Prospects for electronic delivery sparking enthusiasm for more

The plan sponsor and record-keeper communities are thrilled with a new Department of Labor proposal that would permit default electronic delivery of retirement plan disclosures and would like to see it expanded further.

Trade groups like the American Retirement Association, ERISA Industry Committee and the SPARK Institute have been calling for the Labor Department to modernize its disclosure rule for years.

"It allows us to engage with participants in the manner in which most participants are interested in engaging," said Tim Rouse, executive director at the SPARK Institute, which represents retirement industry players such as record keepers, investment advisers, mutual fund companies and benefit consulting firms. "It'll save time, it'll save money and it also increases engagement with participants."

The proposal, crafted by the Employee Benefits Security Administration, offers a safe harbor for employers who want to make disclosures accessible on a website. It was unveiled Oct. 22 and its comment period wrapped up on Nov. 22.

Participants who prefer printed disclosures would have the ability to opt out of electronic delivery. Moreover, a plan administrator may not default a participant into electronic delivery unless the participant has an email address and the administrator notifies the participant by paper that retirement documents will be furnished electronically.

The move would save an estimated $2.4 billion over the next 10 years for Employee Retirement Income Security Act-covered retirement plans by eliminating materials, printing and mailing costs, according to a Labor Department fact sheet. That figure is in line with a SPARK Institute report published Nov. 22 that found default electronic delivery would produce $250 million to $450 million in annual savings.

A 2015 SPARK survey of plan participants, in conjunction with research firm Greenwald & Associates, discovered that 84% of respondents were fine with making electronic delivery the default option.

"Any time you make things simpler it's more helpful for participants," said Aliya Robinson, senior vice president of retirement and compensation policy at the ERISA Industry Committee in Washington.

Sending important documents electronically allows participants to archive them easier, she added. "When you send something in paper, it may not be at the time that the participant actually needs that information and then it's up to the participant to hold onto that paper, file it and keep it someplace where they can find it again, as opposed to electronically where they can just do a search for that information," she said.

Karen Friedman, executive vice president and policy director for the Pension Rights Center in Washington, feels differently and in a statement called the proposal a "consumer nightmare."

"If this rule is adopted, employees and retirees would get one paper notice telling them that they have a chance to opt out of this electronic notice regime, and if they miss the chance it looks like they may be on a perpetual hunt for documents," Ms. Friedman said. "We're not even sure what the process is for them to opt into paper … it's not spelled out."

Despite their support for the proposal, supporters are concerned that its safe harbor does not include health and welfare plan disclosures.

Brian Kearney, a Denver-based principal in Mercer LLC's law and policy group, expects most of the comments submitted to the Labor Department to call for expanding the safe harbor.

"Expanding to welfare plans would add to the cost savings," he said. "It also just raises issues for employers having to follow two sets of rules for the different plans. It would just ease administration if they had one set of electronic disclosure rules that they could follow."

Jennifer Eller, a principal at Groom Law Group LLP and co-head of its fiduciary practice group in Washington, said many sponsors have combined benefits booklets that include information about retirement and health plans.

"Under the rule, it could be that you send the same booklet out electronically as it relates to retirement plan information, but because the rule doesn't apply to health and welfare (plans) you might have to mail it as well," she said. "It seems unfortunate."

Since health and welfare disclosures are more voluminous than retirement disclosures, it's likely more difficult for the Labor Department to decide what documents can be transmitted electronically, Ms. Eller said.

She thinks the Labor Department — after sifting through comment letters — will identify "a core universe of health and welfare plan documents" to be included under the rule. "Even that step would be very much appreciated," she said.

Dannae Delano, a St. Louis-based partner with The Wagner Law Group, is also expecting a rule expansion.

"The current administration has made it clear that they're trying to streamline employer obligations and costs related to some of these compliance issues," she said. "I think the DOL is going to be very receptive to suggestions that it be expanded. It would be pretty easy to limit it to the core ERISA-required documents if they wanted to do that and work out any other issues later."

Secretary of Labor Eugene Scalia said in a news release announcing the rule proposal last month that his department is "focusing on rule-making that eliminates unnecessary burdens while furthering the needs of the wage earners, job seekers and retirees of the United States."

The Labor Department issued a 30-day comment period for the proposal, which is shorter than past rule-makings. The shorter comment period suggests that the department is "looking to get it out ASAP and that might be part of the reason they've demurred on the health and welfare part for now, just to take more time separately to think about the health and welfare documents that they'd want this safe harbor to apply to," said Geoff Manville, principal, government relations at Mercer in Washington. "My guess is it would be on the fast track."

Will Hansen, chief governmental affairs officer at the American Retirement Association in Washington, who will also take over as executive director of the Plan Sponsor Council of America, a group within the ARA, on Jan. 1, said the rule will greatly benefit plan sponsors and participants.

Though he couldn't share specifics, Mr. Hansen said an ARA survey of plan sponsors that was in the works has shown that the community is enthusiastic about the proposal but there's some "lingering uncertainty."

Mr. Hansen wants to ensure that sponsors have enough information from the Labor Department to distribute the notice of initial access, which informs participants where to find disclosures online.

The proposal also includes a request for information on whether additional steps could be taken to improve participants' retirement plan disclosure experiences.

To Mr. Kearney, the RFI questions indicate there will be further guidance on this issue. "The questions seem to be looking at modernizing disclosures beyond just the delivery of them," he said.

Ms. Robinson is happy to see the Labor Department looking to the future. "When we started this conversation in terms of electronic disclosure, we were talking about desktop computers and then it moved to laptops and then tablets and now we're at smartphones," she said.

"Who knows what the next thing is going to be, but why should we have to wait until 10 years after the technology is developed to make it useful in terms of notifying participants?"