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Employee Benefits Security Administration

EBSA Proposed Rule

Use of Electronic Communication and Recordkeeping Technologies By Employee Pension and Welfare Benefit Plans; Proposed Rule [01/28/1999]

[PDF Version]

Volume 64, Number 18, Page 4505-4513

[[Page 4505]]

_______________________________________________________________________

Part III





Department of Labor





_______________________________________________________________________



Pension and Welfare Benefits Administration



_______________________________________________________________________



29 CFR Part 2520



Use of Electronic Communication and Recordkeeping Technologies By 
Employee Pension and Welfare Benefit Plans; Proposed Rule


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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

29 CFR Part 2520

RIN 1210-AA71

 
Use of Electronic Communication and Recordkeeping Technologies by 
Employee Pension and Welfare Benefit Plans

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Notice of proposed rulemaking and Request for information.

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SUMMARY: This document contains proposed 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 standards for the maintenance and 
retention of employee benefit plan records in electronic form. The 
proposal would establish a safe harbor pursuant to which all pension 
and welfare benefit plans covered by Title I of ERISA may satisfy their 
obligations to furnish summary plan descriptions, summaries of material 
modifications, updated summary plan descriptions, and summary annual 
reports using electronic media. With respect to recordkeeping, the 
proposal would provide standards concerning the use of electronic 
media, including electronic storage and automatic data processing 
systems, for the maintenance and retention of records required by 
sections 107 and 209 of ERISA. This document also sets forth the 
Department's view that, in the absence of final regulations or other 
guidance, good faith compliance with the standards set forth in these 
proposed regulations will, with respect to the disclosure and 
recordkeeping requirements specifically addressed in the proposed 
regulations, constitute compliance with a reasonable interpretation of 
29 CFR 2520.104b-1 and ERISA sections 107 and 209. In addition, the 
Department is inviting public comments on a number of issues relating 
to the use of new technologies in the administration of employee 
benefit plans that are not specifically addressed by the proposed 
rules. The proposed rules, if adopted, would affect employee pension 
and welfare benefit plans, including group health plans, plan sponsors, 
administrators and fiduciaries, and plan participants and 
beneficiaries.

DATES: Written comments on these proposed rules must be received by the 
Department of Labor on or before March 29, 1999.

ADDRESSES: Interested persons are invited to submit written comments 
(preferably three copies) concerning the proposed rules and request for 
information to: Office of Regulations and Interpretations, Pension and 
Welfare Benefits Administration, U.S. Department of Labor, 200 
Constitution Avenue, NW, Room N-5669, Washington, DC 20210. Attention: 
Proposed New Technology Rules. Written comments may also be sent by 
Internet to the following address: ``etechreg@pwba.dol.gov'' (without 
the quotation marks). All submissions will be open to public inspection 
and copying in the Public Disclosure Room, Pension and Welfare Benefits 
Administration, U.S. Department of Labor, 200 Constitution Avenue, NW, 
Room N-5638, Washington, DC, from 8:00 a.m. to 4:30 p.m., E.S.T.

FOR FURTHER INFORMATION CONTACT: Katherine Lewis, Office of Regulations 
and Interpretations, Pension and Welfare Benefits Administration, U.S. 
Department of Labor, 200 Constitution Avenue, NW, Washington, DC, 
20210, (202) 219-8521 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

