H&W: Know the Electronic Distribution Guidelines
A recent case out of the federal district court in New York City emphasizes the importance of careful compliance with the details of ERISA’s regulations on electronic delivery of SPDs. In the case of Thomas v. Cigna Group Insurance, the insurance company denied a beneficiary benefits because the insured failed to keep coverage in force during the period of disability that eventually led to her death.
The policy contained a “waiver of premium” provision that would have allowed the coverage to remain in force after her employment ended had the insured provided Cigna with notice and proof of her disability. She failed to do that but her beneficiary argued that the insured was never given proper notice of these obligations. Resolution of this question came down to whether the employer’s practice of posting SPDs on the company intranet met ERISA’s notice and distribution rules.
ERISA requires plan administrators to “furnish” SPDs to plan participants. The court noted that this requires more than simply making the SPD available; instead, the law requires that the delivery method be one that is reasonably calculated to ensure actual receipt. This was a fairly straightforward requirement in the days prior to email and the internet. A plan administrator could use hand delivery or first class mail, for example, and be pretty sure that the documents would be received.
However, the advent of electronic communications raised questions about how to apply those rules, which were developed for a simpler era. In response, the Department of Labor adopted “safe harbor” regulations for electronic disclosures.[i] There are separate rules for participants that have work-related computer access and those that do not. The Thomas case turned on the interpretation of the former.
The first question was whether the participant in this case actually had work-related access. The court noted that there were two important aspects to this. First, the participant must have the ability to access the documents at any location where she could reasonably be expected to perform work. In addition, the participant must be a person who accesses the employer’s electronic information system as an integral part of her duties. For example, it would not be sufficient to make the information available on a computer in an area of the company where employees normally congregate.
While this standard is likely to be met in a typical office environment, it may not be so easily met in others, for example, a factory setting. Of course, it’s also possible that even within an office, certain categories of jobs may not integrally involve computer access.
The second question turned on whether the employer provided adequate notice of the availability of plan documents. The rule here is that notice must be provided to each participant at the time a document is furnished electronically. The notice must inform the individual of the significance of the document when it is not otherwise reasonably evident as transmitted. A generalized notice given upon commencement of employment stating that information about employee benefits is available on the company intranet fails to meet that requirement.
Each time the employer adds or modifies benefits, it should make sure that employees are notified, electronically or otherwise, of the need to check the intranet for details.
In the Thomas case, the court found that the employer had failed to establish that the participant was a person with work-related access to the company’s intranet. Moreover, even if she were such a person, the company failed to show that it had provided the requisite notice of availability of the SPDs in question. On this basis, the court held that the participant was not furnished with notice of the policy’s premium waiver provisions and that the insurance company should pay the death benefit notwithstanding the employee’s failure to invoke them under the terms of the policy.
The lesson for employers that rely on electronic distribution of SPDs and other ERISA-required disclosures is that failure to comply with the details of the Labor Department rules can be a costly mistake. It is worthwhile to periodically review your processes to assure that they are adequate and that they are being followed.
Note that this blog focuses on two of the numerous requirements for electronic disclosures. Employers may wish to review the Compliancedashboard materials for a more thorough discussion.
[i] Because this is a safe harbor rather than a set of minimum requirements, it may be possible to meet electronic disclosure requirements though other methods.
