SHRM: DOL Proposal Will Shift 401(k) Participant Disclosures Online
Before the smartphone era, some workers had access to the Internet, but many others did not. Today, almost everyone carries the Internet in a pocket or bag. Yet government regulations still direct that retirement plan notices to plan participants be printed and sent to those who don’t work at a computer unless burdensome e-mail authorization requirements are met.
But that could be changing. On Oct. 23, the U.S. Department of Labor (DOL) proposed a new safe harbor for employers who want to publish retirement plan disclosures on a website rather than send paper documents through the mail. The DOL also posted a fact sheet on the proposed e-disclosure safe harbor. The proposal applies to plan disclosures required by the Employee Retirement Income Security Act (ERISA).
The DOL expects the rule to result in an approximately $2.4 billion net cost savings over the next 10 years by eliminating materials, printing and mailing expenses.
Catching Up with the Times
“Employers and employees alike have long asked for more digital options for plan disclosure documents, and it’s a great sign that the DOL’s policies are evolving to better serve Americans’ retirement planning needs,” said Amy Ouellette, director of retirement services at 401(k) advisory firm Betterment for Business.
Kim Buckey, vice president of client services at DirectPath, a benefits education, enrollment and health care transparency firm, said she was “actually pretty impressed” by the proposal. The DOL’s Employee Benefits Security Administration, which oversaw it, “has obviously been listening carefully to the almost two decades of feedback it’s been receiving on electronic versus paper distribution and is finally taking thoughtful action.”
Most employees now use electronic distribution as the default method for sharing information regarding 401(k) plans, “and more employers are providing their annual open-enrollment benefits materials online only,” so the DOL is playing catch-up, Buckey noted. She’d like to see a similar safe harbor for electronic disclosures introduced soon for health and welfare plans.
A New Safe Harbor
Under current rules, if retirement plan participants don’t routinely work online, plan sponsors must solicit their consent to receive plan information electronically. Participants must indicate consent by a means that shows they can receive electronic disclosures, such as by sending a verifiable e-mail to the plan sponsor.
Under the proposed rule:
- ERISA disclosures can be posted online as long as plan sponsors give participants a notice of Internet availability, which may be furnished electronically to participants by e-mail or a text to a smartphone number.
- E-mail addresses or smartphone numbers are either provided by the plan sponsor (such as when an employee’s work e-mail address is offered) or given by participants to the plan sponsor. A plan administrator may not default a participant into electronic delivery unless the participant has an e-mail address or smartphone number to receive the notice of Internet availability.
- The notice would include instructions on how to access ERISA disclosures and a statement of participants’ right to receive paper copies on request.
- The notice of Internet availability must be sent each time a retirement plan disclosure is posted online. To prevent e-mail overload, the proposal allows the notice to incorporate or be combined with other notices of Internet availability, as detailed in the regulation.
The proposal includes protections for retirement savers, such as security standards for the website where disclosures will be posted and system checks for invalid e-mail or smartphone addresses.
A Readability Standard
Under the proposal, the notice of Internet availability must “be written in a manner calculated to be understood by the average plan participant.” The proposal further explains that “a notice that uses short sentences without double negatives, everyday words rather than technical and legal terminology, active voice, and language that results in a Flesch Reading Ease test score of at least 60″ will satisfy this requirement.
Plan sponsors and administrators could choose between the old and new e-disclosure safe harbors or use both.
Ouellette said the new rule “not only will save significant time and money spent on printing and mailing, but it creates a meaningful opportunity for plan sponsors to improve the user experience” associated with disclosures.
“Right now, 401(k) plan disclosures are very long, dense paper documents that most plan participants receive in the mail and are unlikely to read through,” she said. With the online format, “plan sponsors could make disclosure forms into an easy-to-digest resource for plan participants—with word definitions, click-through links, and options to deep-dive into the content or return to specific sections when they become relevant for the individual.”
Comments on the proposal are requested by Nov. 22, along with feedback on the optimal scope, content, design and delivery of participant disclosures, to help the DOL decide if additional changes to the participant disclosure rules should be made in the future. Comments can be submitted using the federal eRulingmaking portal.
Buckey encouraged employers to take the opportunity to comment, either directly or through their service providers, adding, “Clearly, the agency is seeking a robust discussion with affected plan sponsors and administrators before a final regulation is released.”
Read the article here.
(Stephen Miller, CEBS, is the Online Manager/Editor, Compensation & Benefits for SHRM Online.)