A. Background

    Section 1510(a) of the Taxpayer Relief Act of 1997 (TRA 97) 
<SUP>1</SUP> directs the Secretary of Labor to issue guidance designed 
to interpret the notice, election, consent, disclosure, time 
requirements, and related recordkeeping requirements of ERISA as 
applied to the use of new technologies by sponsors and administrators 
of retirement plans. Section 1510 further requires that the guidance 
maintain the protection of the rights of plan participants and 
beneficiaries. Any regulations applicable to this guidance may not be 
effective until the first plan year beginning at least six months after 
the issuance of final regulations.
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    \1\ Pub. L. 105-34, enacted August 5, 1997.
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    The proposed disclosure rule would amend Sec. 2520.104b-1(c) to 
establish a safe harbor pursuant to which all pension and welfare 
benefit plans covered by Title I of ERISA may satisfy the obligations 
described in ERISA section 104(b)(1) and 104(b)(3) to furnish summary 
plan descriptions (SPDs), summaries of material modifications (SMMs), 
updated SPDs, and summary annual reports (SARs) using electronic media. 
The proposed recordkeeping rule would provide standards concerning the 
use of electronic media, including electronic storage and automatic 
data processing (ADP) systems, for the maintenance and retention of 
records required by sections 107 and 209 of ERISA. In addition, the 
Department is inviting public comments on a number of issues relating 
to the use of new technologies in the administration of employee 
benefit plans that are not specifically addressed by the proposed 
rules.
    The Department's regulation at 29 CFR 2520.104b-1 governs the 
delivery of information required to be furnished to participants and 
beneficiaries under Part I of Title I of ERISA. In April 1997, the 
Department, in accordance with a separate directive under section 
101(c) of the Health Insurance Portability and Accountability Act of 
1996 (HIPAA),<SUP>2</SUP> issued an interim disclosure rule, 
Sec. 2520.104b-1(c), that provides a ``safe harbor'' for using 
electronic media to furnish SPDs, SMMs, and updated SPDs to 
participants of group health plans.<SUP>3</SUP> The Department invited 
and received public comments on the interim rule. However, the 
Department is deferring changes to the interim rule pending 
consideration of public comments on the broader-based rule proposed 
herein. The Department's objective is to avoid piecemeal rulemaking in 
this area by having the interim disclosure rule for group health plans 
and this proposal converge so that a single final rule is issued 
following consideration of public comments on the full range of issues 
relevant to the use by all welfare and pension plans covered by Title I 
of ERISA of electronic media as a method of furnishing documents under 
Sec. 2520.104b-1. In this regard, comments previously submitted to the 
Department in connection with the interim rule need not be resubmitted. 
A discussion of the proposed rules contained in this document is set 
forth below.
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    \2\ Pub. L. 104-191, enacted August 21, 1996.
    \3\ See 62 FR 16979 (April 8, 1997).
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B. The Proposed Regulations

1. Expanding the HIPAA Interim Disclosure Rule to All Welfare and 
Pension Plans Covered Under Title I of ERISA

    The proposed disclosure rule would amend Sec. 2520.104b-1(c) to 
establish a safe harbor pursuant to which all pension and welfare 
benefit plans covered by Title I of ERISA may satisfy certain 
disclosure obligations described in ERISA section 104(b)(1) and 
104(b)(3) using electronic media. This would expand the safe harbor set 
forth in the interim disclosure rule for group health plans to all 
plans covered under Title I of ERISA and expand the disclosure

[[Page 4507]]

