Retirement plan industry executives are asking the federal government to issue emergency guidance for the electronic delivery of fee-disclosure information by sponsors to participants.
They want to make sure they have safe harbor protection when new fee-disclosure rules take effect, according to the request by 16 financial services organizations sent July 7 to the Department of Labor and the Office of Management and Budget. In asking for immediate relief, the organizations said they doubted the DOL can act fast enough to develop wide-ranging regulations on electronic delivery of documents before sponsors must comply with the new fee rules.
The DOL issued a request for information in April and received public comments until early June on the broader use of electronic delivery of documents. But DOL executives haven't discussed a timetable for action. “We are carefully reviewing all of the comments on this issue,” said DOL spokesman Mike Trupo. “Once the evaluation is complete, we will determine whether any next steps are necessary.”
Meanwhile, the fee-disclosure regulations take effect with plan years starting Nov. 1, 2011, although the DOL recently issued a “transitional rule” saying sponsors had until May 31, 2012 to provide initial fee disclosures.
“I believe that the defined contribution community is simply looking for as much clarity as possible as they work through the process of preparing for the new disclosure regime,” said Lew Minsky, executive director of the Defined Contribution Institutional Investment Association, Washington. “It would not be in anyone's best interest if service providers develop delivery processes that ultimately need to be changed when the electronic filing guidance is issued.”
The DOL “is considering the comments seeking interim e-disclosure guidance,” said Mr. Trupo, but he offered no details or timetable.
The DCIIA and others in the financial services industry want the DOL's stamp of approval on sponsor efforts to provide fee information electronically in the absence of more detailed, up-to-date guidelines. The DOL's current rules, establishing a safe harbor for electronic distribution of documents, have been in effect since April 2002.
“Such transitional relief would mitigate disruption to — and the cost of — plan administration,” said the July 7 letter from the DCIIA and groups that include the ERISA Industry Committee, the Investment Company Institute and the Profit Sharing/401k Council of America. “Until any new electronic media regulations take effect, the transitional relief in FAB 2006-03 should be expanded to cover the delivery to participants of disclosures required under the final rule.”
FAB 2006-03 is a field assistance bulletin issued in 2006 that applies only to pension benefit statements, explained Louis Mazawey, principal and head of the tax group at the Groom Law Group, Washington. The industry wants this bulletin to apply to financial communications such as fee disclosure documents and summary plan descriptions, he said.
“The companies are extra anxious to get this settled,” Mr. Mazawey said. “Normally, you would have to follow the more cumbersome DOL rule-making process.”
The July 7 letter is the latest entry in the complex issue of electronic delivery of financial and other benefits information, in which regulators are balancing a desire to cut postal and other costs with ensuring that all participants — especially retirees and ex-employees — get prompt and complete notices.
Plan executives don't want to be penalized for making what they believe are good-faith efforts to offer information to participants who might lack access to computers or be hard to track down because they have changed addresses.
DC industry representatives also want the DOL to revise its rules so they more closely match those of the Internal Revenue Service. “The Department of Labor regulations are not as user-friendly as those of the IRS,” said Mr. Mazawey, whose clients include employers, insurers and third-party administrators.
Right now, sponsors are having trouble reconciling different electronic-document filing rules from the DOL, IRS and the Securities and Exchange Commission, said William McDonough, director of electronic communications for TIAA-CREF, the New York-based financial services giant
“The agencies are attempting to keep pace with what's happening in the marketplace in the digital world,” he said. “But the agencies aren't all on the same page yet.”
Many respondents to the April RFI want the DOL to allow plan sponsors and providers to send information electronically unless a participant opts out and specifically asks for a mailed copy.
Now, “unconnected” participants — whose jobs don't require use of or ready access to computers — must be contacted by mail, and participants must provide “affirmative consent” for electronic delivery, Mr. Mazawey said.
The preferred approach would be for sponsors to send participants a notice, telling them that information is available electronically and requesting participants to inform them if they want paper copies. If participants opt out, the sponsors generally must send the information by regular mail, he said.
“Providers are looking for the DOL to give a clear direction to move forward with electronic delivery as the first option,” Mr. McDonough said. “Electronic delivery is what our customers are demanding.”
Even under the current system, TIAA-CREF has seen a “dramatic increase” in its electronic delivery of documents, with the number of participants requesting electronic delivery tripling to 1.2 million in the last 3.5 years. “We expect another 125,000 to 150,000 more this year,” Mr. McDonough said. TIAA-CREF provides services to 3.7 million participants.
TIAA-CREF estimates that it costs $50 million a year to prepare and send printed regulatory documents to participants who don't choose electronic delivery. These documents, required by the DOL, SEC and IRS, represent more than 1 billion pages and more than 2,700 tons of paper per year. “The associated production and mailing costs ultimately are borne by both plan sponsors and participants, through record-keeping fees and expenses inherent in the underlying plan investments,” TIAA-CREF wrote in formal comments to the DOL.
At Aon Hewitt, “most of our clients are doing some form of electronic disclosure (under existing rules), but they want to take it to the next level,” said Steven Clark, senior counsel for the Lincolnshire, Ill.-based firm. “The cost savings are too great to ignore.”
Under current DOL regulations, sponsors cannot send a document to a participant's home computer unless the participant specifically consents, he said. Aon Hewitt wants the DOL to permit “a form of implied consent,” in which the sponsor can send documents to personal e-mail addresses to fulfill its obligations.
If a participant provides a personal e-mail address, that would satisfy safe harbor requirements for the sponsor, although the participant could opt out and request that documents be sent by mail.
Revised rules also would reduce the risk that large e-mail documents, such as summary plan descriptions, won't be received due to participants' e-mail firewalls or limited e-mail capacity. Aon Hewitt suggests that the DOL permit sponsors to put documents on a continuous access website and notify participants by postcard or by e-mail that the information is available, with a link to the website.