Seyfarth Synopsis: With the background of the COVID-19 pandemic, the PBGC published unofficial guidance for plan sponsors of single-employer plans on certain reportable events, PBGC premium payments and plan termination issues. The Q&As (found here) provide detail on when and how to report a failure to make required minimum contributions in light of the new CARES Act deadline. The PBGC also states that it will process distress termination applications during this time and that PBGC-initiated terminations of single-employer pension plans will continue to occur.

Under the CARES Act, a company that sponsors a tax-qualified defined benefit pension plan can delay until January 1, 2021, any required contributions to the plan otherwise due in 2020. The PBGC clarifies that because the due date was extended, companies will not need to report a failure to make a minimum required contribution to the PBGC if the contribution is made by January 1, 2021. Should a contribution not be made by January 1, 2021, and the accumulated amount of missed contributions is over $1M, the Form 200 reporting the missed contributions is due on January 11, 2021. If the amount not contributed by January 1, 2021, is $1M or less, the Form 10 is due on February 1, 2021, unless a wavier applies.

The Q&As also include two items related to the calculation of variable rate premiums in light of the extended due date of January 1, 2021, for contributions under the CARES Act.

As noted in the Q&As, during the pandemic, the PBGC will continue to review distress termination applications for single-employer pension plans. The PBGC understands that plan sponsors may have difficulty with financial projections during the pandemic and encourages plan sponsors to consider a pre-filing consultation with the PBGC. Additionally, the PBGC will continue to initiate pension plan terminations if the requirements in the statute are met, based on the facts and circumstances. According to the PBGC, its initiation of plan terminations most often happens when a plan sponsor goes out of business. Fortunately, the PBGC will continue to work with plan sponsors to pay termination liabilities due. Also, during the pandemic, it will not suspend its early warning program (i.e., the PBGC will continue to review transactions and other events that could cause an increased risk to plans and the PBGC).

Please contact us if you would like further information.

By: Mark Casciari and Michael W. Stevens

Seyfarth Synopsis: A recent Supreme Court decision on federal securities law may hold ramifications for ERISA practitioners by addressing whether disgorgement is an equitable remedy.

ERISA’s civil enforcement provisions generally allow the federal courts to award appropriate “equitable” relief. A permissible equitable remedy is disgorgement, which, in the ERISA context, is restoration to the affected plan of fiduciary profits that were illegally earned with plan assets.

Not much has been written about disgorgement, but Liu v. SEC, 591 U.S. ___, No. 18-1501 (June 22, 2020), a Supreme Court decision interpreting the federal Securities and Exchange Act, offers some insight on its meaning.  (The Court has already ruled that ERISA equitable relief does not permit extra-contractual or punitive damages.  See Mass. Mut. Life Ins. Co. v. Russell, 473 U.S. 134 (1985).  So, a disgorgement remedy cannot include extra-contractual or punitive damages.)

In Liu, an 8-1 majority held that “disgorgement” is a permissible equitable remedy in securities’ cases.  The Court observed that disgorgement can be seen as imposing a constructive trust or an accounting, and is equitable in nature even if not specifically mentioned in a statute.  The Court added that disgorgement is not joint and several, and is not limited to cases involving fiduciary breaches.  The Court held that district courts thus may enter disgorgement awards as part of equitable relief, as long as they target net profits, after deducting legitimate expenses.

Justice Thomas dissented, writing that disgorgement is not a traditional form of equitable relief.  He added that a disgorgement remedy, if ordered, must go to the plan participants victimized by the breach, and not to the government.

Notably, Justice Thomas cited ERISA for the proposition that the Supreme Court has never considered general statutory grants of equitable authority as giving federal courts a freewheeling power to fashion new forms of equitable remedies.  He said that the contours of equitable relief were transplanted to our country from the English Court of Chancery in 1789, in contradistinction to remedies at law, which turn on the words used in statutes.