documents covered by the safe harbor to include SARs. In the 
Department's view, a method of electronic delivery appropriate for the 
furnishing of SPDs, SMMs, and updated SPDs by group health plans would 
also be appropriate for furnishing those documents by other types of 
plans, and for furnishing SARs, given the similar nature of the 
information provided and similar furnishing requirements.<SUP>4</SUP> 
These actions are consistent with comments received by the Department 
in connection with the interim rule.
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    \4\ To the extent that other disclosure obligations under Title 
I of ERISA may be satisfied through the furnishing of an SPD, the 
furnishing of the SPD to a participant by electronic means in 
accordance with the proposed rule will satisfy such other disclosure 
requirements with respect to the participant the same as if the SPD 
were provided in paper form. The safe harbor provisions, however, 
are limited to communications to participants at their worksites. 
The safe harbor would not cover electronic communication of an SPD 
to a participant at his or her worksite as a way of satisfying the 
COBRA notice obligation under section 606(a)(1) to the covered 
employee's spouse even if the SPD contained the required COBRA 
information and it was furnished electronically to the participant 
at the time he or she commenced coverage under the plan. Elsewhere 
in this document the Department is specifically requesting comments 
on the use of electronic media to satisfy disclosure obligations 
with respect to beneficiaries, including spouses.
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    This proposal adopts the approach of the interim rule, which 
describes safe harbor conditions under which electronic disclosures 
will be deemed to satisfy the disclosure requirements under 29 CFR 
2520.104b-1. As with the interim rule, the proposed amendment is 
intended to establish a safe harbor on which plan administrators may 
rely in delivering plan disclosures through electronic media, but is 
not intended to represent the exclusive means by which the requirements 
of Sec. 2520.104b-1 may be satisfied using electronic media.
    Proposed paragraph (c)(1) of Sec. 2520.104b-1 sets forth the same 
conditions currently in the interim rule for group health plans. In 
this regard, the proposal provides, at paragraph (c)(1)(i)-(ii), that: 
(i) the administrator takes appropriate and necessary measures to 
ensure that the system for furnishing documents results in actual 
receipt by participants of transmitted information, such as through the 
use of a return-receipt electronic mail feature or periodic reviews or 
surveys by the plan administrator to confirm the integrity of the 
delivery system; and (ii) electronically delivered documents are 
prepared and furnished in a manner consistent with the style, format 
and content requirements applicable to the disclosure (see 29 CFR 
2520.102-2 through 2520.102-5, and 29 CFR 2520.104b-10). Proposed 
paragraph (c)(1)(iii) requires notification to each participant, 
through electronic means or in writing, apprising the participant of 
the disclosure documents furnished electronically (e.g., SPDs, 
summaries of material changes to the plan, changes to information 
included in the SPD, and SARs), the significance of the documents 
(e.g., the document contains summary descriptions of changes in the 
benefits described in your SPD), and the participant's right to request 
and receive, free of charge, a paper copy of each such document from 
the plan administrator. The notification requirement is designed to 
ensure that participants who, for example, receive a disclosure 
document as an attachment to an electronically transmitted message or 
in the form of a message and hyperlink to a plan internet site will be 
put on notice that the communication contains important plan 
information. As the Department explained in issuing the interim rule, 
the safe harbor criteria are generally intended to ensure that a system 
of electronic communication utilized by a plan administrator for 
distribution of disclosure information results in the actual delivery 
of such information to participants, and that the information delivered 
is equivalent in both substance and form to the disclosure information 
the participants would have received had they been furnished the 
information in paper form.
    As with the interim rule, it is the view of the Department that 
participants have a general right to receive required plan disclosures 
in paper form from the plan administrator. Accordingly, the proposal 
would require that where a plan administrator uses electronic media as 
the method for delivering required plan disclosures, participants must 
be afforded the opportunity to obtain the disclosures from the plan 
administrator in paper form, free of charge. The obligation to furnish 
paper copies of documents furnished through electronic media is set 
forth in proposed paragraph (c)(1)(iv). The Department specifically 
invites public comment on the relative costs and benefits of this 
requirement in light of the separate safe harbor requirement, discussed 
below, that participants must have the opportunity at their worksite to 
convert furnished documents from electronic form to paper form, free of 
charge.
    Proposed paragraph (c)(2), like the interim rule, describes the 
participants with respect to whom the electronic delivery of plan 
disclosures will be deemed to be an acceptable method of delivery for 
fulfilling the disclosure obligation under Sec. 2520.104b-1(b)(1). Such 
participants must have the ability to effectively access at their 
worksite documents furnished in electronic form, and the opportunity at 
their worksite to convert furnished documents from electronic form to 
paper form, free of charge.
    Comments submitted on the interim disclosure rule for group health 
plans requested clarification of what constitutes a ``worksite'' for 
purposes of the safe harbor. It is the view of the Department that, for 
purposes of the safe harbor, a worksite would include any location 
where an employee is reasonably expected to perform his or her duties 
and where access to the employer's electronic information system is an 
integral part of those duties. In this regard, the Department believes 
that the actual location of the worksite (e.g., an employee's home, a 
client's office, or an employee's hotel room) is of less importance 
than the employee being reasonably expected to access the employer's 
information system in the course of performing his or her duties and, 
therefore, more likely to receive timely communication of plan 
information. Comments were also received requesting clarification of 
the safe harbor provisions requiring that participants have the 
opportunity to convert electronic documents to paper copies at their 
worksite location. The Department believes that this provision of the 
safe harbor may be satisfied by ensuring that participants have access 
to a printer at their principal worksite location. For example, if an 
employee works at home four days a week and at his or her employer's 
office one day a week, it is the view of the Department that the 
employee's principal worksite location would be his or her home. On the 
other hand, if an employee travels to the offices of various clients 
four days a week and is in the employer's office one day a week, it is 
the view of the Department that the employee's principal worksite 
location would be the employer's office.

