disclosures 
generally, as well as clarify that the provisions of the regulation, 
including the safe harbor, do not extend to disclosures within the 
jurisdiction of the Department of the Treasury.
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    \5\ The Department notes that Sec. 2510.104b-1, including the 
provisions of the safe harbor, do not extend to certain disclosures 
required under provisions of Part 2 or Part 3 of the Act over which 
the Department of the Treasury has regulatory and interpretative 
authority pursuant to Reorganization Plan No. 4 of 1978. A new 
paragraph (e) has been added to the final regulation to note this 
limitation. Plan administrators and others should refer to 
regulations and guidance issued by the Department of the Treasury 
for information on the use of electronic communication technologies 
to satisfy disclosure obligations within its jurisdiction.
    \6\ See 29 CFR 2560.503-1(g)(1), providing that electronic 
notifications of benefit determinations must comply with the 
requirements of Sec. 2520.104b-1(c)(1).
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    The Department wishes to note that, while the scope of 
Sec. 2520.104b-1 is being expanded to encompass the distribution of 
plan disclosures to participants, beneficiaries, and certain other 
individuals under Title I, the distribution standards of revised 
Sec. 2520.104b-1 do not alter any requirements otherwise applicable to 
specific disclosures, such as the party to whom the disclosure must be 
made, the content of the disclosure, or the timing of the disclosure. 
The Department also notes that the standards of revised Sec. 2520.104b-
1 are limited to plan disclosures under Title I of ERISA and do not 
govern other communications under Title I, for example, communications 
from participants or beneficiaries (such as spousal consents), or 
between plan administrators and employers or other plan sponsors.
    Currently, the manner in which applicants may notify interested 
persons of the pendency of a proposed exemption from ERISA's prohibited 
transaction provisions, including the use of electronic media, is 
determined on a case-by-case basis under 29 CFR 2570.43. The Department 
is considering the applicability of the safe harbor provided by this 
rule to that notice requirement. In this regard, the Department invites 
interested parties to submit comments and views concerning the 
application of the safe harbor to such notifications. Comments should 
be addressed to the Office of Exemption

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Determinations, Room N-5649, Pension and Welfare Benefits 
Administration, U.S. Department of Labor, 200 Constitution Avenue, NW, 
Washington, DC 20210; Attention: ``Electronic Notice to Interested 
Persons.'' Comments should be submitted by June 30, 2002. The 
Department expects to complete its consideration of this issue no later 
than December 31, 2002.
    Recognizing that certain information required to be disclosed under 
Title I, such as individual benefit and claims information, may be 
confidential in nature, the Department is amending the general 
standards of the safe harbor, at paragraph (c)(1)(i), to require that, 
with respect to disclosures that relate to individuals and their 
accounts and benefits, the administrator must take appropriate and 
necessary measures to ensure that the system for furnishing such 
information protects the confidentiality of the information, such as by 
incorporating into the system measures designed to preclude 
unauthorized receipt of, or access to, the information by individuals 
other than the individual for whom the information is intended. The 
Department is not prepared at this time, however, to express any view 
as to the adequacy of any particular method designed to protect 
confidentiality, such as the use of PINs or passwords.

General Obligations of Administrator

    The general obligations of a plan administrator with respect to the 
distribution of documents electronically under the safe harbor are set 
forth in paragraph (c)(1) of Sec. 2520.104b-1. As proposed, the 
administrator is required to take appropriate and necessary measures to 
ensure that the system for furnishing documents results in actual 
receipt of transmitted information and documents. The proposal included 
the following examples of such measures: using return-receipt 
electronic mail features; or conducting periodic reviews or surveys to 
confirm receipt of transmitted information. See Sec. 2520.104b-
1(c)(1)(i). Some commenters asked whether this requirement was intended 
to impose a standard for ensuring electronic disclosures are received 
that is stricter than the standard that applies to other methods of 
delivery. Another commenter asked the Department to add electronic 
systems that notify the sender of ``undelivered'' e-mails as an example 
in the regulation. Other commenters requested that the safe harbor be 
limited to electronic communications that the plan administrator could 
prove were actually received by the participant.
    It is the Department's view that the standard for furnishing 
materials under Sec. 2520.104b-1 should not be stricter for electronic 
disclosures than for other methods of delivery. Rather, the safe harbor 
criteria are intended to extend the application of the general 
standards of Sec. 2520.104b-1(b) to electronically distributed 
documents. For example, utilization of mail delivery, whether first, 
second or third class, for distribution of documents anticipates the 
sender (i.e., the plan administrator) being apprised of address changes 
or non-delivery of the mailed documents. This condition is being 
adopted essentially as proposed, except that, as discussed above, the 
paragraph has been amended to require protection of personal 
information and, as suggested by one commenter, an example of ``notice 
of undelivered electronic mail'' has been added to paragraph (c)(1)(i) 
of Sec. 2520.104b-1.
    Another general condition for reliance on the safe harbor is that 
electronically delivered documents are prepared and furnished in a 
manner consistent with the applicable style, format, and content 
requirements. See Sec. 2520.104b-1(c)(1)(ii). A few commenters asked 
that the Department clarify whether differences in format between a 
paper version and an electronic version of SPDs are permitted so long 
as the content, form, style and other requirements applicable to SPDs 
are satisfied. Another commenter noted that the proposal indicated that 
participants and beneficiaries had a right to request paper ``copies'' 
of electronic disclosures, and expressed concern that the use of 
interactive technologies, multimedia presentations and hyperlinks in 
electronic disclosures would be severely limited if the safe harbor 
required paper and electronic documents to be identical. Neither the 
safe harbor nor the content, style and format requirements applicable 
to disclosures under the Act preclude the use of interactive 
technologies, multimedia components or hyperlinks to related materials 
in electronic disclosures. Moreover, the Department recognizes that 
electronic disclosures and paper versions of the required disclosure 
documents may differ. In the Department's view, the requirements of the 
safe harbor will be satisfied where the electronic and paper versions 
of a disclosure document, albeit different, each satisfy the style, 
format and content requirements applicable to the specific document 
when viewed independently. Paragraph (c)(1)(ii) has been only slightly 
modified to take into account that Sec. 2520.104b-1 is being expanded 
to encompass disclosures under Title I generally.
    Paragraph (c)(1)(iii) of the proposal further conditions reliance 
on the safe harbor on each participant being provided notice of the 
documents being furnished electronically, the significance of the 
documents and the participant's right to request and receive a paper 
version free-of-charge. Paragraph (c)(1)(iii) served to require that, 
upon request, individuals are furnished paper versions of the 
electronically furnished documents. While a number of commenters 
supported the ``notice of furnished documents'' condition, one 
commenter suggested that the Department permit such notices to be 
included as part of regular mailings or e-mails (e.g., with account 
statements) annually. The required notice is intended to bring to the 
attention of participants and beneficiaries at the time of the 
electronic disclosure that they have been furnished important plan 
information. The Department believes that merely furnishing a general 
notice on a periodic basis would not accomplish this goal. For purposes 
of the safe harbor, therefore, the Department believes that the timing 
of the notice must be governed by the time frame applicable to the 
required disclosure, and paragraph (c)(1)(iii) has been modified to 
make this clear. Nothing in the safe harbor, however, is intended to 
preclude the furnishing of the required notice with other information 
relating to the plan or plan sponsor. In such cases, however, care 
should be taken to ensure that the required notifications are 
sufficiently conspicuous to alert participants and beneficiaries to 
electronically furnished documents. The Department has also clarified 
that the requirement that the notice apprise each participant and 
beneficiary of the significance of the document being provided 
electronically applies only where the significance of the document may 
not be reasonably evident from the transmittal, such as where it is an 
attachment to an e-mail.
    The Department received several comments suggesting that there is 
unneeded redundancy in the requirement that participants have the 
ability at the workplace to readily convert furnished documents from 
electronic form to paper form free of charge, when they must also be 
advised of and afforded the opportunity to obtain paper versions of the 
furnished documents from the plan administrator free of charge. As 
discussed earlier, that requirement has been eliminated from the safe 
harbor. For a variety of reasons (e.g., malfunctioning hardware or