It thus is worth noting that the parameters of ERISA’s equitable relief provisions will continue to be defined by the federal courts.  But it is now clear that disgorgement is an equitable remedy, even if not specifically mentioned in the statute, as long as it is net of legitimate expenses.  Look for more litigation in an appropriate case on the meaning of “profits” and “legitimate expenses.”  And attorneys for plans and plan sponsors should expect the ERISA plaintiff bar to seek disgorgement whenever possible. Finally, ERISA practitioners should continue to pay close attention to securities’ decisions from the Supreme Court, as the Court continues to address the overlap between the two statutes.  See Retirement Plans Committee of IBM v. Jander, 573 U.S. __, No. 18-1165 (Jan. 14, 2020) (ERISA stock drop decision).

As we all are aware, the global pandemic is a force to be reckoned with. Life as we now know it looks completely different than what we had expected a mere few months ago. Nowhere is this more evident than in the financial fortunes of US companies and workers. In response, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and the Internal Revenue Service and the Department of Labor have issued an unprecedented amount of new guidance designed to assist employers and workers through these “novel” times.

The CARES Act and related guidance provide a helpful, although complex, network of new rules and regulations around retirement plans and employee benefit plans. By now many employers have made initial decisions regarding the CARES Act, but you still need to know what to expect when administering them. Moss Adams, Northwest Plan Services, and Seyfarth Shaw have joined forces to discuss and help explain the administrative, legal, compliance, auditing, and accounting issues related to the CARES Act and more. Even if you already adopted provisions of the CARES Act, we will talk about your next steps and obligations.

Join our July 28 webinar to learn about:

  • Coronavirus-related distribution and loan relief
  • Waiver of minimum required distributed for 2020
  • DB plan funding and safe harbor 401(k) plan relief
  • Paycheck Protection Program
  • Regulatory Relief Including Deadline Extensions
  • Common issues and best practices moving forward


Liz J. Deckman, Partner, Seyfarth Shaw LLP

Benjamin F. Spater, Senior Counsel, Seyfarth Shaw LLP

Dena Herbolich, CPA, Assurance Partner, Moss Adams

Brad Wall, CPA, Assurance Partner, Moss Adams

Rob Dent, VP, Client Services, Northwest Plan Services

If you have any questions, please contact Danielle Freeman at [email protected] and reference this event.

Seyfarth Synopsis: Due to the significant economic impact of COVID-19 on businesses, many plan sponsors would like to reduce or suspend contributions to safe harbor 401(k) plans this year. Normally, mid-year changes to safe harbor contributions can only be made in narrow circumstances. In response to employer requests for relief, the IRS has issued Notice 2020-52. The Notice provides relief to plan sponsors who in 2020 want or need to make mid-year amendments that reduce or eliminate safe harbor contributions even if they have not satisfied the current requirements to make such mid-year changes. Similar relief was granted to 403(b) plans.

Under normal circumstances, in order to utilize the nondiscrimination testing safe harbors (which provide for automatic passage of the ADP and ACP tests on employee salary deferral contributions and employer matching contributions respectively), a plan must provide written notice to the participants prior to the beginning of the safe harbor plan year. Recent legislation eliminate the need for the advance notice for one particular type of safe harbor, but that’s besides the point. Under existing rules, once a plan year begins, the safe harbor contribution levels are locked in for the entire year, unless: (a) the plan sponsor suffers an economic loss or (b) the annual safe harbor notice explicitly reserved the right to reduce or suspend safe harbor contributions. Even where one of these standards is met, a related plan amendment must be adopted before the change is effective, a revised safe harbor notice must be distributed at least 30 days before the effective date, and the ADP/ACP Tests also must be passed for the entire plan year.

On June 29, 2020, the IRS released Notice 2020-52. The Notice responds to employer requests for more guidance and flexibility in their ability to change safe harbor contributions during 2020 as a result of unexpected financial losses associated with the current pandemic.