2. Electronic Recordkeeping

    Section 107 of ERISA provides, in relevant part, that ``[e]very 
person subject to a requirement to file any report or to certify any 
information therefor under this title or who would be subject to such a 
requirement but for an exemption or simplified reporting requirement * 
* * shall maintain records on the matters of which disclosure is 
required which will provide in sufficient detail the necessary basic 
information and data from which the documents thus required may be 
verified, explained, or clarified, and checked for accuracy and 
completeness, and shall include vouchers, worksheets,

[[Page 4508]]

receipts, and applicable resolutions, and shall keep such records 
available for examination for a period of not less than six years after 
the filing date of the documents based upon the information which they 
contain * * *'' Persons required to retain records for purposes of 
section 107 include any person who is or may be required under Title I 
of ERISA to file any report (e.g., the plan administrator) or to 
certify any information for such reports (e.g., insurance carriers or 
other organizations which provide some or all of the benefits under the 
plan, banks or similar institutions which hold some or all of the 
assets of the plan, and plan sponsors). In addition to the record 
retention requirements of section 107, ERISA section 209 generally 
requires records to be maintained by employers with respect to each 
employee sufficient to determine the benefits due or which may become 
due to the employee under a pension benefit plan and authorizes the 
Secretary to prescribe regulations governing such records. In the case 
of a pension plan adopted by more than one employer, section 209(a)(2) 
requires employers to furnish to the plan administrator the information 
necessary for the administrator to maintain the records and requires 
the administrator to maintain the records.
    No specific provision of Title I of ERISA or any regulation issued 
thereunder sets forth rules or standards regarding the use of 
electronic media as the form in which records are retained. The 
Department is proposing to adopt a new regulation, 29 CFR 2520.107-1, 
to provide 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. The proposal, 
however, is not intended 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.
    In general, the proposed regulation 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).<SUP>5</SUP> The proposal also provides that the electronic 
recordkeeping system may not be subject to any agreement or limitation 
that would, directly or indirectly, compromise a person's ability to 
comply with any reporting and disclosure requirement or any other 
obligation under Title I of ERISA. In addition, the proposed regulation 
provides guidance regarding when original records may be discarded 
after they have been transferred to electronic media.
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    \5\ 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 proposed 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 sections 107 
or 209 provided certain conditions were met.
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    The Department wishes to emphasize 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, and 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.<SUP>6</SUP>
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    \6\ See Advisory Opinion 84-19A (April 26, 1984).
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    Furthermore, it is the Department's view that persons subject to 
recordkeeping obligations under section 107 and section 209 of ERISA 
would, pursuant to 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.

C. Effective Date and Good Faith Compliance

    In accordance with section 1510 of TRA 97, final regulations issued 
in connection with this proposal will be effective no earlier than the 
first plan year beginning at least six months after the issuance of 
such final regulations. 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, it is the 
Department's view that good faith compliance with the standards set 
forth in these proposed regulations will, with respect to the 
disclosure and recordkeeping requirements specifically addressed in the 
proposed regulations, constitute compliance with a reasonable 
interpretation of 29 CFR 2520.104b-1 and ERISA sections 107 and 209. 
The interim rule pertaining to electronic disclosures continues to be 
effective for group health plans.

D. Request for Public Comments on Electronic Disclosure and 
Recordkeeping Issues

    In requiring guidance to be issued on the use of new technologies, 
section 1510(a) of TRA 97 specifically references guidance regarding 
notice, election, consent, disclosure, time

[[Page 4509]]

requirements, and related recordkeeping requirements. Some requirements 
in these areas occur only under the Internal Revenue Code or relate to 
sections of Title I of ERISA over which the Internal Revenue Service 
has regulatory authority pursuant to Reorganization Plan No. 4 of 
1978.<SUP>7</SUP> With respect to ERISA provisions under the 
Department's authority, the Department is continuing to evaluate what 
guidance relating to new technologies is appropriate for pension and 
welfare benefit plans covered by Title I of ERISA. To aid in these 
efforts, the Department is interested in obtaining views and comments 
from the benefit plan community on new technology issues where the 
Department's guidance may be useful. Specifically, the Department 
invites information and comments on the following:
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    \7\ 43 FR 47713, October 17, 1978, effective December 31, 1978.
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    1. Should the standards proposed herein regarding use of electronic 
media be expanded to other plan disclosures (e.g., individual benefit 
statements, COBRA notices upon a ``qualifying event,'' or notices 
concerning qualified domestic relations orders or qualified medical 
child support orders), and if so, to which disclosures or types of 
disclosures, and under what conditions to safeguard the rights of 
participants and beneficiaries?
    2. Do time-sensitive disclosures, such as notices that activate the 
running of time periods for participants to take actions, require 
additional safeguards, and if so, what safeguards?
    3. Under what circumstances would it be appropriate for electronic 
media to be used for communications at places other than worksites? For 
example, should participants who are on paid leave or retired be 
permitted to elect that electronic disclosures be made to them at home 
or elsewhere? Should spouses and other beneficiaries, such as alternate 
payees under qualified domestic relations orders (QDROs) or qualified 
child medical support orders (QCMSOs), be permitted to elect that 
disclosures be made to them by electronic means? Should such elections 
be required to be renewed periodically? If so, how often and by what 
means?
    4. The Department also requests comments on the use of, and 
standards for, electronic media (i) for making materials described in 
ERISA Sec. 104(b)(2) available for examination by plan participants and 
beneficiaries; and (ii) for responding to requests by participants and 
beneficiaries for copies of materials described in ERISA Sec. 104(b)(4) 
and Sec. 2520.104b-1(b)(2).
    5. Is guidance on the use of electronic media needed under any 
other provisions of Title I of ERISA?

