On Nov. 22, the American Retirement Association provided information to the Labor Department on the general disclosure framework under the Employee Retirement Income Security Act of 1974 (ERISA), focusing on “design, delivery, and content.”
The Request for Information (RFI) accompanied a proposal on electronic delivery of ERISA disclosures, which had been unveiled by the Labor Department on Oct. 22. That proposal – which fulfilled a key component of President Trump’s August 2018 retirement security Executive Order – would allow plan administrators who satisfy specified conditions to provide participants and beneficiaries with a notice that certain disclosures will be made available on a website. The ARA commented separately on the proposal.
In a letter to the Honorable Preston Rutledge, Assistant Secretary for Employee Benefits at the Employee Benefits Security Administration, the ARA reiterated its longstanding support for the DOL’s initiatives regarding electronic delivery of ERISA disclosures, noted that the questions posed in the RFI are squarely within the expertise and experience of ARA’s members – and that, “additional time for developing responses to these questions would be very beneficial.”
The latter effectively acknowledges that the 21 questions posed in the RFI cover a broad range, and pose potentially enormous implications for the future. Among those questions was an opportunity to weigh in on the following issues.
Measuring the Effectiveness of Disclosures
ARA’s members have found participants often do not understand much of the terminology used in the ERISA disclosures furnished to them
ARA does not believe, however, that plan administrators should be responsible for assessing their effectiveness, and does not support the imposition of additional requirements to require plan officials to affirmatively assess use, effectiveness, impact of disclosures as that “would unduly burden plan sponsors and act as a barrier to plan adoption.”
Disclosure Improvements
The ARA comment letter highlighted a number of “currently mandated routine retirement plan disclosures for which effectiveness and efficiency could be improved,” including:
the Safe Harbor (“too complex to be effective and doesn’t focus on the desired action sought from the participant – namely engagement and participation);
Summary Annual Reports (SARs) (“…not especially useful because they do not provide information that most participants consider meaningful”);
Summary Plan Description (SPD) (with regard to retirees the “delivery requirements are extremely burdensome and do not add value for participants,” and thus recommended giving employers a “fresh start” opportunity with respect to terminated participants, “permitting fewer expensive mailings, and/or permitting notice of online access”)
QPSAs (these “extensive” notices “overwhelm participants, many of whom fail to make an election”; and
SARs (now that employers are required to post it on an intranet and the Form 5500 is also readily available at the DOL’s website, as well as many other websites, these were identified as “obsolete”).
The Impact of Personalization
Noting that electronic communication campaigns targeted to personal audiences (for example people nearing retirement, or people with low deferral rates) tend to produce greater engagement, the ARA letter opposed “making additional customization obligatory,” and noted that competition in the marketplace of plan service providers provide sufficient incentive for improved communication and results.
TMI?
In response to a question regarding whether some ERISA documents “may be too voluminous, complex, or both,” the letter noted that there needs to be a balance struck between providing too little information for participants to gain an adequate understanding of what the disclosure is trying to convey and providing too much information, which can become overwhelming and confusing. The ARA letter comments that it believes that plan sponsors currently must provide too much information to participants, and that “shorter, more focused notices would be more effective.” It supports condensing and streamlining required disclosures or permitting the furnishing of online/internet links to required information.
Room for Improvement(s)
The ARA notes that required summaries of participants’ rights and obligations under the plan are “duplicative and result in lengthy disclosures, thereby reducing their efficacy,” and that safe harbor notices and annual participant fee disclosures are also “duplicative when fee information is otherwise readily available.” Moreover, the letter notes that “SPDs can be redundant to annual notices such as safe harbor notices.” In sum, and noting that additional time to respond would be welcome, the letter called out “Safe Harbor Notices, Annual Participant Fee Disclosures, and QPSA Notices for Beneficiary Designations as too voluminous, complex, or both.”
Obsolete?
The ARA opined that SARs are “obsolete now that employers are required to post it on an intranet and the Form 5500 is also readily available at the DOL’s website, as well as many other websites,” and that, if delivery requirements cannot be eliminated, suggested eliminating the OMB paperwork reduction disclosure, as “participants describe the language as confusing.” Additionally, the ARA noted that revocation of beneficiary designations (and accompanying QPSA disclosure timing) required at age 35 with defined benefit plans is “outmoded.”
Cybersecurity
While the letter notes that it is well established that ERISA fiduciaries are duty-bound to take prudent steps to protect plans and participants from cyber risks and to protect their privacy, ARA said it does not believe that specific safeguards should be required by the DOL in this regard, since cyber risks and security change too rapidly to make specific regulation a workable solution, and “required cybersecurity measures that are known in the public space can reduce the effectiveness of these controls because bad actors become familiar with what to expect.”
Other Comments
The ARA does not believe that the DOL should regulate a “one size fits all” approach for all plans because varying participant populations necessitate varied design elements, and the market drives innovation in this area. Rather, the letter calls for “clear, qualitative standards for plan fiduciaries who use innovative methods for communicating essential information to participants,” noting that that would be more beneficial than regulatory requirements for design elements.
For recurring notices – fewer is better. The letter notes that participants get “notice fatigue” and engagement wanes (particularly when they get notices with no actionable information, like the SAR).
Support packaging required information into fewer disclosures – particularly an annual disclosure highlighting actions required of participants, aided by coordination with the Treasury Department and IRS as to IRS-required disclosures.
DOL should issue guidance clarifying that plan assets may be used to pay for some participant retirement education, increasing participant engagement “because many participants and plan sponsors favor leveraging existing relationships for information including retirement readiness programming for participants.”
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