The Notice explains that mid-year reductions in safe harbor contributions to highly compensated employees (“HCEs”) only are not changes that “throw” the plan out of safe harbor status. However, the Notice retains the requirement to provide an updated safe harbor notice at least 30 days prior to the effective date of the change. This gives HCEs an opportunity to change their contribution percentages in light of the new contribution formula. This relief is not limited to the current pandemic, but is of general applicability.

Further, recognizing that plan sponsors may not have anticipated the economic fallout of the pandemic or are having problems distributing revised safe harbor notices timely, the Notice temporarily suspends the normal requirements that either the plan sponsor be suffering an economic hardship or that the plan sponsor has provided a notice before the plan year that allows a for mid-year change, provided that:

  • A plan amendment changing the contributions is adopted between March 13, 2020 and August 31, 2020, but no later than the amendment’s effective date.
  • For plans with safe harbor matching contributions, an updated safe harbor notice is distributed to participants at least 30 days prior to the amendment’s effective date.
  • For plans with safe harbor non-elective contributions, notice is distributed to participants no later than August 31, 2020, explaining the change in contributions – in other words, the notice can be distributed retroactively.

The Notice provides similar relief to 403(b) plans.

Although the Notice gives welcome relief to safe harbor plan sponsors, there continue to be strict deadlines regarding plan amendments (which not only change the contribution formula, but also incorporate annual nondiscrimination testing provisions) and distribution of updated notices. Once safe harbor status is lost, ADP and ACP Tests must be passed for the full 2020 plan year, as applicable.

In addition, you might remember that the SECURE Act that was passed at the end of last year eliminated annual notices for non-elective safe harbor plans. Under those rules, a plan that did not send a non-elective safe harbor notice at the end of 2019 can adopt the non-elective safe harbor at any point during 2020, independent of this new guidance. See our blog post regarding the SECURE Act here 

Please contact us if you would like further information.

Seyfarth Synopsis: On June 23, 2020, the Department of Labor (“DOL”) issued a proposed regulation amending the fiduciary regulations governing investment duties under the Employee Retirement Investment Security Act of 1974 (“ERISA”). This proposed regulation provides guidance for an ERISA fiduciary considering an investment or investment strategy based on “non-pecuniary” factors such as environmental, social or corporate governance (“ESG”) or sustainability factors. The DOL indicated that its proposal is in response to increasing interest in ESG and sustainability investing, and no clear standard for what constitutes an ESG investment. Any comments on the proposal are due by July 23, 2020.

Many say that planet Earth, our only home, is at a turning point: climate change, a worldwide pandemic causing significant economic uncertainty, along with geo-political and social unrest exacerbating that economic uncertainty. In response to these and other concerns, some investors have focused on investments that emphasize the environment or other social good. Examples include alternative energy sources (e.g., electric, solar, wind), as well as alternative farming or food production — think Beyond Meat‼ No one should question an individual’s motives when he or she makes such an investment or divests from an investment deemed not environmentally worthy; it’s their money.

But, how does this translate when selecting investments for an ERISA plan — should plan investment fiduciaries look to achieve social good through the investment of a plan’s assets? It is reported that at the end of the first quarter of 2020, total US retirement plan assets stood at $28 trillion, of which approximately $7.7 trillion is held in defined contribution plans and $11 trillion is held in pension plans.[1] That’s a lot of money, and a lot of money that could potentially be invested for social good. But, as the DOL makes quite clear in its recently proposed regulations, a plan fiduciary is not investing his or her own money; rather, that money is to provide benefits to the participants. So here’s the dilemma that investment fiduciaries face today — do social investing concepts have a role when investing ERISA plan assets?

Historically, the DOL has provided guidance concerning ERISA’s fiduciary duties and responsibilities when a plan investment is selected based on non-pecuniary factors like ESG factors. The DOL’s concern about ESG investing under ERISA, which triggered this proposal, is reflected in the preamble. The DOL specifically stated: “[p]roviding a secure retirement for American workers is the paramount, and eminently-worthy, ‘social’ goal of ERISA plans; plan assets may not be enlisted in pursuit of other social or environmental objects.”