Executive Order 12866 Statement

    Under Executive Order 12866, the Department must determine whether 
the regulatory action is ``significant'' and therefore subject to the 
requirements of the Executive Order and subject to review by the Office 
of Management and Budget (OMB). Under section 3(f), the 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. The Department has 
determined that this regulatory action is not significant within the 
meaning of the Executive Order.

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.
    Currently, the Pension and Welfare Benefits Administration is 
soliciting comments concerning the two information collection requests 
(ICRs) which would be affected by the proposal with respect to the use 
of electronic communications and recordkeeping by employee benefit 
plans. Copies of the ICRs may be obtained by contacting the office 
listed in the addressee section of this notice.
    The Department has submitted the information collections which 
would be revised by these proposals to OMB for review in accordance 
with 44 U.S.C. 3507(d). The Department and OMB are particularly 
interested in comments that:
    <bullet> 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;
    <bullet> 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;
    <bullet> Enhance the quality, utility, and clarity of the 
information to be collected; and
    <bullet> 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.
    Comments should be sent to the Office of Information and Regulatory 
Affairs, Office of Management and Budget, Room 10235, New Executive 
Office Building, Washington, DC 20503; Attention: Desk Officer for the 
Pension and Welfare Benefits Administration. Although comments may be 
submitted through March 29, 1999, OMB requests that comments be 
received within 30 days of publication of the Notice of Proposed 
Rulemaking to ensure their consideration.
    Addresses (PRA 95): Address requests for copies of the ICR to 
Gerald B. Lindrew, Office of Policy and Research, U.S. Department of 
Labor, Pension and Welfare Benefits Administration, 200 Constitution 
Avenue, NW, Room N-5647, Washington, DC 20210. Telephone: (202) 219-
4782; Fax: (202) 219-4745. These are not toll-free numbers.
    The ICRs affected by this proposal are included in the disclosures 
required under ERISA to be made to participants and beneficiaries of 
employee pension and welfare plans, including the Summary Plan 
Description (SPD) and Summary of Material Modifications (SMM), and the 
Summary Annual Report (SAR). The SPD and SMM requirements are included 
in a single ICR for purposes of approval under PRA 95. Although the use 
of electronic media to satisfy disclosure requirements was not 
precluded by existing regulations,

[[Page 4510]]

