DOL proposes rule on digital 401(k) disclosures

A new rule has been proposed by the Department of Labor (DOL) that is meant to encourage employers to issue retirement plan disclosures electronically. This rule would allow plan sponsors of 401(k)s and other defined-contribution plans to default participants with a valid email address to receive plan disclosures electronically. Read the following blog post to learn more.

The Department of Labor proposed a rule Tuesday that's meant to encourage more employers to issue retirement plan disclosures electronically to plan participants.

The rule would allow sponsors of 401(k)s and other defined-contribution plans to default participants with valid email addresses into receiving all their retirement plan disclosures — such as fee disclosure statements and summary plan descriptions — digitally instead of on paper, as has been the traditional route.

Participants can opt-out of e-delivery if they prefer paper notices. The proposed rule covers the roughly 700,000 retirement plans subject to the Employee Retirement Income Security Act of 1974.

"DOL rules have largely relied on a paper default," said Will Hansen, chief government affairs officer for the American Retirement Association. "Everything had to be paper, unless they opted into electronic default. This rule is changing the current standing."

Proponents of digital delivery believe it will save employers money and increase participants' retirement savings. The DOL also believes digital delivery will increase the effectiveness of the disclosures.

Plan sponsors are responsible for the costs associated with furnishing participant notices, and many small and large plans pass those costs on to plan participants, Mr. Hansen said. The DOL estimates its proposal will save retirement plans $2.4 billion over the next 10 years through the reduction of materials, printing and mailing costs for paper disclosures.

Opponents of digital delivery maintain that paper delivery should remain the default option. They have noted that participants are more likely to receive and open disclosures if they come by mail, and claim that print is a more readable medium for financial disclosures that helps participants better retain the information.

"We are reviewing the proposal carefully and look forward to providing comments to the Department of Labor, but we already know that in a world of information overload, many people prefer to get important financial information delivered on paper, not electronically," said Cristina Martin Firvida, vice president of financial security and consumer affairs at AARP. "The reality is missed emails, misplaced passwords and difficulties reading complex information on a screen mean that most people do not visit their retirement plan website on a regular basis."

President Donald J. Trump issued an executive order on August 2018 calling on the federal government to strengthen U.S. retirement security. In that order, Mr. Trump directed the Labor secretary to examine how the agency could improve the effectiveness of plan notices and disclosures and reduce their cost.

The DOL proposal, called Default Electronic Disclosure by Employee Pension Benefit Plans under ERISA, is structured as a safe harbor, which offers legal protections to employers that follow the guidelines laid out in the rule.

Retirement plans would satisfy their obligation by making the disclosure information available online and sending participants and beneficiaries a notice of internet availability of the disclosures. That notice must be sent each time a plan disclosure is posted to the website.

A digital default can't occur without first notifying participants by paper that disclosures will be sent electronically to the participant's email address.

The 30-day comment period on the proposal starts Wednesday. In addition, the DOL issued a request for information on other measures it could take to improve the effectiveness of ERISA disclosures.

SOURCE: Lacurci, G. (22 October 2019) "DOL proposes rule on digital 401(k) disclosures" (Web Blog Post). Retrieved from

EEOC Proposed Rule on Wellness and the Americans with Disabilities Act – What Employers Need to Know

Originally posted by M. Brian Magargle and Robin E. Shea on April 30, 2015 on

The employer community has been waiting for years to receive guidance from the Equal Employment Opportunity Commission on wellness programs and how an employer’s obligations under the Americans with Disabilities Act intersect with its rights and obligations under the Health Insurance Portability and Accountability Act (as amended by the Affordable Care Act).

The EEOC finally issued a proposed rule on April 20. The following is what employers need to know in a “Q&A” format.

What problem is the EEOC trying to resolve?

The quick answer is an apparent conflict between the ADA rules on employer “medical inquiries,” on the one hand, and the “wellness program” provisions of the HIPAA/ACA, on the other.