The proposed regulation identifies a number of items a fiduciary must consider when reviewing a proposed investment or investment strategy for an ERISA plan to satisfy its duties of loyalty and prudence. The regulations make it clear that fiduciaries should evaluate those investments based solely on pecuniary factors that have a material impact on the risk and return of the investment, and they should not subordinate the plan’s financial interests to unrelated objectives, sacrifice investment return or take addition risks to promote interest unrelated to the financial interest of the plan.

The DOL does acknowledge in the proposal that ESG or other similar factors could be pecuniary factors if qualified investment professionals would treat those factors as material economic considerations under accepted investment theories. If the fiduciary selects an investment with a non-pecuniary factor (e.g., ESG), then the fiduciary must document why that investment was chosen based on all the relevant factors specified in the proposed regulations, and how it is in the interest of the plan and its participants.

The proposed DOL regulation includes special rules for investment options that are offered under participant-directed defined contribution plans. Those regulations do not prohibit offering a prudently selected, well-managed and properly diversified ESG option under such a plan but they provide a standard that would make it difficult (if not impossible) for a participant-directed defined contribution plan to offer one or more ESG investment options in its investment option line-up. The proposal specifically prohibits designating an ESG option as the qualified default investment alternative (“QDIA”) or a component of the QDIA.

In summary, we are left with the question: Is it ill-advised for plan fiduciaries to engage in ESG investing? Many would look to Beyond Meat as an example of an ESG investment. That ESG investment returned over 100% in the 14 months since its IPO in May 2019. Not too shabby. So it’s possible that an ESG fund would be a prudent investment for an ERISA plan. And, as BlackRock’s CEO, Larry Fink, posited in his annual letter to shareholders, sustainability is a required factor when looking for economically prudent investments. But, if the proposed regulation is finalized, the DOL has made it harder for a fiduciary to defend an ESG investment as appropriate under for an ERISA-governed plan.

If you are concerned about an existing non-pecuniary investment or investment strategy (e.g., an ESG or sustainability investment) or are interested in such an investment or strategy, be sure to contact your Seyfarth Shaw employee benefits attorney. If you would like to comment on the proposed regulation, remember that they must be submitted to the DOL by July 23, 2020.

[1] The remainder, another $9.2 trillion, is invested in IRAs.

Seyfarth Synopsis: A key component of the SECURE Act, passed at the end of 2019, was the expansion of opportunities to combine the 401(k) plan assets of multiple unrelated employers. The SECURE Act relaxed the rules on multiple employer plan’s (“MEP”) and created a new vehicle, the pooled employer plan (“PEP”) to allow employers to come together under a single 401(k) plan. By providing additional pooling opportunities, Congress hoped to allow smaller employers to enjoy economies of scale available only to very large employers, and thereby reduce participant fees and enhance services. The Department of Labor (DOL) is now looking for suggestions on what guidance may help create additional MEP and PEP opportunities.

DOL Request for Comment

The DOL requested comments related to the MEP and PEP market going forward. Specifically, the DOL requested comments on whether any prohibited transaction exemptions might be helpful, given the potential for conflicts of interest between the MEP and PEP providers. For example, the PEP provider must serve as the named fiduciary and plan administrator. Normally, and in the single employer 401(k) market, the named fiduciary wouldn’t be permitted to then select related or proprietary investment funds without a prohibited transaction exemption. Similarly, many PEP providers will partner with a 3(38) investment manager for purposes of PEP investments. Is the 3(38) manager able to market or direct its employer clients into the PEP plan or is that direction a conflict of interest because the manager is a fiduciary to the PEP?