and was in fact specifically addressed in the interim disclosure rule 
under HIPAA, the Department has not previously estimated the degree to 
which electronic media may be used for this purpose.
    The burden reductions estimated to result from the use of 
electronic media for required disclosure purposes are based upon cost 
and hour burdens for the Department's existing ICRs for the SPD/SMM and 
SAR as adjusted for the numbers of plans and participants assumed to 
have access to the necessary electronic resources to send and receive 
the disclosures, and the number of plan sponsors assumed to choose to 
make use of their electronic resources to make required disclosures to 
plan participants.
    This analysis does not address the provisions of the proposal which 
relate to electronic recordkeeping because the proposal is not intended 
to define or address the types of records required to be maintained, or 
the period of time for which records must be maintained. Instead, the 
proposal is intended to describe certain minimum electronic 
recordkeeping standards which are believed to be consistent with 
reasonable and prudent business practices.
    The Department is not aware of any data source which would directly 
identify the ERISA plan sponsors who either use or will use electronic 
media for required disclosures, and the number of participants in those 
plans with access to electronic media. Therefore, estimates have been 
developed using information concerning the likely prerequisites for the 
use of electronic disclosure by ERISA plan administrators.
    These prerequisites would likely include the use of electronic 
media by employers, access to electronic media and electronic mail or 
Internet/Intranet applications by employees in the course of their 
work, employer sponsorship of a pension and/or welfare plan, and a 
determination by the employer or plan administrator that disclosure 
through electronic media would be either cost effective or beneficial 
in some other way that would outweigh cost concerns. Another indicator 
of the likelihood of the use of electronic disclosures might be the 
employer's existing use of electronic media for general communication 
with employees.
    The Department sought information concerning the use of electronic 
technologies in the workplace and for communication with employees. 
Data published in the 1997 Current Population Survey (CPS) indicates 
that approximately 50 percent of employees have access to computers at 
work, and that somewhat smaller percentages of employees use electronic 
mail or the Internet at work. No information was found to indicate how 
these rates may differ in relation to firm size. However, it is assumed 
that access rates are somewhat lower in smaller firms and higher in 
larger firms.
    Two recent surveys offer data concerning companies' use of 
information technologies. According to a 1997/1998 survey conducted by 
Watson Wyatt Worldwide <SUP>8</SUP>, 59 percent of respondent companies 
currently use electronic technologies for corporate communications, and 
an additional 34 percent plan to do so in the next year. Twenty-two 
percent of the survey respondents reported that they currently use 
electronic technologies for benefits enrollment, retirement and savings 
plans, with another 53 percent planning to do so in the next year. This 
survey also indicated that 82 percent of respondents' U.S. employees 
made use of desktop computers, and 50 percent of the respondents' 
employees had access to Internet applications. A survey conducted by 
Sedgwick Noble Lowndes <SUP>9</SUP> indicates that 92 percent of 
respondents either use or anticipate using the Internet, with primary 
uses being electronic mail and distribution of information. Of the 59 
percent of respondents indicating utilization of Intranet technology, 
53 percent indicated the primary use would be providing general 
information to employees.
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    \8\ ``Forging Global Links Through Web Technology, A Survey 
Report on Human Resources and the Web,'' Watson Wyatt Worldwide, 
1998.
    \9\ ``Employee Benefits Minisurvey,'' Sedgwick Noble Lowndes, 
September, 1998.
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    It is not known how the employee groups considered in these sources 
compare to the participants of ERISA-covered pension and welfare plans. 
However, for purposes of this analysis, access to and use of electronic 
media by participants is assumed to resemble that of employees at 
large. As a result, it is assumed that 50 percent of all plan 
participants, and beneficiaries (35 percent in plans with fewer than 
100 participants, and 65 percent in plans with 100 or more 
participants) would potentially have access to electronic disclosures.
    This number is further reduced based on the number of employers or 
plan sponsors considered likely to make use of electronic disclosures, 
based on assessments of the potential cost effectiveness and business 
value of electronic disclosure. Electronic communication with employees 
is generally perceived to have positive business value due to increased 
speed, convenience, and ease of use. Costs may in many cases be reduced 
in direct proportion to the reduction of handling, mailing, and 
materials costs. Added costs would typically arise from time required 
to prepare and monitor the receipt of electronic mail messages, time to 
prepare and make documents available for viewing and downloading at a 
specific Internet or Intranet site, and investment in system 
development and equipment.
    System development and equipment costs have not been assessed here 
because it is assumed that participant disclosures will be made by plan 
administrators in settings in which equipment and electronic 
communication is already in use. The Watson Wyatt and Sedgwick Noble 
Lowndes surveys appear to support the conclusion that a primary purpose 
of system development is general communication with employees.
    Electronic distribution of the SAR is estimated to be cost 
effective in many cases because a large proportion of the total cost 
and hour burden for the SAR comes from materials, mailing, and 
handling. Mailing and handling costs of the 235,000,000 SARs estimated 
to be distributed each year could be significantly reduced, while the 
added cost to make what is typically a one page document available 
electronically would be minimal. Given this potential for cost 
effectiveness, and the rates of use of electronic communication by 
respondents to the surveys cited, it is assumed that plan 
administrators for 50 percent of participants with access to electronic 
media will distribute their SARs electronically. The same assumption is 
made for electronic disclosure of the SMM, although it is part of a 
separate ICR.
    This burden estimate for the SAR takes into consideration the fact 
that some participants of those plans will not have appropriate access 
to electronic media, and some will either prefer paper-based SARs or 
request paper-based SARs in addition to the electronic version. The 
estimate also includes the added costs of monitoring the receipt of 
electronic communications by participants.
    The electronic disclosure of the SPD is considered to be somewhat 
less cost effective, and as a result, somewhat less likely to be 
implemented by plan administrators. Although improvements in speed of 
delivery and ease of use could be accomplished by electronic 
distribution of the SPD and related or incorporated documents, such as 
group health plan provider directories, these