Title I of the ADA (the part of the ADA that applies to private sector employers) generally prohibits employers from making “medical inquiries” of current employees unless the inquiries are “job-related and consistent with business necessity” (for example, to verify the need for a reasonable accommodation). The general rule is that employers are not supposed to be asking for medical information from current employees.

There are some limited exceptions to this rule, including an exception for medical inquiries made in connection with a “voluntary wellness program.”

As employer wellness programs have become more popular, many employers began offering specific rewards or penalties to employees based on whether they participated in the programs and even on whether they achieved certain “results.” As will be discussed in more detail below, the HIPAA and the ACA specifically authorize wellness programs to offer incentives for “participation” and “outcomes” under certain circumstances. However, the question arose whether the use of such incentives would render the wellness program not “voluntary” for ADA purposes. If the wellness program was not voluntary because of the incentives, then any requests for employee medical information made in connection with the wellness program would violate the ADA.

(Title I of the ADA would not have an impact on medical inquiries made, say, to the family member of an employee who might also be eligible to participate in the employer’s wellness program.)

Thus, it was possible that an employer could offer a wellness program that was authorized and lawful under the HIPAA/ACA but still be vulnerable to charges and lawsuits under the ADA. The EEOC’s proposed rule seeks to address this problem, and for the most part, it should be welcomed by employers who offer wellness programs.

What does the proposed rule say, in a nutshell?

The proposed rule says that a wellness program can still be “voluntary” for ADA purposes if the program provides “incentives” for employees (both rewards and penalties), as long as the employer complies with the wellness incentive requirements of the HIPAA/Affordable Care Act.

There are two caveats: The wellness program would have to be associated with a group health plan (either insured or self-insured), and the EEOC proposals do not exactly match the HIPAA/ACA rules, although they are reasonably close.

Can you give us a recap of the HIPAA/ACA requirements?

Under the HIPAA/ACA scheme, there are two types of wellness programs. A “participatory” program is one that rewards employees just for participating and does not require a specific goal to be met. (An example would be an employer who reimburses employees for fitness club memberships.) Under the HIPAA/ACA, participatory programs can be offered without limitation, as long as they’re available to all similarly situated individuals.

The other type of wellness program is a “health-contingent” program. There are two types of “health-contingent” programs: (1) activity-only programs, in which the employee is rewarded for completing an activity but doesn’t have to achieve or maintain an outcome (for example, “we’ll pay you $100 if you walk a mile three days a week for a year”); and (2) outcome-based programs, in which employees are rewarded for achieving or maintaining results (for example, “we’ll pay you $100 if you keep your BMI at or below 25 for a year, or if you quit smoking”).

If the program is health-contingent, employers are allowed to offer incentives (carrots or sticks) if –

  • Employees are allowed to try to qualify at least once a year,
  • The total reward offered doesn’t exceed 30 percent of the total cost of employee-only coverage under the plan or the total cost of family coverage if dependents are also allowed to participate in the program (“total” means the employee’s and the employer’s share). The percentage is up to 50 percent for tobacco prevention or cessation,
  • The program is reasonably designed to promote health or prevent disease,
  • The full reward must be available for all similarly situated individuals, and reasonable alternatives must be offered to those who can’t qualify, and
  • The availability of reasonable alternatives must be disclosed in plan materials and in any disclosure telling an individual that he or she did not meet an initial outcome-based standard.

Under the HIPAA/ACA, the 30 percent/50 percent incentive limit applies only to “health-contingent” programs. HIPAA and the ACA have no limit on rewards that apply to “participatory” programs (if the programs are available to all similarly situated individuals).

The EEOC’s proposed rule is slightly different.

How does the EEOC proposed rule contrast with the HIPAA/ACA rule?

The EEOC would allow employers to offer incentives for employee participation in wellness programs associated with group health plans if the total reward does not exceed 30 percent of the total cost of employee-only coverage under the plan for both participatory and health-contingent wellness programs. The EEOC proposed rule does not allow a 50 percent reward level for tobacco cessation programs (unless there are no associated disability-related questions or medical exams), and the total cost used in the reward calculations does not take into account family-level coverage, even where dependents can participate in the program.

