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CCH® PENSION — 08/03/09

American Benefits Council Cites “Room For Improvement” In Retirement Plan Disclosures

From Spencer's Benefits Reports: Testifying at a July 23 meeting of the ERISA Advisory Council, Jan M. Jacobson, senior counsel of retirement policy for the American Benefits Council, asserted, “Streamlining existing and future disclosure requirements and implementing rules that make better use of modern technology—and leaves room for future technological developments—will go a long way toward improving employees’ understanding of their retirement plans and promoting retirement literacy and retirement security.” The ERISA Advisory Council currently is developing recommendations regarding what actions the Department of Labor can take to make ERISA’s retirement plan disclosure requirements more useful in promoting retirement literacy and security for participants while not imposing a costly burden on employers.

According to Ms. Jacobson, “In the current economic environment, it is essential that the disclosure regime provide information to participants in a manner they are likely to use and understand—and not overwhelm them with information they will not read—without becoming unduly burdensome to employers by increasing costs or potential litigation risk. Plan sponsors are keenly aware that communication with 401(k) plan participants is at the core of achieving sufficient levels of participation and adequate levels of savings by participants. Without proper communication, participants will not understand their options and many will be discouraged from participating.

“It is also very important that any reforms protect and promote the employer-sponsored system. Studies have shown that participants save very little for retirement outside of employer-sponsored plans so it is very important that any changes in disclosure requirements continue to encourage, rather than discourage, employer sponsorship of plans.”

Current Notice Regime

Ms. Jacobson went on to explain, “The Council believes there is room for improvement in the current notice regime. Plan participants are often overwhelmed with the onslaught of information provided, which sometimes causes confusion and paralysis instead of enrollment and active engagement. Each new legislative act seems to create a plethora of new required notices. For example, the Pension Protection Act of 2006 (PPA) alone created or revised at least ten participant notices. In fact, well-meaning notices can cause both confusion and concern. The annual funding notice sent to plan participants because it was required by PPA prompted so many concerned calls to the Pension Benefit Guaranty Corporation that it posted a notice on its Web site telling participants that all plans are required to send it and that receipt of the notice does not mean ‘your plan is terminating or that it has been trusteed by the PBGC.'

“The Council believes it is very important that the disclosure regime reflect the reality of how participants generally review and understand information. It is the rare participant who will sit down with the ream of notices currently required, read them from cover to cover, and properly analyze their situation in light of information in the notices. On the other hand, many participants will access information provided through the Internet, drilling down to find the exact information they want. It is time for our disclosure requirements to come into the 21^st Century.”

According to Ms. Jacobson, “The Council acknowledges that there are some participants, including some retirees, without Internet access, but the electronic disclosure rules should be written so as to accommodate the needs of the millions of American workers who do have that access, as well as provide the paper alternative for those who wish to receive paper. When you couple an electronic disclosure regime with the ability of participants to request paper notices sufficient for their needs, the Council believes you have the best of both worlds—electronic disclosure for the vast majority of participants likely to review and understand more if it is provided in a handy, convenient form that they can access at any time, and paper disclosures for those who prefer them.”

Ms. Jacobson concluded by saying, “Regarding workplace education, the Employee Benefits Security Administration maintains an investing education page on its Web site and the address (or a link) to this Web site must be included in participants’ quarterly benefits statements pursuant to the PPA. We believe the addition of information on four key topics would greatly enhance the benefit of this Web site for participants—(1) anticipated retirement expenses and the retirement savings balances needed to generate income sufficient to meet these expenses; (2) key issues to consider when spending down retirement plan assets; (3) the availability and operation of the [IRC Sec. 25B] saver’s credit; and (4) an explanation of automatic enrollment and automatic escalation features.”

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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