When is Electronic Distribution of SPDs Allowed?
Although guidelines regarding electronic distribution of Summary Plan Descriptions (SPDs) have existed for the past few years, many benefit plan sponsors continue to find difficulty in understand these complex rules. So in order to help our clients better understand when electronic distribution of SPDs is acceptable, here are some helpful clarifications:
What the Guidelines Say
The Department of Labor ruled in DOL Reg. § 2520.104b-1(b) that SPDs, as well as SMMs (Summaries of Material Modifications) and SARs (Summaries of Annual Reports), must be furnished in a way “reasonably calculated to ensure actual receipt of the material.” In addition, they must be delivered using one or more methods “likely to result in full distribution.” By definition, ERISA plans may use electronic delivery methods to furnish SPDs but only under specific circumstances.
Under the DOL final regulation § 2520.104b-1(c), the rule states the following safe harbor requirements for all electronic distributions:
- Documents must be prepared and furnished in accordance with otherwise-applicable rules
- Distributor must provide notice of significance of electronic document each time a document is furnished
- A paper version must be available on request, at no charge
- Distributor must take steps to safeguard confidentiality if disclosure includes personal information
- Distributor must monitor the effectiveness of the system
Provided that the above general requirements are met, disclosure may be made electronically with respect to any plan participant (a) who has the ability to access documents at any location where the participant reasonably could be expected to perform employment duties; and (b) whose access to the electronic information system is an integral part of those employment duties. (Note that making a computer kiosk generally available for use by participants would not satisfy the safe harbor requirements.)
If an employer has participants that do not have this work-related computer access, then the electronic distribution is still permitted, although even more is required of the employer. Distributions to individuals with no work-related computer access must meet these additional conditions:
- Individual must affirmatively consent “in a manner that reasonably demonstrates the individual’s ability to access information in the electronic form that will be used
- Individual must be provided a statement before they consent describing electronic distribution. This statement must include documents covered, the electronic method to be used, and the individual’s ability to withdraw consent
- Any changes to the hardware or software requires a new statement and new consent
For individuals that do not meet either of the two options, the SPD disclosure obligations cannot be met through the electronic delivery safe harbor. These individuals should be furnished with paper copies of the SPD.
What This Means to You
While the DOL has provided safe harbor under which electronic distribution is allowed, these standards are rather stringent. For example, an employer must consider ALL of its employees and ensure they all have computer access – it is not enough if most employees have this computer access. Also, special provisions must be made for those that do not use the computer as an integral part of their employment duties.
In regard to compliance, there are no specific civil penalties for failure to follow these guidelines. However, proper distribution can protect against liability for unintended benefits as well as fiduciary liability.
Should you have any questions or concerns regarding electronic distribution of SPDs, SMMs and/or SARs, please contact our office at 919-403-1986.
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December 4, 2006
Hill, Chesson & Woody Employee Benefit Services
194 Finley Golf Course Rd, Suite 200,
Chapel Hill, NC 27517
Phone: 919.403.1986
Fax: 919.913.0237
www.hcwbenefits.com