[[Page 17268]]

software, readability, portability), however, documents furnished in 
electronic form may not accommodate the needs of every participant or 
beneficiary on every occasion. Accordingly, the Department continues to 
believe that the ability of participants and beneficiaries to receive 
paper versions of electronically furnished documents is important to 
ensuring adequate disclosure to participants and beneficiaries. The 
Department, therefore, has retained the requirement to make paper 
versions of electronically furnished documents available to 
participants and beneficiaries.\7\
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    \7\ As discussed earlier with regard to the application of 
style, format and content requirements, paper documents are not 
required to be duplicates of the electronically furnished document. 
In an effort to further clarify this point, the term ``paper 
version'' has been substituted for ``paper copy'' in Sec. 2520.104b-
1(c)(1)(iii).
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    Because the scope of the safe harbor, and Sec. 2520.104b-1, have 
been expanded to encompass all Title I disclosures generally, the safe 
harbor has been modified to eliminate the requirement that paper 
versions of documents always be furnished free-of-charge. As noted 
above, however, if a document is required by the Act, or regulations 
issued thereunder, to be furnished without charge to participants and 
beneficiaries, plan administrators availing themselves of the safe 
harbor must furnish to participants and beneficiaries without charge a 
paper version of any such document transmitted electronically. On the 
other hand, if an administrator is permitted to impose a reasonable 
charge for a document, the administrator may impose a reasonable charge 
for furnishing a paper version of the document under the safe harbor.

Miscellaneous Issues Involving the Use of Electronic Media

    Two commenters asked the Department to clarify whether the safe 
harbor would apply to disclosures of plan information maintained in a 
separate section of a company's website that is easily accessible from 
its home page with access generally restricted to employees and others 
by password and PIN requirements. The Department believes that using a 
company's website as a method of providing information is similar to 
using an insert to a company publication, which is cited in the general 
standard in 29 CFR 2520.104b-1(b) as an acceptable method of 
``furnishing'' disclosures within the meaning of the regulation 
provided the distribution list for the periodical is comprehensive and 
up-to-date and a prominent notice appears on the front page of the 
publication advising readers that the publication contains important 
information about rights under the plan. A plan administrator relying 
on such website disclosure must still satisfy all the conditions of the 
safe harbor. For example, participants and beneficiaries would have to 
be notified of the availability of the particular disclosure document 
and its significance by sending written or electronic notice, as 
described in Sec. 2520.104b-1(c)(1)(iii), directing them to the 
document on the website, and the administrator would still be required 
to take appropriate and necessary measures to ensure the website system 
for furnishing documents results in actual receipt, e.g., the website 
homepage should contain a prominent link to the website sections that 
contain information about the plan, the website should include 
directions on how to obtain a replacement for a lost or forgotten 
password to the extent one is needed, and disclosure documents should 
remain on the website for a reasonable period of time after 
participants and beneficiaries are notified of their availability.
    Another commenter asked whether documents could be furnished on a 
magnetic disk or CD-ROM. The regulation does not categorize particular 
electronic media as either permissible or impermissible methods through 
which required disclosures may be provided as long as the conditions of 
the safe harbor are met. For example, as noted above, under the safe 
harbor, participants and beneficiaries must be provided with a notice 
in accordance with Sec. 2520.104b-1(c)(1)(iii) apprising them of the 
document(s) to be furnished electronically, the significance of the 
document (e.g., the document describes changes in the benefits provided 
by your plan) and the participant's or beneficiary's right to request 
and receive a paper version of each such document. The purpose of the 
notice requirement is to ensure that participants and beneficiaries who 
receive an electronic disclosure will be put on notice that the 
communication contains important information relating to their plan or 
to their rights and obligations under the plan. Thus, a plan 
administrator could provide a participant with a CD-ROM containing the 
plan's SPD, for example, so long as the CD-ROM was accompanied by a 
paper notice or was clearly labeled to provide the notification 
required by Sec. 2520.104b-1(c)(1)(iii) and the other conditions in the 
safe harbor were satisfied.

C. Electronic Recordkeeping--29 CFR 2520.107-1

    Proposed regulation 29 CFR 2520.107-1 provided standards concerning 
the use of electronic media, including electronic storage and ADP 
systems, for the maintenance and retention of records required by 
sections 107 and 209 of ERISA. Only a few comments were submitted 
regarding the recordkeeping provisions in proposal, and, in general, 
they asked for relatively minor clarifications of certain provisions in 
the proposal. Accordingly, the final rule being adopted herein is 
essentially unchanged from the proposal.

In General

    The final rule provides that electronic media may be used for 
purposes of complying with the records maintenance and/or retention 
requirements of sections 107 and 209, provided: (1) The recordkeeping 
system has reasonable controls to ensure the integrity, accuracy, 
authenticity and reliability of the records kept in electronic form; 
(2) the electronic records are maintained in reasonable order, in a 
safe and accessible place, and in such manner as they may be readily 
inspected or examined (for example, the recordkeeping system should be 
capable of indexing, retaining, preserving, retrieving and reproducing 
the electronic records); (3) the electronic records can be readily 
converted into legible and readable paper copy as may be needed to 
satisfy reporting and disclosure requirements or any other obligation 
under Title I of ERISA; and (4) adequate records management practices 
are established and implemented (for example, following procedures for 
labeling of electronically maintained or retained records, providing a 
secure storage environment, creating back-up electronic copies and 
selecting an off-site storage location, observing a quality assurance 
program evidenced by regular evaluations of the electronic 
recordkeeping system including periodic checks of electronically 
maintained or retained records, and retaining paper copies of records 
that cannot be clearly, accurately or completely transferred to an 
electronic recordkeeping system).\8\

[[Page 17269]]

The final rule also provides that the electronic recordkeeping system 
may not be subject to any agreement or restriction that would, directly 
or indirectly, compromise a person's ability to comply with any 
reporting and disclosure requirement or any or other obligation under 
Title I of ERISA. In addition, the final rule provides guidance on when 
original paper records may be discarded after they have been 
transferred to electronic media.
---------------------------------------------------------------------------