[[Page 4511]]

are commonly lengthy documents which would be more time-consuming to 
prepare for electronic access through electronic mail, Internet, or 
Intranet. These materials are also frequently used away from the 
worksite by family members other than the employee, which may prevent 
the electronic version from eliminating the need for a paper-based 
version. While there may be significant value in making the SPD 
available electronically, the effort to produce the electronic version 
may not result in replacement of the paper-based version or significant 
aggregate cost reductions. Therefore, for purposes of this analysis it 
is assumed that 10 percent of participants with the potential to 
receive or gain access to SPDs electronically will actually receive 
only an electronic version. The Department believes that use of 
electronic technology for the distribution of SPDs can be expected to 
increase significantly in the future as plan administrators seek 
opportunities to make increasing and more cost effective use of 
electronic technologies in other areas of plan administration. The 
Department requests comments concerning plans' current and anticipated 
use of electronic technology for distribution of the SPD.
    The estimates of burden hour and cost savings derived from these 
assumptions are shown below. It is assumed that these savings will be 
recognized immediately, due either to the good faith compliance 
described in this preamble, or to the existing use of electronic media 
by plan sponsors. The Department requests comments on each of the 
assumptions used in this analysis.
    Type of Review: Revision of currently approved collections of 
information.
    Agency: Pension and Welfare Benefits Administration.
    Titles: Summary Plan Description Requirements under ERISA (SMM/
SPD); ERISA Summary Annual Report (SAR) Requirement.
    Affected Public: Individuals or households; Business or other for-
profit; Not-for-profit institutions.
    Other information:

------------------------------------------------------------------------
                                           SMM/SPD             SAR
------------------------------------------------------------------------
OMB Number..........................         1210-0039         1210-0040
Frequency of Response...............       On occasion          Annually
Respondents.........................         2,027,293           817,000
Responses: \10\.....................
    1999............................        52,115,000       235,000,000
    2000............................       160,703,000       235,000,000
Estimated Burden Hour Reduction:
    1999............................            68,867           560,043
    2000............................           172,735  ................
Estimated Total Burden Hours:.......
    1999............................           746,983         1,369,577
    2000............................         1,928,889         1,369,577
Estimated Annual Cost Reduction:....
    1999............................        $3,611,969        16,350,000
    2000............................        $8,249,376  ................
Estimated Total Annual Costs: \11\..
    1999............................       $99,898,165      $111,375,000
    2000............................       216,316,365       111,375,000
------------------------------------------------------------------------
\10\ The number of respondents and the related cost and hour burdens for
  the SMM/SPD are estimated to increase in 2000 as a result of Interim
  Final Rules published on September 9, 1998 (63 FR 48371) and a Notice
  of Proposed Rulemaking published on September 9, 1998 (63 FR 48376),
  both of which would amend SPD content requirements.
\11\ Operating and Maintenance Costs.

    Comments submitted in response to this notice will be summarized 
and/or included in the request for OMB approval of the information 
collection request; 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 which are 
likely to have a significant economic impact on a substantial number of 
small entities. If an agency determines that a proposed rule is likely 
to have a significant economic impact on a substantial number of small 
entities, section 603 of the RFA requires that the agency present an 
initial regulatory flexibility analysis at the time of the publication 
of the notice of proposed rulemaking describing the impact of the rule 
on small entities, and seeking public comment on such impact. Small 
entities include small businesses, organizations, and governmental 
jurisdictions.
    This proposed rule would establish a safe harbor pursuant to which 
all pension and welfare plans covered under Title I of ERISA may 
satisfy disclosure obligations described in ERISA section 104(b)(1) and 
104(b)(3) using electronic media. It would also establish certain 
minimum standards for the use of electronic media for maintenance and 
retention of records required by sections 107 and 209 of ERISA. The 
proposal would not, however, require any plan or entity sponsoring a 
plan to use electronic media for either disclosure or recordkeeping 
purposes. The rule may, therefore, have no economic impact on plans and 
sponsors who choose not to make use of electronic media for these 
purposes.
    A marginal expense may be incurred by plans or sponsors that 
already use electronic media for recordkeeping purposes to conform 
their procedures to the minimum standards described in this proposal. 
The Department believes this expense would be limited because the 
standards proposed are not intended to establish detailed methods of 
compliance, but rather to describe general performance objectives which 
are consistent with the reasonable and