To help answer these questions, the DOL asked a series of questions under the following three categories:

  1. What types of providers/vendors are likely to enter the MEP/PEP market and what conflicts of interest will be created?
  2. What types of investment line-ups are likely in the MEP/PEP market and what conflicts of interest will be created? and
  3. What types of employers (e.g., small or large) will take advantage of MEPs or PEPs and what types of conflicts of interest will be created?

We have provided a link to the specific questions the DOL asked (click here) and would love to hear from you if have a perspective on this new market. Comments are due to the DOL by July 20, 2020, and Seyfarth intends to submit.

Seyfarth Synopsis: The IRS recently issued proposed regulations providing guidance under Internal Revenue Code (“Code”) Section 4960, which provides for an excise tax on tax-exempt organizations that pay certain executives in excess of $1 million in annual compensation. The release of the proposed regulations comes at a time when executive pay, including at many tax-exempt hospital systems, has been in the limelight given the federal aid provided to these organizations to help them withstand the current pandemic.

The Tax Cuts and Jobs Act of 2017 (“TCJA”) is mostly known as the legislation that cut the top corporate tax rate from 35% to 21%. It also introduced a new excise tax under Code Section 4960, which imposes an excise tax equal to the corporate income tax rate on “applicable tax-exempt organizations” (“ATEOs”) that pay covered employees compensation that either exceeds $1 million or is an excess parachute payment (i.e., certain payments made contingent on an employee’s separation from employment). On June 5, 2020, the IRS released proposed regulations under Code Section 4960. (Prior to the proposed regulations, the IRS issued Notice 2019-09, which provided interim guidance on the Code Section 4960 excise tax. See our prior Legal Update on Notice 2019-09 here.)

The proposed regulations, which at 177 pages long, reflect how simple Code Section 4960 will be to comply with, are intended to provide comprehensive guidance on the application of Code Section 4960. The proposed regulations generally incorporate the guidance in Notice 2019-09; however, in response to comments received on Notice 2019-09, the proposed regulations do modify or clarify the initial guidance in certain respects, including which governmental entities will be treated as ATEOs; the definition of covered employees and the rules for identifying the five highest-compensated employees; and the calculation of, and liability for, the excise tax on excess parachute payments.

Notably, under the proposed regulations, certain employees of a related for-profit employer providing services to an ATEO will no longer be treated as one of the ATEO’s five highest-compensated employees, provided that certain conditions related to the individuals’ remuneration or hours of service are met. These exceptions were specifically requested by various stakeholders to avoid an extension of the Code Section 4960 excise tax to executives of for-profit companies that volunteer or perform limited services at a related ATEO. While we weren’t in the drafting room, we’d guess that the IRS felt significant pressure to avoid any disincentive for executives to volunteer for an ATEO, given that many ATEOs are performing critical medical and social services during the current pandemic. Regardless, we’re grateful for the pragmatism on this point.

Additionally, in the preamble to the proposed regulations, the IRS addresses the possibility of a “grandfather” rule for Code Section 4960 similar to the grandfather rule under the TCJA amendments to Code Section 162(m), but declines to adopt such a rule because it would be inconsistent with the statute. They do note, however, that the proposed regulations include rules that have the effect of grandfathering certain compensation. For example, any vested remuneration, including vested but unpaid earnings accrued on deferred amounts, that is treated as paid before the effective date of Code Section 4960 (i.e., the first taxable year of the ATEO beginning after December 31, 2017) is not subject to the excise tax imposed under Code Section 4960.

Stay tuned for our upcoming Legal Update that will take a deeper dive into the proposed regulations.

Seyfarth Synopsis: In response to immediate requests from participants for tax-favored coronavirus-related distributions (“CV Distributions”) and loans, as described in more detail in our prior post, and participants who want to begin pension benefits, the IRS has issued Notice 2020-42, which provides temporary relief from the physical presence requirement for any participant election that needs to be witnessed by a notary public or a plan representative. The Notice gives plans and participants greater flexibility for participant elections, including spousal consents, that must be signed in person and witnessed by a notary or plan representative in order to be valid.