    \8\ The proposed standards are not inconsistent with guidance 
issued by the Internal Revenue Service under section 6001 of the 
Internal Revenue Code of 1986 regarding the maintenance of books and 
records on an electronic storage system or within an ADP system. See 
Rev. Proc. 97-22, 1997-13 I.R.B. 9, and Rev. Proc. 98-25, 1998-11 
I.R.B. 7. The Department also notes that the regulation does not 
specifically address the use of microfilm and microfiche for storing 
employee benefit plan records. The Department previously addressed 
this issue in an information letter to Gregg M. Goodman from Robert 
J. Doyle (August 23, 1983). The letter stated that, in the absence 
of regulations providing otherwise, the retention of microfilm, 
microfiche or similar reproduction of records, in lieu of original 
records, would not violate the provisions of section 107 or 209 
provided certain conditions were met.
---------------------------------------------------------------------------

    The Department again emphasizes what it stated in the preamble to 
the notice of proposed rulemaking that the duty to maintain records in 
accordance with Title I of ERISA cannot be avoided by contract, 
delegation or otherwise. Use of a third party to provide an electronic 
recordkeeping system does not relieve the person responsible for the 
maintenance and retention of records required under Title I of ERISA of 
the responsibilities described therein. For example, if the 
administrator of a plan arranges with a service provider to perform 
functions with respect to the plan and, pursuant to the arrangement, 
the service provider creates, maintains, retains or prepares the plan's 
records, or keeps physical custody of those records, the statutory 
requirements relating to such records remain with the administrator, 
and the administrator must make such agreements and arrangements with 
the service provider as are necessary to ensure that the records are 
properly maintained and retained.\9\
---------------------------------------------------------------------------

    \9\ See Advisory Opinion 84-19A (April 26, 1984).
---------------------------------------------------------------------------

    Furthermore, it is the Department's view that persons subject to 
recordkeeping obligations under section 107 and section 209 of ERISA 
would, pursuant to the Department's investigative authority under 
section 504 of ERISA, be required to provide the Department, upon 
request, with the necessary equipment and resources (including 
software, hardware and personnel) as would be needed for inspection, 
examination and conversion of electronic records into legible and 
readable paper copy or other usable form acceptable to the Department. 
Similarly, such persons would be required to have the capability of 
converting electronic records into usable form, including, at a 
minimum, paper copy, as may be necessary to satisfy reporting, 
disclosure and other obligations under Title I of ERISA.
    This final rule is consistent with the goals of the E-SIGN Act and 
is designed to facilitate voluntary use of electronic records while 
ensuring continued accuracy, integrity and accessibility of employee 
benefit plan information and records required to be kept by law. The 
requirements of the final rule are justified by the importance of the 
employee benefit plan records involved, are substantially equivalent to 
the requirements imposed on records that are not electronic records, 
will not impose unreasonable costs on the acceptance and use of 
electronic records, and do not require, or accord greater legal status 
or effect to, the implementation or application of a specific 
technology or technical specification for performing the functions of 
creating, storing, generating, receiving, communicating, or 
authenticating electronic records.

Destruction of Paper Records After Converting to Electronic Form

    One commenter asked the Department to clarify the proposal 
regarding destruction of originals. The proposal provided that original 
records generally may be discarded once such records are transferred to 
an electronic recordkeeping system that complies with the above 
described electronic media and record maintenance requirements, but 
included an exception under which original records may not be discarded 
if they have legal significance as original records such that an 
electronic record would not constitute a duplicate record. The 
commenter urged that the term ``legal significance'' be dropped because 
it could be interpreted as applying to many documents and records. The 
commenter also suggested that the examples in the proposal (notarized 
documents, insurance contracts, stock certificates, and documents 
executed under seal) would require plans to keep paper copies where 
electronic reproductions were sufficient.
    On review, the Department has determined that the ``legal 
significance as an original'' component in the proposal may have been 
confusing because it was essentially redundant to the condition that 
the electronic record be usable as a duplicate original. Accordingly, 
the ``legal significance'' component has been eliminated and the 
exception has been clarified to provide that original paper records may 
be disposed of any time after they are transferred to an electronic 
recordkeeping system that complies with the requirements of 
Sec. 2520.107-1, unless the resulting electronic record would not 
constitute a duplicate or substitute record under the terms of the plan 
and applicable federal or state law.

Miscellaneous Comments Regarding Matters Outside the Scope of This 
Rulemaking

    One commenter asked the Department to provide guidance on the types 
of records that must be retained for purposes of sections 107 and 209. 
As the Department explained in the preamble to the proposed regulation, 
the purpose of this rulemaking is not to define or address the types of 
records required to be maintained under sections 107 and 209, nor the 
period of time for which records must be retained under those sections 
of the Act. Accordingly, the Department is not making any changes in 
the proposal in response to that comment because that issue is outside 
the scope of this rulemaking.
    Another commenter asked the Department to explain whether the 
standards in the safe harbor regarding ``back-up'' electronic records 
and off-site storage apply when records are maintained in paper form. 
It is the view of the Department that, regardless of whether records 
are held in paper or electronic form, the appropriate plan fiduciary or 
fiduciaries should establish and implement adequate records management 
practices. What is ``adequate'' may vary depending on the recordkeeping 
system involved and the different risks of loss or destruction to which 
the records or recordkeeping medium may be exposed. Nonetheless, 
regardless of the medium used to keep records, the loss or destruction 
of records required to be retained by sections 107 and 209 does not 
discharge the persons required to retain such records from their 
statutory duties under sections 107 and 209 with regard to the purposes 
for which such records are required to be retained under those 
sections. Whether lost or destroyed records can, or should be, 
reconstructed and whether the persons responsible for the retention of 
records are, or should be, personally liable for the cost incurred in 
connection with the reconstruction of records is necessarily dependent 
on the facts and circumstances of each case.

D. Effective Date and Applicability Dates

    The effective date of these regulations is October 9, 2002. There 
is no special applicability date for the amendments of Sec. 2520.104b-
1, and, accordingly, those amendments apply as of the effective date 
stated above. The requirements of

[[Page 17270]]

Sec. 2520.107-1, concerning maintenance and retention of employee 
benefit plan records in electronic form, are applicable as of the first 
day of the first plan year beginning on or after October 9, 2002. The 
preamble accompanying the Proposed Rules set forth the Department's 
view that, in the absence of final regulations or other guidance on 
using electronic media for purposes of complying with ERISA's Title I 
disclosure and recordkeeping requirements, good faith compliance with 
the standards set forth in the Proposed Rules would, with respect to 
the disclosure and recordkeeping requirements specifically addressed 
therein, constitute compliance with a reasonable interpretation of 29 
CFR 2520.104b-1 and ERISA sections 107 and 209. The preamble also made 
clear that the interim rule pertaining to electronic disclosures 
continued to be in effect for group health plans during the pendency of 
the proposal. The final regulations being promulgated in this 
rulemaking will, upon becoming applicable, supersede and replace the 
interim rule for group health plans and the good faith compliance 
provision in the proposal.

