[Federal Register Volume 64, Number 18 (Thursday, January 28, 1999)]
[Proposed Rules]
[Pages 4506-4513]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-2006]
[[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
Federal Register / Vol. 64, No. 18 / Thursday, January 28, 1999 /
Proposed Rules
[[Page 4506]]
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)
1 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),2 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.3 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.4
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).5 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.6
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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
1978.7 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:
Evaluate whether the proposed collection of information is
necessary for the proper performance of the functions of the agency,
including whether the information will have practical utility;
Evaluate the accuracy of the agency's estimate of the
burden of the proposed collection of information, including the
validity of the methodology and assumptions used;
Enhance the quality, utility, and clarity of the
information to be collected; and
Minimize the burden of the collection of information on
those who are to respond, including through the use of appropriate
automated, electronic, mechanical, or other technological collection
techniques or other forms of information technology, e.g., permitting
electronic submission of responses.
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 8, 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 9 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