In addition, the wellness program must be completely voluntary. The EEOC would define “voluntary” as follows:

  • Employees aren’t required to participate in the wellness program,
  • Health insurance coverage is not denied or made more difficult to get if the employee chooses not to participate (with the exception of the permitted “incentives”), and
  • The employer does not take adverse action against an employee for refusing to participate . . .as this employer allegedly did.

The EEOC invites the public to comment on the proposed rule through June 19. The agency is particularly interested in comments pertaining to how much medical information an employee should be required to disclose to be eligible for an incentive, whether the rule should require that the incentives not render health insurance “unaffordable” within the meaning of the ACA, issues related to the “notice” requirement, how to treat wellness programs that are not associated with group health insurance, as well as other topics.

The employer would also be required to provide a notice “that clearly explains what medical information will be obtained, who will receive the medical information, how the medical information will be used, the restrictions on its disclosure, and the methods the covered entity will employ to prevent improper disclosure of the medical information.”

The wellness program would be required to disclose medical information to the employer only in aggregated, non-individually-identifiable form, “except as needed to administer the health plan.”

Are there any other issues to consider under the HIPAA/ACA?

Although the EEOC rule is currently in proposed form, we expect any final version to still be somewhat different from the HIPAA/ACA requirements for wellness programs. For example, one of the primary requirements of a outcome-based program under HIPAA is the ability of an employee to meet a “reasonable alternative standard” to receive the reward. Participants in the program must be clearly informed of that option, and it remains to be seen how that notification will be coordinated with the notice proposed by the EEOC. A related issue is the intersection of the “reasonable alternative standard” under HIPAA with the reasonable accommodation and interactive process obligations under the ADA. The EEOC’s Interpretive Guidance to the proposed rule says that provision of a “reasonable alternative standard” along with the required notification will generally satisfy the employer’s reasonable accommodation obligations under the ADA, but no specifics are given. Moreover, the Interpretive Guidance notes that under the ADA an employer would have to make reasonable accommodations for an employee who could not be in a “participatory” program because of a disability, even though the HIPAA/ACA rules do not require a “reasonable alternative standard” for participatory programs.

Also, details about wellness programs commonly appear in ERISA-governed summary plan descriptions, so will the EEOC rules also have to appear there as well?

There are similarities between the employee benefits issues affecting wellness programs, on the one hand, and the ADA and employee-relations issues, on the other, but the differences are equally important and will hopefully be addressed by the EEOC in the final rules expected to be issued later this year.

What should employers do?

The proposed rule describes certain employer “best practices,” as follows:

  • Employers should ensure that employees who handle medical information know their obligations under the laws.
  • Employers should adopt privacy policies for collection and handling of employee medical information, assuming that they have not already done so.
  • If medical information is stored electronically, it should be encrypted and other security measures implemented such as password protection and firewalls.
  • If possible, employees who handle medical information should not be “making decisions related to employment, such as hiring, termination, or discipline.” If this is not possible, then the employer should ensure that there is no discrimination based on an employee’s disability.
  • Breaches of confidentiality should be promptly and effectively addressed, and the affected employees should be informed immediately.
  • Employers should take appropriate action against an employee who breaches confidentiality, and should “consider discontinuing” their relationships with vendors who breach confidentiality.

Why doesn’t the EEOC proposed rule have a 50-percent incentive for tobacco-related programs, since the HIPAA/ACA does?

The EEOC explained that it did not include the 50 percent incentive for tobacco programs because, it said, most of those programs do not seek employee medical information at all. If not, there would be no ADA issue. But if a tobacco program does seek such information (for example, through testing for nicotine, or monitoring blood pressure), then the tobacco program would have to be included in computing the 30-percent limit for incentives.