E. Economic Impact of Electronic Technologies Regulation

Summary

    These final rules expand the safe harbor for electronic provision 
of ERISA disclosure documents to include both more documents and more 
delivery locations. As a result of these final rules, plans will be in 
a position to make greater use of electronic technologies when 
providing required disclosures to participants and beneficiaries. Wider 
use of such technologies will produce two distinct economic benefits. 
One benefit will be financial savings arising from the elimination of 
materials, printing, and mailing costs associated with provision of 
printed disclosures. The other will be improved timeliness, quality and 
accessibility of information that will flow from instant, on-line 
availability and information access tools such as hot-links and search 
queries.
    The net savings produced by moving from printed to electronic 
disclosures under this regulation will be approximately $66 million in 
the first year, the Department estimates. This net figure includes a 
total of $74 million in annually recurring gross savings from the 
elimination of materials, printing, and mailing costs. This gross 
savings is partly offset in the first year by an $8 million cost 
incurred to obtain affected participants' consent to accept electronic 
delivery of disclosures outside the workplace. No other new costs were 
attributed to the adoption of new technologies, reflecting the 
Department's expectations that (1) master copies of printed versions of 
disclosures typically are maintained in electronic form or can be 
easily converted to such form, (2) that plan sponsors will provide 
disclosures via electronic media and infrastructure that already exist 
for purposes other than the provision of ERISA disclosures, and (3) 
that the cost to transmit disclosures electronically is negligible.
    Most of the $74 million in gross savings is attributable to 
expected electronic provision of SPDs and SMMs, and SARs to 
participants outside the workplace. These applications of new 
technologies are expected to save $34 million and $32 million, 
respectively. SPDs/SMMs can be large documents, so electronic provision 
can eliminate substantial printing, materials, and mailing costs. SPDs/
SMMs and SARs are also some of the most widely distributed ERISA 
disclosure documents, thus offering significant potential for the 
reduction of distribution costs.
    Not included in the $74 million gross savings estimate is an 
additional $65 million in savings from the electronic provision of 
SPDs/SMMs and SARs to participants at the workplace that were 
authorized by the safe harbor provision of the proposed regulation.\10\ 
Savings arising from them are not being attributed to this final 
regulation. Also not included is any savings from the adoption of 
electronic recordkeeping. The Department believes that the final 
regulation's standards for electronic recordkeeping are consistent with 
reasonable and prudent business practices that are already widely 
followed, and therefore are unlikely to substantially change 
recordkeeping costs.
---------------------------------------------------------------------------

    \10\ See footnote 13 and accompanying text, infra, for a 
discussion of the difference between this $65 million estimate and 
the estimated saavings in the preamble to the proposal.
---------------------------------------------------------------------------

    The Department's estimates reflect its expectations about the 
degree to which disclosures will be provided electronically under the 
final regulation. Approximately 21 percent of participants currently 
have appropriate access to electronic media at their work places, and 
another 38 percent have such access at home, the Department estimates. 
For purposes of these estimates, the Department assumed that a large 
majority of plans will adopt new technologies, and approximately three-
fourths of participants with access to electronic media only at home 
will consent to receive electronic disclosures. The Department included 
in its savings estimates only disclosures that are directed at 
participants and include no information specific to individuals, 
reasoning that such disclosures might be the first to which new 
technologies are applied. In combination, these assumptions suggest 
that the printing, materials and mailing costs associated with relevant 
ERISA disclosures will be reduced by approximately 14 percent in the 
first year in connection with this final regulation (or 27 percent in 
connection with the proposed and final regulations together). The 
electronic provision of ERISA disclosures and the corresponding amount 
of savings is likely to grow in the future, as participants' access to, 
and comfort with, electronic media both at work and at home increases, 
as plans' use of such media expands, and as some sponsors apply new 
technologies more broadly to disclosures to beneficiaries or former 
participants or to disclosures that include information specific to 
individuals.
    The final regulation is also expected to improve the timeliness, 
quality and accessibility of information for participants and 
beneficiaries. Timeliness will improve as delays attributable to 
printing and mailing are eliminated. In addition, the frequency with 
which SPDs are updated to reflect changes may increase as the cost to 
provide updated copies falls. The quality and accessibility of 
information may improve along many dimensions. Information access tools 
such as hot-links and search queries may help participants retrieve 
desired information from SPDs and other documents. Multi-media 
enhancements may present information in ways some participants find 
more accessible, comprehensible or appealing. The value of these 
benefits cannot be specifically quantified.

Basis for Savings Estimates

    As a result of this final regulation, plans will be in a position 
to make greater use of electronic technologies when providing required 
disclosures to participants and beneficiaries. Wider use of such 
technologies will produce financial savings by eliminating some of the 
materials, printing, and mailing costs normally associated with 
provision of printed disclosures. As noted above, the Department 
estimates that net savings produced by moving from printed to 
electronic disclosures under this regulation will be approximately $66 
million in the first year.

[[Page 17271]]

    The Department's estimates of financial savings from the final 
regulation are grounded in its separate estimates of the cost to 
provide relevant ERISA disclosures in printed form. For purposes of 
compliance with the Paperwork Reduction Act, the Department maintains 
estimates of the cost to prepare and distribute such disclosures. 
Preparation costs generally include the cost to develop the content and 
format of the disclosure, while distribution costs generally include 
the materials, printing and mailing cost incurred to provide the 
disclosures to participants and beneficiaries as required.
    The Department's estimates assume that preparation costs will be 
unchanged by the final regulation. This assumption reflects the 
Department's belief that master copies of printed versions of 
disclosures typically are maintained in electronic form or can be 
easily converted to such form. Some plan sponsors may elect to develop 
new formats and content for electronic disclosures. New formats and 
content might include interactive interfaces that involve hot-links, 
text search capabilities, and/or multimedia presentations, all of which 
might improve the timeliness, quality and accessibility of information 
for participants. However, the final regulation does not require the 
development of formats or content beyond that which satisfies 
disclosure requirements in printed form.
    The Department's estimates assume that electronic provision of 
disclosures eliminates the distribution cost otherwise associated with 
the provision of printed disclosures. This assumption reflects the 
Department's expectation that (1) plan sponsors will provide 
disclosures via electronic media and infrastructure that exist for 
purposes other than the provision of ERISA disclosures and (2) that the 
cost to electronically transmit disclosures is therefore negligible.
    Having adopted these assumptions, the Department estimated the 
amount of gross savings as a function of the degree to which 
disclosures will be provided electronically under the final regulation. 
This in turn is a function of participant access to electronic media, 
plan sponsor adoption of new technologies, the application of those 
technologies to particular disclosures, and the degree to which 
participants and beneficiaries will consent to receive disclosures 
electronically at home. The Department considered each of these in 
turn.
    Based on a Census Bureau household survey published in 2001\11\ on 
computer use and a separate 1999 Census Bureau household survey on 
pension and health benefit plan participation,\12\ the Department 
estimates that approximately 21 percent of participants have 
appropriate access to electronic media at their work places, and 
another 38 percent have such access at home. The pension and health 
coverage rates from the 1999 survey were applied to the computer use 
rates industry-by-industry to account for the likelihood that computer 
use is higher among plan participants and especially among large plan 
participants, because such participants are concentrated in certain 
industries.
---------------------------------------------------------------------------

    \11\ ``Home Computers and Internet Use in the United States: 
August 2000,'' U.S. Census Bureau Current Population Reports 
(September, 2001).
    \12\ Contingent Work Supplement to the February, 1999 Current 
Populations Survey, U.S. Census Bureau.
---------------------------------------------------------------------------

