Plan e-doc delivery would save trees, but could it also increase plan participant engagement? (Photo: Shutterstock)
The Labor Department has released a long-awaited proposed rule that would facilitate wider electronic delivery of required plan documents to retirement savers in workplace plans.
While a seemingly uncontroversial idea on its face, regulators, plan sponsors, and service providers have been wrestling with the concept for the better part of two decades.
The proposed rule establishes a new safe harbor for electronically delivering plan documents on top of an existing safe harbor promulgated in 2002.
Under the new safe harbor, plan sponsors can use electronic delivery as the default method of providing documents, so long as they allow plan participants to opt out of the option if they prefer paper documents.
"The proposal goes all the way and moves electronic delivery from opt-in to opt-out," said Kevin Walsh, a principal with The Groom Law Group.
Electronic delivery has been available to plan sponsors since the 2002 safe harbor, which applied to two categories of plan participants: those who are "wired at work"—meaning they have access to email or a computer portal as a part of their core work responsibilities; and those that affirmatively consent to receiving documents electronically.
Under the original safe harbor, a participant's consent to receive documents electronically "must reasonably demonstrate the individual's ability to access information in the electronic form," according to the Labor Department's description in the proposed rule.
That requirement, and others in the original safe harbor, have been viewed as confusing to plan sponsors and plan providers, and consequently led to low utilization of the safe harbor.
"The prior rules were designed to try to make the use of electronic documents easier, but sponsors found the safe harbor to be too onerous," explained Walsh.
According to the cost savings analysis in Labor's proposal, the rule, if ultimately implemented, would create $2.4 billion in net savings over 10 years.
Labor assumes that just under half of approximately 120 million retirement plan participants received disclosures by mail in 2016.
The savings estimate assumes the opt-out rate of electronic delivery would be 18.5 percent initially, dropping to 7.5 percent over 10 years.
|Beyond savings, rule could promote better engagement
Those cost savings, which Labor suggests could be passed on to savers, are certainly considerable, said Chris Spence, senior director for government relations and public policy at TIAA.
Others, including lawmakers, have cited the environmental benefits of reducing paper waste, which Spence, too, acknowledged.
But the most important consequence of the proposal, if it ultimately is adopted, would be improved engagement among savers with their retirement plan, thinks Spence.
"The cost savings are important, and that will help savings rates and savers," said Spence. "But we think the engagement factor is the top of the list. As soon as you log onto a portal to receive your documents, you have access to information on your savings rates, and whether you are on track for retirement. If you receive your documents through the mail, in order to do anything further you need to then actively log onto a website, and take other steps. Assuming you open your mailed documents."
Upon cursory review of the proposal, Spence thinks it looks good. "We're definitely supportive of Labor's effort and think this is long overdue," he added.
|Labor wants input on improving plan docs
Labor will open a 30-day comment period on the proposal, beginning with its publication in the Federal Register on October 23.
Not all paper would be eliminated under the rule. Sponsors would be required to deliver one paper document describing how to access documents electronically, noted Amy Ouellette, director of retirement services at Betterment for Business.
Importantly, the proposal also includes a request for information on how to better improve plan documents.
"That's the next piece we are most excited about," said Ouellette. "Most participants can't tell you half of what they've read when they do read the documents."
Betterment's sponsor clients use the 2002 safe harbor when it is available. The majority of its participant clients opt into electronic delivery of plan documents. A brand built on user experience, the firm plans to comment on how to make required plan documents more readable, and more negotiable when presented online, Ouellette said.
The RFI on enhancing the effectiveness of the disclosures required under ERISA raises 21 questions, ranging from the way to best measure the effectiveness of plan documents, to the length of documents, to whether there is redundancy in plan documents, or whether some are obsolete.
"Labor is focused on getting better access to documents, and helping participants to better understand them," said Walsh of The Groom Law Group.
"This could be a real pivot towards simpler language in plan disclosures," he added. (See the proposed rule at the EBSA site.)
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
