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Final Rules Relating to Use of Electronic Communication and Recordkeeping Technologies by Employee Pension and Welfare Benefit Plans; Final Rule [04/09/2002]
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Volume 67, Number 68, Page 17263-17276
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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