    The Department assumed that a large majority of plans with 
participants who have access to electronic media (or their service 
providers) will adopt new technologies as a means to provide at least 
some relevant ERISA disclosures. This may be especially true of large 
plans, which account for the lion's share of participants. Pension 
plans with 1,000 or more participants included nearly three-fourth of 
all participants in 1997. Similar data are not available for welfare 
plans. The Department also assumed that plan sponsors (or their service 
providers) would be more inclined to provide disclosures electronically 
at work than outside the workplace, because communication at the 
workplace might be viewed as more reliable and the final regulation 
requires no consent from participants before implementation of such 
disclosures. Specifically, the Department assumed that plans covering 
90 percent of participants with access to electronic media at work 
would distribute disclosures electronically at work, and that plans 
covering two-thirds of participants with access only at home would 
offer the opportunity for receiving disclosures electronically outside 
the work place, and so seek consent.
    The Department assumed that plans would distribute electronically 
only those disclosures that are directed at participants, and not those 
directed at beneficiaries or former participants or beneficiaries. It 
seems likely that plans might view their electronic links to 
participants and active employees as more reliable than those to 
beneficiaries or former participants or beneficiaries and, because 
beneficiaries and former participants and beneficiaries are not active 
employees, they will not have access to electronic media at the 
workplace. Therefore, for example, the Department assumed that sponsors 
who adopt new technologies will electronically distribute SPDs/SMMs, 
SARs, ERISA Section 404(c)-related disclosures, and ERISA Section 701-
related notices of special enrollment rights and preexisting condition 
exclusions, but not ERISA Section 701-related certificates of prior 
coverage or Section 606-related notices of COBRA continuation rights.
    Moreover, the Department conservatively assumed that plans would 
distribute electronically only disclosures that contain no potentially 
sensitive information specific to individuals, which might raise 
privacy concerns. For example, the Department did not assume that plans 
would electronically distribute notices and disclosures pertaining to 
individual claims for benefits or qualified domestic relations orders.
    These assumptions are intended to address what the Department 
estimates as the likely impact of the final rules based on existing 
practices in the current environment. Such assumptions should not be 
interpreted as bearing on actions specifically permitted under the 
final rules. To the extent that plans do provide electronic disclosures 
to former participants or beneficiaries or do electronically distribute 
disclosures containing sensitive, individual-specific information as 
permitted by the final rules, then the overall incidence of electronic 
distribution and the corresponding savings will be larger than the 
Department estimates.
    The Department assumed that three-fourths of participants with 
access to electronic media only at home, and who are offered the 
opportunity to consent to receive disclosures outside the workplace, 
would actually consent. It seems reasonable to assume that a 
substantial majority would so consent, given the Department's forgoing 
assumption that only disclosures that do not contain sensitive, 
individual-specific information would be distributed electronically.
    Finally, the Department assumed that the marginal cost of 
distributing a disclosure to an individual is equal to the average cost 
of distributing it to all relevant individuals. This assumption seems 
reasonable given that the large plan sponsors and service providers who 
provide most disclosures provide very large numbers of them. The 
assumption implies that the cost of distributing a particular 
disclosure is a linear function of the number of

[[Page 17272]]

individuals receiving it, so the cost of distributing a disclosure will 
decrease proportionately with the share of individuals to whom it is 
distributed electronically rather than in printed form.
    In combination, these assumptions suggest that the printing, 
materials and mailing costs associated with relevant ERISA disclosures 
will be reduced by approximately 14 percent in the first year in 
connection with this final regulation (or 27 percent in connection with 
the proposed and final regulations together). This amounts to $66 
million in net savings from the final regulation (or $131 million from 
the proposed and final regulations together).
    As noted above, the Department's estimate of $66 million in savings 
in the first year is a net figure. It includes a total of $74 million 
in gross annual savings from the elimination of materials, printing, 
and mailing costs. This gross saving is partly offset in the first year 
by an $8 million cost incurred to develop appropriate consent materials 
and procedures and obtain affected participants' consent to accept 
electronic delivery of disclosures outside the workplace. The final 
regulation's safe harbor requires plans that wish to distribute 
disclosures electronically outside the work place to obtain affirmative 
consent from the affected participants and beneficiaries. To accomplish 
this, plans or their service providers generally must develop a process 
for requesting and recording such consent, and then implement the 
process and thereby obtain or fail to obtain consent from affected 
participants and beneficiaries.
    The Department estimates the cost to develop and implement consent 
processes at $8 million. The cost to develop the processes and most of 
the cost to implement them are one-time costs incurred in the first 
year. Ongoing costs in later years include only the cost of obtaining 
consent from new or prospective participants and beneficiaries and the 
cost of maintaining consent records and processing any changes in 
consent elections. These ongoing tasks are likely to be integrated into 
the larger process of hiring and enrolling individuals in benefit plans 
and will add little cost at the margin. Ongoing savings are expected to 
amount to at least $74 million per year, increasing in the future with 
increased utilization of electronic disclosure methods.
    The electronic provision of ERISA disclosures and the corresponding 
amount of savings is likely to grow in the future, as participants' 
access to and comfort with electronic media both at work and at home 
increases, as plans' use of such media expands, and as some sponsors 
apply new technologies more broadly to disclosures to beneficiaries or 
former participants or to disclosures that include information specific 
to individuals.
    The Department's estimates of the savings from the final and 
proposed regulations are summarized below.

                        Estimated Financial Savings Attributable to the Final Regulations
                                            [$Millions in First Year]
----------------------------------------------------------------------------------------------------------------
                      Selected disclosures                            At work     Other location       Total
----------------------------------------------------------------------------------------------------------------
SPD/SMM.........................................................       \13\ 33.5            34.2            67.7
SAR.............................................................       \13\ 31.7            32.4            64.1
404 (c) Disclosure..............................................             3.2             3.1             6.3
Notice of Pre-Existing Condition Exclusions.....................             0.2             0.2             0.5
Special Enrollment..............................................             0.2             0.2             0.4
                                                                 -----------------------------------------------
    Total Gross Savings.........................................            68.8            70.2           139.0
                                                                 ===============================================
Less SPD/SMM and SAR Savings Attributable to the Proposed                  -65.2
 Regulation \13\................................................
Consent Cost....................................................  ..............            -7.7            -7.7
                                                                 -----------------------------------------------
    Total Net Savings...........................................             3.6            62.5           66.0
----------------------------------------------------------------------------------------------------------------
\13\ These savings are attributable to the proposed regulation and therefore are not included in total savings
  from the final regulation. The $33.5 million and $31.7 million estimated SPD/SMM and SAR savings differ from
  those presented in the preamble to the proposed regulation (64 FR 4511). The Department grounded its current
  estimates in data from recent Census Bureau survey of computer use. These data were not available when the
  Department published the proposed regulation.

Executive Order 12866

    Under Executive Order 12866 (58 FR 51735), the Department must 
determine whether a regulatory action is ``significant'' and therefore 
subject to review by the Office of Management and Budget (OMB). Section 
3(f) of the Executive Order defines a ``significant regulatory action'' 
as an action that is likely to result in a rule (1) having an annual 
effect on the economy of $100 million or more, or adversely and 
materially affecting a sector of the economy, productivity, 
competition, jobs, the environment, public health or safety, or State, 
local or tribal governments or communities (also referred to as 
``economically significant''); (2) creating serious inconsistency or 
otherwise interfering with an action taken or planned by another 
agency; (3) materially altering the budgetary impacts of entitlement 
grants, user fees, or loan programs or the rights and obligations of 
recipients thereof; or (4) raising novel legal or policy issues arising 
out of legal mandates, the President's priorities, or the principles 
set forth in the Executive Order. It has been determined that these 
rules are significant within the meaning of section 3(f)(4) of the 
Executive Order, and are thus subject to OMB review. Discussion of the 
costs and benefits of this final rule appear above in the summary of 
the Economic Impact of Electronic Technologies Regulation.

