If the proposal is adopted, electronic delivery can be the default method for providing documents, so long as participants can opt out of the default if they prefer paper documents. (Photo: Shutterstock)
The country's largest sponsors of retirement plans are more than ready to move on a Labor Department proposal that would facilitate wider utilization of electronic plan documents.
"Employers have been looking at this for quite a while," said Aliya Robinson, senior vice president, retirement and compensation policy, for the ERISA Industry Committee.
"We are ready," she added.
Labor's proposed rule, which is currently open to a 30-day comment period that closes November 22, would establish a new safe harbor for using electronic media to deliver required plan documents.
If the proposal is adopted, electronic delivery can be the default method for providing documents, so long as participants can opt out of the default if they prefer paper documents.
A 2002 safe harbor allowed electronic delivery, but with greater restrictions. The option could only be used for employees that are "wired at work"—meaning they have access to email or a computer portal as part of their work responsibilities.
And employees had to give affirmative consent to receive documents electronically. The original safe harbor will remain available to plan sponsors.
Utilization of the original safe harbor has been relatively slack, which has resulted in higher costs to administer retirement plans, which may have been passed on to plan participants.
In 2016, Labor estimates that just under half of approximately 120 million plan participants received plan documents through the mail. Labor also estimates that the new proposed safe harbor will result in $2.4 billion in savings over 10 years.
That slack take-up rate has been due to inertia, explained Robinson. While more participants would prefer electronic delivery, they simply haven't taken the step to actively choose the option.
With the new safe harbor, too, it's expected that inertia would still be a factor, but the new safe harbor effectively flips the table on the tendency: Participants will be less likely to opt out of electronic delivery if they are defaulted into the option.
|Opportunity to expand retirement education
The cost savings will translate to participant savings, said Robinson.
But large sponsors—ERIC represents employers with at least 10,000 employees—see an opportunity to broaden already substantial efforts to increase financial literacy.
"They see this as a way to expand retirement education," said Robinson.
Sponsors will have some latitude in how they deliver electronic documents. A workforce that is consistently at a computer can be directed to a dedicated portal. Those that are more mobile may receive notices through emails.
In either case, electronic delivery will facilitate greater connections to retirement accounts, and vital information on savings rates and other tailored data designed to enhance retirement outcomes, said Robinson.
"What our plan sponsors like is the ability to layer information so that it is useful to everyone. You can start with a first layer, then embed links to more detailed information," she said.
That ability to layer information electronically will naturally create simplified plan documents, thinks Robinson.
|AARP has reservations
ERIC plans to file a comment letter that is appreciative of the proposal but will raise some technical issues, said Robinson. The advocacy also wants the new safe harbor extended to workplace health care plans.
While sponsors have been lobbying for a default electronic delivery option over the past two decades, not everyone is on board. AARP has been resistant to the option.
"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 for financial security and consumer affairs at AARP, in an email.
"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," she added.
ERIC's Robinson thinks AARP's concerns are misplaced, citing data from Pew Charitable Trusts showing 73 percent of retired-age Americans use the internet, and 68 percent of baby boomers own smartphones.
"The opt-out provision in the new safe harbor takes care of those that will want or need paper documents," said Robinson.
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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.