[[Page 4512]]

prudent business practices already required of ERISA plan fiduciaries. 
Under the proposal, plans and sponsors would retain the flexibility to 
make any changes necessary, for example, to ensure the integrity and 
safety of the records, or to improve indexing and ease of retrieval, in 
the manner which is most cost effective for them.
    On this basis, the undersigned certifies that this rule, if 
promulgated as proposed, will not have a significant impact on a 
substantial number of small entities regardless of whether one uses the 
definition of small entity found in regulations issued by the Small 
Business Administration (13 CFR 121.201) or one defines small entity, 
on the basis of section 104(a)(2) of the Employee Retirement Income 
Security Act of 1974 (ERISA), as an employee benefit plan with fewer 
than 100 participants. In the Department's view, this proposed rule 
will not significantly impact entities in any size category. The 
Department requests comments on this certification, and seeks 
additional information from small entities regarding what, if any, 
special problems they might encounter if the proposal were to be 
adopted, and what changes, if any, could be made to minimize those 
problems.

Small Business Regulatory Enforcement Fairness Act

    The rule being issued here is subject to the provisions of the 
Small Business Regulatory Enforcement Fairness Act of 1996 (5 U.S.C. 
801 et seq.) and, if finalized, 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 or 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 proposed rule does not 
include any federal mandate that may result in expenditures by State, 
local, or tribal governments, or the private sector, which may impose 
an annual burden of $100 million.

Statutory Authority

    This regulation is proposed 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

    Accounting, Employee benefit plans, Employee Retirement Income 
Security Act, Pensions, Reporting and Recordkeeping requirements.

    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. Section 2520.104b-1 is amended by revising paragraph (c) to read 
as follows:


Sec. 2520.104b-1  Disclosure

* * * * *
    (c) Disclosure through electronic media. (1) The administrator of 
an employee benefit plan furnishing documents described in section 
104(b)(1) or 104(b)(3) of the Act through electronic media will be 
deemed to satisfy the requirements of paragraph (b)(1) of this section 
with respect to participants described in paragraph (c)(2) of this 
section if:
    (i) The administrator takes appropriate and necessary measures to 
ensure that the system for furnishing documents results in actual 
receipt by participants of transmitted information and documents (e.g., 
uses return-receipt electronic mail feature or conducts periodic 
reviews or surveys to confirm receipt of transmitted information);
    (ii) Electronically delivered documents are prepared and furnished 
in a manner consistent with the applicable style, format and content 
requirements (See 29 CFR 2520.102-2 through 2520.102-5, and 29 CFR 
2520.104b-10);
    (iii) Each participant is provided notice, through electronic means 
or in writing, apprising the participant 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 right to request and receive, free of charge, a paper 
copy of each such document; and (iv) Upon request of any participant, 
the administrator furnishes, free of charge, a paper copy of any 
document delivered to the participant through electronic media.
    (2) For purposes of paragraph (c)(1) of this section, the 
furnishing of documents through electronic media satisfies the 
requirements of paragraph (b)(1) of this section only with respect to 
participants:
    (i) Who have the ability at their worksite to effectively access 
documents furnished in electronic form; and (ii) Who have the 
opportunity at their worksite to readily convert furnished documents 
from electronic form to paper form free of charge.
* * * * *
    3. By adding a new 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.

Subpart G--Recordkeeping Requirements


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 will be satisfied when 
using electronic media if:
    (1) The electronic 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 and 
in a safe and accessible place, and in such manner as they may be 
readily

[[Page 4513]]

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 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 they have 
legal significance or inherent value as original records such that an 
electronic reproduction would not constitute a duplicate record (for 
example, notarized documents, insurance contracts, stock certificates, 
and documents executed under seal).

    Signed at Washington, DC, this 25th day of January, 1999.
Leslie B. Kramerich,
Deputy Assistant Secretary for Policy, Pension and Welfare Benefits 
Administration, U.S. Department of Labor.
[FR Doc. 99-2006 Filed 1-27-99; 8:45 am]
BILLING CODE 4510-29-P