Paperwork Reduction Act

    The Department of Labor, as part of its continuing effort to reduce 
paperwork and respondent burden, conducts a preclearance consultation 
program to provide the general public and Federal agencies with an 
opportunity to comment on proposed and continuing collections of 
information in accordance with the Paperwork Reduction Act of 1995 (PRA 
95) (44 U.S.C. 3506(c)(2)(A)). This helps to ensure that requested data 
can be provided in the desired format, reporting burden (time and 
financial resources) is minimized, collection instruments are clearly 
understood, and the impact of collection requirements on respondents 
can be properly assessed.

[[Page 17273]]

    Currently, the Pension and Welfare Benefits Administration is 
soliciting comments concerning the information collection request (ICR) 
incorporated in the final rules relating to use of electronic 
communication and recordkeeping technologies by employee benefit plans.
    Desired Focus of Comments: The Department of Labor has submitted a 
copy of the proposed information collection to OMB in accordance with 
44 U.S.C. 3507(d) of PRA 95 for review of its information collection. 
The Department and OMB are particularly interested in comments that:
     Evaluate whether the proposed collection of information is 
necessary for the proper performance of the functions of the agency, 
including whether the information will have practical utility;
     Evaluate the accuracy of the agency's estimate of the 
burden of the proposed collection of information, including the 
validity of the methodology and assumptions used;
     Enhance the quality, utility, and clarity of the 
information to be collected; and
     Minimize the burden of the collection of information on 
those who are to respond, including through the use of appropriate 
automated, electronic, mechanical, or other technological collection 
techniques or other forms of information technology, e.g., permitting 
electronic submission of responses.
    PRA Addresses: A copy of the ICR with applicable supporting 
statement may be obtained by calling the Department of Labor, Ms. 
Marlene Howze, at (202) 693-4158, or by email to Howze-Marlene@dol.gov. 
Comments and questions about the ICR should be submitted to the Office 
of Management and Budget, Office of Information and Regulatory Affairs, 
ATTN: Desk Officer for the Pension and Welfare Benefits Administration, 
Room 10235, 725 17th Street, NW, Washington, DC, 20503 ((202) 395-
7316).
    Dates: The Department has requested that OMB approve or disapprove 
the collection of information by June 10, 2002. Comments should be 
submitted to OMB by May 9, 2002 to ensure their consideration.
    The ICR provisions are included at Sec. 2520.104b-1(c). Employee 
benefit plan administrators will be deemed to satisfy their disclosure 
obligations when furnishing documents electronically only if a 
participant who does not have access to the employer's electronic 
information system in the normal course of his duties, or a beneficiary 
or other person entitled to documents, has affirmatively consented to 
receive disclosure documents. Prior to consenting, the participant or 
beneficiary must also be provided with a clear and conspicuous 
statement indicating the types of documents to which the consent would 
apply, that consent may be withdrawn at any time, procedures for 
withdrawing consent and updating necessary information, the right to 
obtain a paper copy, and any hardware and software requirements. In the 
event of a hardware or software change that creates a material risk 
that the individual will be unable to access or retain documents that 
were the subject of the initial consent, the individual must be 
provided with information concerning the revised hardware or software, 
and an opportunity to withdraw a prior consent.
    The Department is unaware of any data source that would directly 
identify the number of plans that will decide to transmit disclosure 
documents electronically to a non-work location, and thus be subject to 
the affirmative consent requirement. The Department has instead made 
certain assumptions pertaining to the cost to prepare and distribute 
consent for all employee benefit plans. Plans are expected to incur 
what is primarily a one-time start-up cost in the development and 
preparation of materials used to seek and verify consent from 
participants and beneficiaries.
    Our estimates are based on the conservative assumption that most 
plans will wish to avail themselves of the opportunity to reduce 
distribution costs if possible, such that most plan sponsors will incur 
the cost to develop a consent procedure and documentation on behalf of 
the plan, regardless of the magnitude of savings that can be 
accomplished in satisfying disclosure obligations through electronic 
means. The number of separate consent forms designed is then reduced 
based on other factors considered relevant. Specifically, the total 
number of plans is reduced to take account of the fact that a sponsor 
is likely to use either the same or nearly the same form for each plan 
they sponsor (for example, only one consent form and procedure is 
assumed to be designed for use by a sponsor's health and pension plan 
or plans).
    It is also assumed that the very large number of small health plans 
will either not communicate electronically and require consent, or will 
rely on the relatively small number of group insurance issuers they 
utilize to design consent forms and procedures. Finally, with the 
exception of large, self-administered plans, the number of plans is 
spread over an estimate of the number of third parties that are 
expected to assist plan sponsors with developing consent materials that 
conform to the terms of the regulation, in recognition of the economies 
of scale that can be achieved through the purchase of administrative 
services. The number of large, self-administered plans is added to 
arrive at an estimate of about 50,000 separate entities that will 
develop consent materials.
    About 95% are expected to use service providers, resulting in cost 
burden, while about 5% are expected to develop consent materials using 
in-house staff. Resulting hour and cost burden estimates, based on 2 
hours at an hourly rate of $72,\14\ are shown below. Total costs 
include minor additions for paper and copying costs.
---------------------------------------------------------------------------

    \14\ Based on the Bureau's of Labor Statistics Occupational 
Employment Survey and Employment Cost Index.
---------------------------------------------------------------------------

    Type of Review: New.
    Agency: Department of Labor, Pension and Welfare Benefits 
Administration.
    Title: Consent to receive employee benefit plan disclosures 
electronically.
    OMB Number: 1210-NEW.
    Affected Public: Individuals or households; Business or other for-
profit; Not-for-profit institutions.
    Respondents: 50,000.
    Frequency of Response: One-time.
    Responses: 50,000.
    Estimated Total Burden Hours: 5,042.
    Total Capital/Start-up Cost: $7,340,000.
    Total Annualized Capital/Start-up Cost: $2,447,000.
    The Department has not accounted separately for the ongoing cost of 
maintaining consent materials and providing them to new employees. The 
ongoing cost associated with maintenance is considered to be minimal 
for any sponsor once the initial investment in materials and procedures 
is defrayed. Plan sponsors and administrators who make use of 
electronic means of disclosure are expected to distribute consent forms 
in the least costly way available, such as including a photocopy in new 
employee information packages or along with various other employment 
forms, resulting in additional burden that is so small as to be 
considered negligible.
    Although the discussion presented here pertains to the consent 
requirement in the final rule, it should also be noted that the 
amendment to Sec. 2520.104b-1 and the methodology used to estimate the 
impact of the amendments offer a basis for adjustments to the burden 
estimates of a number of other disclosures under Title I of ERISA. In

