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

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: ``[email protected]'' (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