The U.S. Department of Labor (DOL) and the Employee Benefits Security Administration (EBSA) have published their much-anticipated final rule to expand the ability of private sector employers to communicate mandated retirement plan disclosures and other information online or by email.
Largely mirroring the proposed version of the rule, which was put forward last year, the final rule allows employers to deliver disclosures to plan participants electronically by default, with the ability for participants to opt in to paper mailings if preferred.
The leadership at the EBSA says this measure will reduce printing, mailing and related plan costs by an estimated $3.2 billion over the next decade. The rule will also make disclosures more readily accessible and useful for participants, they say, while preserving the rights of those who prefer paper disclosures.
“This rule is an outstanding example of how commonsense deregulatory efforts can save billions of dollars,” says U.S. Secretary of Labor Eugene Scalia in a statement published alongside the final rule. “The rule will rely on widely available technology to keep workers and retirees informed about their plans, while still preserving the option to receive retirement information by mail. As we look ahead to reinvigorating the American economy, the Department of Labor’s priorities include eliminating unnecessary burdens for employers that sponsor retirement plans and on addressing the needs of wage earners, job seekers and retirees.”
Outgoing assistant secretary of the Employee Benefits Security Administration Preston Rutledge adds that the rule “reflects today’s marketplace while retaining the ability of participants to choose how they receive their retirement information.”
During the rulemaking process, the EBSA received hundreds of comment letters from a diverse set of parties in the retirement plan industry. The majority voiced strong support for the e-delivery default rule, citing the desire of participants to access information digitally and the possibility to save significant amounts of money and paper. Not all parties support the final rule, though. For example, the Coalition for Paper Options, which describes itself as “an alliance of consumer organizations, labor unions, rural advocates and print communications industry organizations,” has called on the Trump administration to reject this development. In explaining its opposition, the Coalition for Paper Options argues that the Department of Labor’s rule does not meet long-held standards for the proposal and adoption of new regulations.
The final rule allows retirement plan administrators to furnish certain required disclosures using the proposed “notice-and-access” model. Retirement plan administrators also have the option to use email to send disclosures directly to participants. According to the EBSA, these administrators must notify plan participants about the online disclosures, provide information on how to access the disclosures and inform participants of their rights to request paper or opt out completely. The new rule also includes additional protections for retirement savers, such as accessibility and readability standards for online disclosures and system checks for invalid electronic addresses.
The EBSA says it expects this rule also may help some employers and the retirement plan industry in their economic recovery from the disruption caused by the coronavirus pandemic. Many retirement plan representatives and their service providers, for example, have indicated that they are experiencing increased difficulties and, in some cases, a present inability to furnish Employee Retirement Income Security Act (ERISA) disclosures in paper form. Enhanced electronic delivery offers an immediate solution to some of these problems, EBSA says.
Early responses to the final regulation from the financial services industry are positive.
“Retirement savers won a big victory with this final action to have the federal government use modern communications tools to help consumers better access information,” says Susan Neely, American Council of Life Insurers (ACLI) president and CEO. “The Labor Department’s e-delivery rule represents smart public policy for the smartphone age. People are conducting business all the time over their phones and through other technologies. Digital capabilities are more important all the time and that’s been amplified by COVID-19. It only makes sense for people to have access to information about their retirement plans when they want it, wherever they are. At the same time, the Labor Department rule does a good job of addressing preferences of all plan participants by protecting those who prefer traditional paper.”
Tim Rouse, executive director of the SPARK Institute, says that “default electronic delivery works,” and that the DOL’s action today will benefit millions of retirement savers by lowering costs and providing greater access to and deeper engagement with information about their retirement savings.
“Today is a great day for retirement savers,” he says. “Retirement plan recordkeepers have a wealth of online tools and resources that will be unleashed by this commonsense modernization.”
“Given society’s widespread use of technology in 2020, this regulation is a victory for common sense,” comments Jason Berkowitz, IRI chief legal and regulatory affairs officer. “More importantly, plan participants and beneficiaries of all ages and incomes will gain the ability to access real-time online data, which will enable them to make more informed decisions about their retirement savings. Additionally, the rule maintains important safeguards to ensure participants who still want to receive required communications in paper format can do so.”
Berkowitz adds that the density of printed disclosure documents is, for many people, intimidating, and the static nature of printed materials “does not invite the kind of interactive engagement people should have to intelligently manage their retirement portfolios.”
“Vanguard applauds the Department of Labor’s decision to adopt a safe harbor for the electronic delivery of ERISA-required notices and disclosures,” says Martha King, Vanguard managing director and head of the firm’s institutional investor group. “The Department of Labor’s ruling strikes an appropriate balance by allowing plan sponsors to provide notifications in a manner that best serves a majority of participants’ preferred means of communication, while preserving the option for plan participants to continue receiving paper notifications if they wish.”
Paul Schott Stevens, Investment Company Institute (ICI) president and CEO, says that, once implemented, the new rule will “enhance the effectiveness of Employee Retirement Income Security Act [ERISA] disclosures, produce millions in cost savings for participants, and benefit the environment.”
“The rule brings retirement plan communications into the 21st century, while still allowing participants who want paper copies of material to receive them,” he suggests. “We commend the DOL staff for their hard work and dedication to American savers in finalizing this important rulemaking.”
Doug Chittenden, head of institutional relationships at TIAA, says he expects the use of electronic document and disclosure delivery to result in decreased costs for plan sponsors, as well as improved retirement outcomes for individuals, both in the amount Americans save for retirement and the ways savers understand, monitor and manage their retirement plans.
“TIAA commends the Department of Labor for finalizing a rule on electronic disclosure requirements for retirement plan participants,” Chittenden says. “The new rule will significantly modernize and streamline retirement disclosures and ensure participants have access to high-quality information about their savings in the format they prefer.”