DOL readies proposal for more digital 401(k) disclosures

Agency will soon issue a rule that will likely require electronic statement delivery unless participants opt out

Aug 21, 2019 @ 4:44 pm

By Greg Iacurci

The Department of Labor is close to proposing a rule that would boost digital delivery of employees' 401(k) statements, a prospect that has drawn excitement from the retirement plan industry but concerns investor advocates worried that a shift away from paper may prove harmful.

The Labor Department has sent its proposal — titled "Improving Effectiveness of and Reducing the Cost of Furnishing Required Notices and Disclosures" — to the Office of Management and Budget, which will review the rule before the DOL issues it publicly.

President Donald J. Trump issued an executive order on Aug. 31 last year that ordered the DOL, within a year, to review actions the Labor and Treasury departments could take to make retirement plan disclosures "more understandable and useful for participants" while also "reducing costs and burdens" for plan sponsors and other parties. Mr. Trump specifically referenced electronic disclosure as a possibility. The disclosure provision was part of a broader order seeking to expand retirement security.

Industry experts expect the forthcoming rule proposal to default participant statements — such as quarterly account statements and fee-disclosure statements — into digital rather than paper delivery, which is the standard today. They expect participants would be able to opt into receiving paper statements.

"It allows us to modernize the system and default people into electronic delivery," said Tim Rouse, executive director of the SPARK Institute, a trade group for retirement-plan services firms such as record keepers. "It makes the entire system more efficient."

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Proponents of increasing digital disclosures believe they boost positive behavior among participants. Participants, for example, are more likely to log into their accounts and make changes to 401(k) allocations or contribution rates after receiving statements electronically because there are fewer steps involved in the process, proponents say.

"Ultimately, it comes down to electronic disclosures are more effective than paper disclosures in increasing participant engagement," said Will Hansen, chief government affairs officer at the American Retirement Association.

Participants and plan sponsors would likely pay less money for record-keeping services, since many firms pass the cost of furnishing paper statements on to end users, proponents said.

However, some groups like AARP, which represents the interests of retirees, aren't as bullish.

David Certner, AARP's legislative counsel, believes participants prefer getting "particularly complicated financial disclosures in writing" because that format makes them more readable and helps participants better retain the information. In addition, participants are more likely to receive and open disclosures if they come by mail, Mr. Certner said.

"Millions of households don't even have access to affordable or reliable electronic communication," he said.

"Certainly people may want and may choose electronic disclosures," but paper delivery should be the default option, Mr. Certner said.

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