Did the proposed rule address the employer’s right to get medical information from an employee’s family members, who may be covered under the employee’s health insurance and might be eligible for participation in the wellness program?

No, because Title I of the ADA applies only to employers and employees. Medical inquiries about an employee’s family member would, of course, be covered under the Genetic Information Nondiscrimination Act, which is also enforced by the EEOC. The EEOC says it will issue guidance on wellness and the GINA “in future EEOC rulemaking.”

Did the proposed rule contain anything else of interest?

Yes. The EEOC has explicitly disagreed with a wellness/ADA decision from the U.S. Court of Appeals for the Eleventh Circuit, Seff v. Broward County. At issue in the Seff case was a $20-per-paycheck penalty that employees had to pay if they chose not to participate in the county’s wellness program. The court found that the county’s program fell within a “safe harbor” in the ADA, which provides that a covered entity is not prohibited “from establishing, sponsoring, observing or administering the terms of a bona fide benefit plan that are based on underwriting risks, classifying risks, or administering such risks that are based on or not inconsistent with State law.” Because the program fell within the safe harbor, the court said, it was irrelevant whether the program was “voluntary” or whether medical inquiries made in connection with the program violated the ADA.

The EEOC’s position is that this “safe harbor” provision in the ADA does not apply to wellness programs.

Employers who operate in the Eleventh Circuit states of Alabama, Florida, or Georgia can continue to follow Seff for the time being. However, employers who operate in other states may choose to follow the EEOC’s position once its proposal becomes final. The conflict between the EEOC and the Eleventh Circuit will probably be resolved eventually by the courts.

Highlights of Rules on Essential Health Benefits and Actuarial Value

On Nov. 20, 2012, the Department of Health and Human Services (HHS) issued a proposed rule that addresses a number of questions surrounding essential health benefits and determining actuarial and minimum value.  This rule is still in the "proposed" stage, which means that there may - and likely will - be changes when the final rules are issued.

Provisions that Particularly Affect Insured Small Employers
Beginning in 2014, nongrandfathered insurance coverage in the individual and small group markets will be required to provide coverage for "essential health benefits" (EHBs) at certain levels of coverage.  The proposed rule:

  • Confirms that these policies, whether provided through or outside of an exchange, will be required to:
    • cover the 10 essential health benefits:
      • ambulatory/outpatient
      • emergency
      • hospitalization
      • maternity and newborn care
      • mental health and substance use
      • prescription drugs
      • rehabilitative and habilitative services and devices - e.g., speech, physical and occupational therapy
      • laboratory services
      • preventive and wellness services and chronic disease management
      • pediatric services, including pediatric dental and vision care
    • provide coverage that meets the "metal" standards (an actuarial value of 60, 70, 80 or 90 percent; actuarial value means the percentage of allowed costs the plan is expected to pay for a standard population)
    • meet cost-sharing requirements (in most instances, the deductible for in-network services could not exceed $2,000 per person or $4,000 per family, and the out-of-pocket limit for in-network services could not exceed the high deductible health plan limit for health savings account eligibility, which is currently $6,050 per person or $12,100 per family)
  • Confirms that each state would choose its own EHB package, based on a "base-benchmark" plan already available in the state.  Many states have already chosen their base-benchmark plan; those who have not done so have until Dec. 26, 2012, to make their selection or the federal government will make the selection for them. Information on state elections to date and the policy that will apply if no choice is made is here: Additional Information on Proposed State Essential Health Benefits Benchmark Plans |
  • Provides a way to cover any gaps in EHB coverage under the base-benchmark plan (because many plans do not currently cover habilitative care or pediatric vision / dental services)
  • Provides that other policies in the exchange and small-group market must generally provide the same coverage within each EHB category as the base-benchmark plan, but that they may substitute an actuarially equivalent benefit within a category
  • States that HHS will provide a calculator that must be used in most situations to determine actuarial value
  • Provides that a plan that is within 2 percent of the metal standard would be acceptable (for instance, a plan with an actuarial value of 68 percent to 72 percent would be considered a "silver" plan)
  • Provides that state mandates in place as of Dec. 31, 2011, would be considered EHBs
  • Provides that current year employer contributions to a health savings account (HSA) or a health reimbursement arrangement (HRA) would be considered as part of the actuarial value calculation