[[Page 17274]]

general, Sec. 2520.104b-1 provides implementing guidance on the manner 
in which the substantive disclosure requirements of Title I of ERISA 
will be deemed to have been met. These final amendments address the 
circumstances under which electronic disclosure methods will be deemed 
to have met substantive disclosure obligations, but they do not alter 
the substantive disclosure requirements of Title I.
    As a result of using electronic disclosure methods, and of meeting 
the conditions of this ICR involving appropriate consent, the burden of 
other information collections may be reduced. Information supporting 
the Department's estimates of those potential burden reductions for 
disclosures such as information required to be provided under ERISA 
section 404(c), or Notices of Preexisting Condition Exclusions under 
Part 7 will be submitted to OMB. Because the underlying terms of those 
information collections, which are incorporated in existing statutory 
provisions and regulatory guidance, are unchanged, however, it is the 
view of the Department that the terms of these information collections 
have not been modified.
    Comments submitted in response to this notice will be considered by 
OMB in its consideration of the request for approval of the ICR; they 
will also become a matter of public record.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA), 
imposes certain requirements with respect to federal rules that are 
subject to the notice and comment requirements of section 553(b) of the 
Administrative Procedure Act (5 U.S.C. 551 et seq.) and that are likely 
to have a significant economic impact on a substantial number of small 
entities. Unless an agency certifies that a rule will not have a 
significant economic impact on a substantial number of small entities, 
section 604 of the RFA requires the agency to present a final 
regulatory flexibility analysis at the time of the publication of the 
notice of final rulemaking describing the impact of the rule on small 
entities. Small entities include small businesses, organizations, and 
governmental jurisdictions.
    At the time of publication of the notice of proposed rulemaking, 
the Pension and Welfare Benefits Administration (PWBA) certified that 
the proposed rule, if promulgated in final form without material 
change, would not have a significant impact on a substantial number of 
small entities regardless of whether that determination was based on 
the definition of a small entity found in regulations issued by the 
Small Business Administration (13 CFR 121.201) or on the definition 
considered appropriate by PWBA as based on section 104(a)(2) of ERISA, 
as an employee benefit plan with fewer than 100 participants. The 
Department requested comments on its definition and certification, and 
received none. It is the Department's view that the final rule, 
including the modifications from the proposal, will not significantly 
impact entities in any size category. The final rule does not require 
any plan or other entity to make use of electronic media for either 
disclosure or recordkeeping purposes. As such, entities may avoid both 
any marginal cost and any beneficial impacts by simply retaining their 
existing paper-based methods of compliance with disclosure 
requirements. Therefore, the undersigned certifies that this final rule 
will not have a significant impact on a substantial number of small 
entities.

Small Business Regulatory Enforcement Fairness Act

    The rules being issued here are subject to the provisions of the 
Small Business Regulatory Enforcement Fairness Act of 1996 (5 U.S.C. 
801 et seq.) and will be transmitted to Congress and the Comptroller 
General for review. The rule is not a ``major rule'' as that term is 
defined in 5 U.S.C. 804, because it is not likely to result in (1) an 
annual effect on the economy of $100 million or more; (2) a major 
increase in costs or prices for consumers, individual industries, or 
federal, State, or local government agencies, or geographic regions; or 
(3) significant adverse effects on competition, employment, investment, 
productivity, innovation, or on the ability of United States-based 
enterprises to compete with foreign-based enterprises in domestic and 
export markets.

Unfunded Mandates Reform Act

    For purposes of the Unfunded Mandates Reform Act of 1995 (Pub. L. 
104-4), as well as Executive Order 12875, this rule does not include 
any Federal mandate that may result in expenditures by State, local, or 
tribal governments, and does not impose an annual burden exceeding $100 
million on the private sector.

Federalism Statement

    Executive Order 13132 (August 4, 1999) outlines fundamental 
principles of federalism and requires the adherence to specific 
criteria by federal agencies in the process of their formulation and 
implementation of policies that have substantial direct effects on the 
States, the relationship between the national government and the 
States, or on the distribution of power and responsibilities among the 
various levels of government. This final rule does not have federalism 
implications because it has no substantial direct effect on the States, 
on the relationship between the national government and the States, or 
on the distribution of power and responsibilities among the various 
levels of government. Section 514 of ERISA provides, with certain 
exceptions specifically enumerated, that the provisions of Titles I and 
IV of ERISA supersede any and all laws of the States as they relate to 
any employee benefit plan covered under ERISA. The requirements 
implemented in this final rule do not alter the fundamental reporting 
and disclosure requirements provisions of the statute with respect to 
employee benefit plans, and as such have no implications for the States 
or the relationship or distribution of power between the national 
government and the States.

Statutory Authority

    This regulation is issued pursuant to the authority in sections 
104(b), 107, 209, and 505 of ERISA (Pub. L. 93-406, 88 Stat. 894, 29 
U.S.C. 1027, 1059, 1134, 1135) and under Secretary of Labor's Order No. 
1-87, 52 FR 13139, April 21, 1987.

List of Subjects in 29 CFR Part 2520

    Employee benefit plans, Employee Retirement Income Security Act, 
Pension plans, Recordkeeping, Welfare plans.


    For the reasons set forth above, Part 2520 of Title 29 of the Code 
of Federal Regulations is amended as follows:

PART 2520--[AMENDED]

    1. The authority for Part 2520 is revised to read as follows:

    Authority: Secs. 101, 102, 103, 104, 105, 107, 109, 110, 
111(b)(2), 111(c), 209, and 505, Pub. L. 93-406, 88 Stat. 840-52, 
865, 893 and 894 (29 U.S.C. 1021-1025, 1027, 1029-31, 1059, 1134 and 
1135); Secretary of Labor's Order No. 27-74, 13-76, 1-87, and Labor 
Management Services Administration Order 2-6. Sections 2520.102-3, 
2520.104b-1 and 2520.104b-3 also are issued under sec. 101(a), (c) 
and (g)(4) of Pub. L. 104-191, 110 Stat. 1936, 1939, 1951 and 1955 
and, sec. 603 of Pub. L. 104-204, 110 Stat. 2935 (29 U.S.C. 1185 and 
1191c). Sections 2520.104b-1 and 2520.107 are also issued under the 
authority of sec. 1510 of Pub. L. 105-37, 111 Stat. 1114.


    2. Amend section 2520.104b-1 to revise the first sentence of 
paragraph (a), the first sentence of paragraph (b)(1),

[[Page 17275]]

and paragraph (c), and to add a new paragraph (e) to read as follows:


Sec. 2520.104b-1  Disclosure.

