New Labor Department rule changes default retirement plan
disclosure from paper to electronic
On May 27 the U.S. Department of Labor (DOL) issued a new rule
that would shift the way participants receive information about their
retirement plan. To date, the default has been paper, with the participant
having the ability to opt for electronic delivery. The new rule makes it much
easier for plan administrators to make electronic delivery the default.
This shift will undermine the retirement security of millions
of American households.
When Congress passed the Employee Retirement Income Security
Act (ERISA) in 1974, it made clear that participants needed key information to understand
their benefits and enforce their rights. The legislation ensured that
participants and their beneficiaries were legally entitled to information about
the rules governing the plan, the benefits they earned, the rights of surviving
spouses, etc.
Longstanding regulations have provided that, unless workers
use a computer as an integral part of their jobs — so-called “wired at work” —
or affirmatively tell the plan administrator that they would like to go
paperless, workers and retirees must receive information about their retirement
plan on paper, sent through the mail.
Under the new rule, workers and retirees would be given a
one-time paper notice telling them future information about their plan will be
provided electronically unless they opt out and request paper.
Opting out can seem a complex procedure and, given the
importance of inertia emphasized by behavioral economists, most workers and
retirees will not pursue that option. As a result, they will find themselves
left with only electronic access to information about their plan. Even though
plans will be required to notify participants when new documents are available,
participants may need to enter passwords and search complex websites to find
out their 401(k) balances and fees or the investment practices and cutbacks of
their defined-benefit plans. Moreover, the rule generally requires documents to
be made available for only one year, so participants would not have a permanent
record unless they download and save documents themselves.
More important, millions of older Americans do not use the
internet regularly — including many lucky enough to have a retirement plan.
Specifically, the Health and Retirement Study, a longitudinal survey of people
ages 50 and older, asked “Do you regularly use the internet (or the World Wide
Web), for sending and receiving email or for any other purpose, such as making
purchases, searching for information, or making travel reservations?”
Even limiting the population to just those people with either
a defined-benefit plan or a 401(k)-type arrangement, the responses show that
14% of individuals ages 55-64 and 34% of individuals 65+ do not use the
internet regularly. That means 13 million Americans will have no way to get
information about their plan unless they opt out of the new default — something
they are unlikely to do.
The tragedy, of course, is that those most hurt by this new
DOL rule are lower-income individuals. They have borne the brunt of the
pandemic and the shutdown of the economy, and this new rule seems like such an
unnecessary additional affront at this time.
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