Many plans prohibit distributions in any form other than a qualified joint and survivor annuity without spousal consent provided in the presence of a notary or plan representative. The COVID-19 pandemic and related social-distancing measures have prompted the majority of states to relax their rules on notarizations by allowing them to be conducted remotely, meaning that the notary public and the signer may be in different locations at the time of signature. Despite this change on a state level, most plan administrators have been reluctant to accept remote notarizations for plan elections, including spousal consents required to waive qualified joint and survivor annuities or to obtain participant loans, because a “physical presence” requirement remained in the IRS guidance. Treasury Regulations require that the signature of the individual making the participant election be witnessed in the physical presence of a plan representative or a notary public.

IRS Notice 2020-42 provides temporary relief from this physical presence requirement in two situations.

First, physical presence is not required for any participant election witnessed by a notary public in a state that permits remote notarization. The election or consent must be executed via live audio-video technology (e.g., through Zoom or other video/web conferencing platforms) and otherwise be consistent with state law requirements that apply to the notary public.

Second, the Notice permits remote witnessing by plan representatives using live audio-video technology if the following requirements are satisfied:

  1. The individual signing the election must present a valid photo ID to the plan representative during the live audio-video conference;
  2. The live audio-video conference must allow for direct interaction between the individual and the plan representative;
  3. The individual must send by fax or other electronic means (e.g., a PDF via email) a legible copy of the signed document directly to the plan representative on the same date it was signed;
  4. After receiving the signed document, the plan representative must acknowledge that they witnessed the signing of the document by either signing the document himself, or executing a separate acknowledgment; and
  5. The plan representative must send the signed document (including the acknowledgement) back to the individual whose signature was witnessed, using a system that the individual can access, such as a PDF via email.

As mentioned above, this relief is temporary, and applies retroactively to January 1, 2020 and extends through the end of 2020.

The Notice is welcome news for participants, as it provides them with an alternative to having to find a notary or plan representative willing to meet in person during the COVID-19 pandemic. Some plan administrators have already begun to accept remote notarizations from social-distancing participants, particularly those who have been impacted by COVID-19 and have requested immediate access to plan benefits through a CV Distribution or loan.

For plan administrators that want to provide this relief, there are, however, hoops to jump through to establish a process that complies with the remote requirements. For example, plan administers must determine what secure platform to use to conduct remote audio-video meetings with participants and their spouses, find the appropriate plan representative to conduct the remote conferences and establish a procedure for confirming that an acknowledgement will be received by the signer. In addition, for plans that have not used plan representatives to witness signatures before, forms will need to be revised to reflect this new procedure.

By Michael W. Stevens and Mark Casciari

Seyfarth Synopsis:  The Supreme Court dismissed, prior to any discovery, claims of ERISA fiduciary breach because the plan participant-plaintiffs failed to show that the alleged breaches caused them concrete injury.  As a general matter, this decision will make it more difficult for plaintiffs to claim ERISA violations in federal court, and also may have broader implications for other federal claims. 

In Thole v. U.S. Bank et al., No. 17-1712 (June 1, 2020), the U.S. Supreme Court affirmed dismissal of ERISA claims brought on behalf of participants in a defined benefit pension plan.  The participants alleged financial mismanagement, but suffered no financial loss.  The question was: may the participants sue in federal court for monetary relief because of the alleged mismanagement?  The relief demanded by the participants in their complaint was substantial — $750 million and $31 million in lawyer’s fees.

In a 5-4 decision, the majority reasoned that the plaintiffs “would still receive the exact same monthly benefit” even if they won in court, and thus had no concrete injury under the Constitution’s Article III that would allow for the lawsuit (and consequent expensive discovery and possible settlement).  It thus is important to note these controlling preconditions to any lawsuit in federal court that were reiterated in Thole:  (1) a concrete injury, (2) caused by the defendant, that is (3) redressable by the requested judicial relief.

We have previously blogged about current Article III jurisprudence here.