Provisions that Particularly Affect Self-Funded and Large Employers

For the most part, self-funded and large-group plans would not be required to provide coverage for each of the 10 EHB categories.  However, these plans would not be allowed to impose annual dollar limits on EHBs. Also, although self-funded and large-group plans would not be required to cover all of the EHBs, they would be required to provide coverage for all of the "core" benefits -- hospital and emergency care, physician and mid-level practitioner care, pharmacy, and laboratory and imaging - to be considered a plan that provides "minimum value."
The proposed rule also:
  • States that HHS and the IRS would provide a minimum value calculator and safe harbor plan designs that self-funded and large-group plans could use to determine whether the plan provides minimum value (the safe harbor plan designs were not included in the proposed rule)
  • Provides that current-year employer contributions to an HSA or a HRA would be considered as part of the minimum value calculation
  • Resolves an ambiguity in the law and provides that the restrictions on maximum deductibles would not apply to self-funded and large-employer plans.
Important: This rule is still in the "proposed" stage, which means that there may be changes when the final rule is issued.  The public may make suggestions until Dec. 26, 2012, on how the proposed rule should be changed before it is finalized.  Employers should view the proposed rule as an indication of how plans will be regulated beginning in 2014, but need to understand that changes are entirely possible.

IRS Issues Three Proposed Regulations Addressing Open Issues Under PPACA

On Nov. 20, 2012, the Department of Health and Human Services issued three sets of proposed rules that provide some of the needed details on how PPACA will probably unfold.  The proposed rules address:

  • Wellness programs under PPACA
  • Essential health benefits and determining actuarial value
  • Health insurance market reforms
All three rules are still in the "proposed" stage, which means that there may - and likely will - be changes when the final rules are issued.  There is a 30-day public comment period on the essential health benefits and market reforms rules, and a 60-day comment period on the wellness rule.
Nondiscriminatory Wellness Incentives
The proposed rule largely carries forward the rules that have been in effect since 2006.  There still would not be limits on the incentives that may be provided in a program that simply rewards participation, such as a program that pays for flu shots or reimburses the cost of a tobacco cessation program, regardless whether the employee actually quits smoking.  Programs that are results-based (which will be called "health-contingent wellness programs") still would need to meet several conditions, including a limit on the size of the available reward or penalty.  Beginning in 2014, the maximum reward/penalty would increase to 50 percent for tobacco nonuse/use and to 30 percent for other health-related standards.
Essential Health Benefits (EHBs) and Actuarial Value
The proposed rule confirms that nongrandfathered plans in the exchanges and the small-group market will be required to cover the 10 essential health benefits and provide a benefit expected to pay 60, 70, 80 or 90 percent of expected allowed claims.  The proposed rule also says that self-funded plans and those in the large employer market would not need to provide the 10 EHBs; instead, they would need to provide a benefit of at least 60 percent of expected allowed claims and provide coverage for certain core benefits.  The proposed rule would consider current year employer contributions to a health savings account (HSA) or a health reimbursement arrangement (HRA) as part of the benefit value calculation.
Market Reforms
The proposed rule confirms that nongrandfathered health insurers (whether operating through or outside of an exchange) would be prohibited from denying coverage to someone because of a pre-existing condition or other health factor.  The proposed rule also provides that premiums for policies in the exchanges and individual and small-group markets could only vary based upon age, tobacco use, geographic location, and family size and sets out details on how premiums could be calculated.
Important: These rules are still in the "proposed" stage, which means that there may be changes when the final rule is issued.  Employers should view the proposed rules as an indication of how plans will be regulated beginning in 2014, but need to understand that changes are entirely possible.