A new report from the General Accountability Office in Washington says that employees enrolled in employer-sponsored retirement plans probably are not getting the information they need. The problem is confusing and contradictory rules regarding electronic record disclosure regulations, which often means that important information often isn’t presented to plan participants.
We agree – the rules are confusing. Right now each type of disclosure is handled differently, which can lead to overload for both sponsors and participants.
To be clear, electronic distribution of a notice usually means via email (a notice that needs to be pushed). Sometimes, however, the notice could be posted on the plan’s secure website for a participant to access (this type of notice is known as a pull). Regulations currently have both of these types of notices. For example, a mutual fund prospectus needs to be available to the participant to be ˜pulled’ and can be available electronically. A 404(a)(5) notice has to be pushed. It can be done electronically, but only if participants meet strict criteria.
The basic issue here boils down to electronic distribution versus old-fashioned printing on paper. With the number of disclosures that need to be sent, the ability to send electronically is an obvious cost savings. Take for example a 404(a)(5) notice. If a plan has 3,000 eligible employees, each employee needs to receive that notice. The notices cost roughly $3 per participant to produce and mail. That’s almost $10,000 to send out notices. (Ironically, for a notice aimed at disclosing costs to administer the plan.) Not to mention the time burn of the staff.
So why then is electronic not the allowed method? The DOL and other relevant regulatory agencies are very protective of a participant’s right to receive the notice by paper. Many participants do not have routine interaction with a computer during the job, for example workers in construction, manufacturing, food service, transportation, or even to some degree healthcare. The DOL has taken steps to insure these folks can receive their disclosures on paper.
So, why not both? Seems logical. If only it were that easy. What’s not necessarily understood is that unless electronic disclosure is allowed for all participants, it’s probably more work for a sponsor to split their participants into two groups. Take the example above: of the 3,000 participants, let’s say roughly 800 meet the criteria for receiving the electronic disclosure. Its more work for the sponsor to track who meets the criteria and email them, and mail the others, than it is to just mail them all. Further, if you allow participants to opt out as the GAO report suggests, you might only make this problem worse. Take the example above “ if we have 800 who can receive the notice electronically and 50 of them opt out, we now have three groups of people to manage communications with; the problem didn’t get solved, it just got more complex.
Further complicating all of this is that some notices are sent by a plan’s platform, while some are sent by the plan sponsor.
So what needs to be done?
In its report, the GAO recommended that the Departments of Labor and Treasury work together to create clear and consistent requirements for default electronic delivery of pension-related disclosures.
In an ideal world, here is what we would like to see happen:
- All notices should be subject to the same distribution rules.
- All notices should be required to be sent at the same time each year.
- If the plan has a secure website, all notices should be be posted to that website.
- One paper letter outlining all notices that were posted should be sent to participants.
- The letter should outline that if the participant does not have access to the website, or would like a paper copy of the disclosures, they can contact the plan’s 1800 # or stop by HR to pick up a copy.
By consolidating the notices, we reduce the number of times a participant receives information, reducing overload. By sending just a paper letter, we reduce the amount of printing while still maintaining the participants right to be notified on paper. Most transactions with the plan must be conducted through the website or the call center, so even if the participant doesn’t have routine access to a computer, they would still have the ability to access the notices.
Will it ever happen? Fairly unlikely, but we do anticipate some changes from the DOL and IRS in the coming months. We have already seen a movement toward standardizing deadlines with the decision by the DOL to allow 404a5 notices to be sent with year end notices. Stay tuned.