Rethinking Retirement Plan Disclosures: Industry Pushes for Clearer Communication
Offering a retirement plan is a valuable benefit for employees, but navigating the complex world of disclosures can feel overwhelming for both plan sponsors and participants. Industry groups are calling for change, urging the Department of Labor (DOL), Internal Revenue Service (IRS), and Pension Benefit Guaranty Corporation (PBGC) to simplify and streamline retirement plan communications.
The catalyst for this push stems from the SECURE 2.0 Act of 2022. This act included a provision requiring the three agencies mentioned above to work together and deliver a report to Congress by December 29, 2025. This report will detail recommendations for streamlining retirement plan disclosures, with a focus on two key areas: participant understanding and plan sponsor compliance burden.
Boosting Participant Understanding: Prioritizing Actionable Information
Wading through dense retirement plan documents can be intimidating for all involved. Industry groups highlight a crucial point: Participants often lack a clear understanding of important plan information. According to the U.S. Chamber of Commerce, “41 percent of participants incorrectly believe they do not pay any 401(k) fees.” To address this, actionable and relevant information needs to be addressed first. By prioritizing details like enrollment instructions, contribution options, and investment choices, we can help empower participants to take control of their financial future. Inundating them with all the disclosures at once can be counterproductive, leading to information overload and hindering a participant’s ability to absorb key points.
Easing the Burden for Plan Sponsors: Embracing Efficiency
The current disclosure system can add significant administrative burdens for plan sponsors, who are responsible for offering and administering retirement plans for employees. Industry groups are advocating for several key changes to help lighten the load:
Electronic Delivery Parity: While electronic delivery offers convenience, it can increase administrative complexity and costs for plan sponsors. The process of electronically delivering disclosures should be no more burdensome than paper delivery.
Eliminating Redundant Disclosures: Not all disclosures provide actionable information for participants. Streamlining the process by eliminating these unnecessary details would not only reduce information overload for participants but also ease the burden on plan sponsors by minimizing the volume of materials they need to manage and distribute.
Standardized Electronic Delivery and Opt-Out Options: Creating a single standard for electronic delivery would simplify compliance for plan sponsors and permit an opt-out system whenever possible.
Addressing the Foreign Language Requirements
The DOL’s auto-portability proposal, introduced in January 2024, aims to simplify the process of transferring retirement plan assets when employees change jobs. This proposal would require sponsors to provide auto-portability notices in non-English languages and make call center services available in non-English languages if a participant lives in a county where 10% of the population speaks the same non-English language. The U.S. Chamber of Commerce and others criticized this provision at the time as excessively burdensome.
A Brighter Future for Retirement Savings
Simplifying retirement plan disclosures would help participants understand their benefits better while reducing the administrative burdens on plan sponsors. The upcoming report from the DOL, IRS, and PBGC is a crucial step in the right direction.
Source: PlanSponsor: Industry Groups Recommend Fewer and Staggered Retirement Plan Disclosures
Patricia L. Hutchinson
Director of Retirement Plan Services
MBA