    (a) General disclosure requirements. The administrator of an 
employee benefit plan covered by Title I of the Act must disclose 
certain material, including reports, statements, notices, and other 
documents, to participants, beneficiaries and other specified 
individuals. Disclosure under Title I of the Act generally takes three 
forms. * * *
    (b) Fulfilling the disclosure obligation. (1) Except as provided in 
paragraph (e) of this section, where certain material, including 
reports, statements, notices and other documents, is required under 
Title I of the Act, or regulations issued thereunder, to be furnished 
either by direct operation of law or on individual request, the plan 
administrator shall use measures reasonably calculated to ensure actual 
receipt of the material by plan participants, beneficiaries and other 
specified individuals. * * *
* * * * *
    (c) Disclosure through electronic media. (1) Except as otherwise 
provided by applicable law, rule or regulation, the administrator of an 
employee benefit plan furnishing documents through electronic media is 
deemed to satisfy the requirements of paragraph (b)(1) of this section 
with respect to an individual described in paragraph (c)(2) if:
    (i) The administrator takes appropriate and necessary measures 
reasonably calculated to ensure that the system for furnishing 
documents--
    (A) Results in actual receipt of transmitted information (e.g., 
using return-receipt or notice of undelivered electronic mail features, 
conducting periodic reviews or surveys to confirm receipt of the 
transmitted information); and
    (B) Protects the confidentiality of personal information relating 
to the individual's accounts and benefits (e.g., incorporating into the 
system measures designed to preclude unauthorized receipt of or access 
to such information by individuals other than the individual for whom 
the information is intended);
    (ii) The electronically delivered documents are prepared and 
furnished in a manner that is consistent with the style, format and 
content requirements applicable to the particular document;
    (iii) Notice is provided to each participant, beneficiary or other 
individual, in electronic or non-electronic form, at the time a 
document is furnished electronically, that apprises the individual of 
the significance of the document when it is not otherwise reasonably 
evident as transmitted (e.g., the attached document describes changes 
in the benefits provided by your plan) and of the right to request and 
obtain a paper version of such document; and
    (iv) Upon request, the participant, beneficiary or other individual 
is furnished a paper version of the electronically furnished documents.
    (2) Paragraph (c)(1) shall only apply with respect to the following 
individuals:
    (i) A participant who--
    (A) Has the ability to effectively access documents furnished in 
electronic form at any location where the participant is reasonably 
expected to perform his or her duties as an employee; and
    (B) With respect to whom access to the employer's or plan sponsor's 
electronic information system is an integral part of those duties; or
    (ii) A participant, beneficiary or any other person entitled to 
documents under Title I of the Act or regulations issued thereunder 
(including, but not limited to, an ``alternate payee'' within the 
meaning of section 206(d)(3) of the Act and a ``qualified beneficiary'' 
within the meaning of section 607(3) of the Act) who--
    (A) Except as provided in paragraph (c)(2)(ii) (B) of this section, 
has affirmatively consented, in electronic or non-electronic form, to 
receiving documents through electronic media and has not withdrawn such 
consent;
    (B) In the case of documents to be furnished through the Internet 
or other electronic communication network, has affirmatively consented 
or confirmed consent electronically, in a manner that reasonably 
demonstrates the individual's ability to access information in the 
electronic form that will be used to provide the information that is 
the subject of the consent, and has provided an address for the receipt 
of electronically furnished documents;
    (C) Prior to consenting, is provided, in electronic or non-
electronic form, a clear and conspicuous statement indicating:
    (1) The types of documents to which the consent would apply;
    (2) That consent can be withdrawn at any time without charge;
    (3) The procedures for withdrawing consent and for updating the 
participant's, beneficiary's or other individual's address for receipt 
of electronically furnished documents or other information;
    (4) The right to request and obtain a paper version of an 
electronically furnished document, including whether the paper version 
will be provided free of charge; and
    (5) Any hardware and software requirements for accessing and 
retaining the documents; and
    (D) Following consent, if a change in hardware or software 
requirements needed to access or retain electronic documents creates a 
material risk that the individual will be unable to access or retain 
electronically furnished documents:
    (1) Is provided with a statement of the revised hardware or 
software requirements for access to and retention of electronically 
furnished documents;
    (2) Is given the right to withdraw consent without charge and 
without the imposition of any condition or consequence that was not 
disclosed at the time of the initial consent; and
    (3) Again consents, in accordance with the requirements of 
paragraph (c)(2)(ii)(A) or paragraph (c)(2)(ii)(B) of this section, as 
applicable, to the receipt of documents through electronic media.
* * * * *
    (e) Limitations. This section does not apply to disclosures 
required under provisions of part 2 and part 3 of the Act over which 
the Secretary of the Treasury has interpretative and regulatory 
authority pursuant to Reorganization Plan No. 4 of 1978.

    3. Add subpart G to part 2520 to read as follows:

Subpart G--Recordkeeping Requirements

Sec.
2520.107-1   Use of electronic media for maintenance and retention 
of records.


Sec. 2520.107-1  Use of electronic media for maintenance and retention 
of records.

    (a) Scope and purpose. Sections 107 and 209 of the Employee 
Retirement Income Security Act of 1974, as amended (ERISA), contain 
certain requirements relating to the maintenance of records for 
reporting and disclosure purposes and for determining the pension 
benefits to which participants and beneficiaries are or may become 
entitled. This section provides standards applicable to both pension 
and welfare plans concerning the use of electronic media for the 
maintenance and retention of records required to be kept under sections 
107 and 209 of ERISA.
    (b) General requirements. The record maintenance and retention 
requirements of sections 107 and 209 of ERISA are satisfied when using 
electronic media if:
    (1) The electronic recordkeeping system has reasonable controls to 
ensure the integrity, accuracy, authenticity and

[[Page 17276]]

reliability of the records kept in electronic form;
    (2) The electronic records are maintained in reasonable order and 
in a safe and accessible place, and in such manner as they may be 
readily inspected or examined (for example, the recordkeeping system 
should be capable of indexing, retaining, preserving, retrieving and 
reproducing the electronic records);
    (3) The electronic records are readily convertible into legible and 
readable paper copy as may be needed to satisfy reporting and 
disclosure requirements or any other obligation under Title I of ERISA;
    (4) The electronic recordkeeping system is not subject, in whole or 
in part, to any agreement or restriction that would, directly or 
indirectly, compromise or limit a person's ability to comply with any 
reporting and disclosure requirement or any other obligation under 
Title I of ERISA; and
    (5) Adequate records management practices are established and 
implemented (for example, following procedures for labeling of 
electronically maintained or retained records, providing a secure 
storage environment, creating back-up electronic copies and selecting 
an off-site storage location, observing a quality assurance program 
evidenced by regular evaluations of the electronic recordkeeping system 
including periodic checks of electronically maintained or retained 
records, and retaining paper copies of records that cannot be clearly, 
accurately or completely transferred to an electronic recordkeeping 
system).
    (c) Legibility and readability. All electronic records must exhibit 
a high degree of legibility and readability when displayed on a video 
display terminal or other method of electronic transmission and when 
reproduced in paper form. The term ``legibility'' means the observer 
must be able to identify all letters and numerals positively and 
quickly to the exclusion of all other letters or numerals. The term 
``readability'' means that the observer must be able to recognize a 
group of letters or numerals as words or complete numbers.
    (d) Disposal of original paper records. Original paper records may 
be disposed of any time after they are transferred to an electronic 
recordkeeping system that complies with the requirements of this 
section, except such original records may not be discarded if the 
electronic record would not constitute a duplicate or substitute record 
under the terms of the plan and applicable federal or state law.

    Signed at Washington, D.C., this 3rd day of April, 2002.
Ann L. Combs,
Assistant Secretary, Pension and Welfare Benefits, Administration, 
Department of Labor.
[FR Doc. 02-8499 Filed 4-8-02; 8:45 am]
BILLING CODE 4510-29-P