The Article III stakes are high, because the tougher the preconditions for establishing standing to sue in federal court, the harder it will be for class actions to proceed there.  ERISA makes the Thole holding even more consequential because state courts have no jurisdiction to resolve claims of fiduciary breach under ERISA.  That means that plaintiffs cannot resort to state court to avoid Thole when alleging claims to recover excessive 401(k) fees and claims of mere statutory violations.

The majority did say plan participants, in another case, might be able to establish Article III standing if they plausibly allege “that the alleged mismanagement of the plan substantially increased the risk” that benefits would not be paid.  The precise meaning of this proviso will need to be developed in later litigation.  The Court also emphasized that the plan at issue provided a defined benefit, and that a defined contribution plan participant alleging the same wrongdoing might attain Article III standing.

Of note as well is that Justice Thomas, joined by Justice Gorsuch, said that ERISA case law is too tightly bound to the common law of trusts.  This may portend a new line of analysis by the Court in future ERISA cases.  The Court may focus more on the plain reading of the statute, as opposed to traditional notions of trust law not grounded in that statutory language.  Also of note is that Thole represents another effort by the Court, and especially Chief Justice Roberts, to limit federal jurisdiction generally.

The decision is good news for ERISA plans and their sponsors, as it will be more difficult for participants to bring individual or class actions for mere statutory violations that have not impacted benefits.  Stay tuned to this blog for further developments in ERISA litigation.

Seyfarth Synopsis: Following up on proposed rules issued in October 2019, the Department of Labor (“DOL”) just issued final regulations addressing an employer’s or plan administrator’s ability to send certain retirement plan notices to participants electronically. These methods have generally included email or posting to an employer or plan intranet site, but now can include text messaging or other electronic delivery to smartphones. Curiously, these final rules do not apply to welfare benefit plan communications. Perhaps the DOL will address such plans in the future. For a deeper dive, see our Legal Update on these final regulations.

DOL electronic delivery regulations were originally issued in 2002, when electronic delivery technology was less advanced and plan participants’ access to computers was less prevalent. It’s hard to remember life before the iPhone and subsequent smartphone technology, but the 2002 DOL final regulations were issued 5 years before we even knew what an iPhone was! For those of us that do remember, not all of us had a home computer or a computer on our desks at work. Some employers even provided computer “kiosks” for employees without a desktop computer to be able to access the employer’s intranet site and electronic communications.

In 2007, the iPhone was released, and 13 years later, it is hard to find someone who does not own a smartphone. Times have certainly changed, leaving the 2002 regulations woefully out-of-date (most people now do not even know what a computer kiosk is). As a result, plan sponsors and administrators have struggled to comply with the antiquated rules electronic delivery rules, and frankly, most just fell short.

To address these issues, the new final regulations provide a “notice and access” electronic delivery safe harbor method, which allows plan sponsors and administrators significantly more flexibility when sending electronic plan notices and communications. Before taking advantage of the safe harbor, plan sponsors and administrators must provide a one-time paper notice to all participants (or would be participants – e.g., new employees) informing them that plan notices and communications will be provided electronically and permitting them the opportunity to opt-out. Assuming the individual does not opt-out, the new safe harbor permits electronic delivery to anyone who has a company-provided email address, computer, tablet or smartphone capable of receiving the written notice or communication. Whenever sending plan notices or communications, the message must include a “notice of internet availability,” which can be event specific or can be combined for common disclosures (e.g., SPDs, SMMs, fee or investment disclosures).

Most important, plan sponsors and administrators will need to monitor any “bounce-backs” and take reasonable steps to cure the problem or communicate with such individual by paper communication (as if that individual opted-out of electronic delivery). While this will require sponsors and administrators to maintain a separate list of individuals who need to receive plan communications on paper, the expectation is that such a list will be short (and perhaps primarily limited to former employees). The rules are a welcome relief for plan sponsors and administrators, and we encourage you to read our Legal Update for further information.