Simplify Disclosure and Explore E-Delivery, Advisory Council Tells Acosta

The DOL Advisory Council on Employee Welfare and Pension Benefit Plans’ latest report centers on one overarching theme: simplifying plan disclosures to participants and beneficiaries. The report also recommends further exploration of the utility and effectiveness of electronic delivery mechanisms.

Mandated Disclosure for Retirement Plans — Enhancing Effectiveness for Participants and Sponsors” is the result of the work of the council, whose membership included a broad array of experts from the private sector. The report was sent to Secretary of Labor Alexander Acosta in November 2017 — but the DOL’s Employee Benefits Security Administration has only recently made it available.

The council examined how to streamline the content of plan disclosures to participants and beneficiaries, and how to make the delivery and availability of mandatory retirement disclosures more practical and effective. It focused on identifying concrete examples of improvements to the design and delivery of specific disclosures that could be applied in practice, and centers on key principles that can be applied to future disclosures as they are developed. The council conducted two sets of hearings and accepted written submissions as well.

The general theme of the council’s findings is that:

  • retirement disclosures need to be more understandable and useful for plan participants;
  • information should be organized within required disclosures to reflect life events so that information is available as need for it arises; and
  • there should be a balance between providing so little information that participants cannot gain an adequate understanding of what a disclosure is trying to convey, and providing so much information, that it is overwhelming and confusing.

Drilling down, the council made recommendations for design and delivery improvements to the Summary Plan Description (SPD), the Annual Funding Notice (AFN) and the Summary Annual Report (SAR), and also made observations regarding best practices for efficient and effective participant communications. The report notes that the council believes the principles behind the improvements it suggests for these forms of disclosures can be applied to other forms of disclosure that are currently disseminated, as well as future forms of disclosure, but it was not specific about any particular forms other than those three.

Summary Plan Description

The advisory council reports that several witnesses said that SPDs in their current iteration are too detailed for the form to meet its intended purpose of providing participants with summarized, accessible and reliable information about the plan.

The council proposes an alternative. It developed a model introductory portion of the SPD which it calls the “Quick Reference Guide,” which would contain basic plan information as well as information about how to obtain more. It suggests that the Quick Reference Guide be delivered annually to participants automatically, and that the entire SPD or any full part of it would be made available upon request. The Quick Reference Guide would be tailored around life event triggers, and would provide answers to basic questions about the plan.

Annual Funding Notices

The advisory council focused on the single employer AFN regarding DB plan disclosures. The council called the AFN “routine” yet “complex and difficult to understand” and said that “in its current form, the single employer AFN is more confusing than helpful.”

The council proposes changes to the AFN — which contains detailed technical information about a DB plan’s funded status and which ERISA requires be provided to the PBGC and each plan participant. It drafted a modified model single employer AFN that reduces the overall size of the document and reorganizes the content with key information and a brief summary at its beginning, and puts all other remaining information in an appendix.

Summary Annual Report

The council concluded that the SAR, which is provided to individuals with DC plan accounts, “contains no information that is relevant” to them and “lacks any actionable value to participants” since it is a summary of the Form 5500 and provides data that is not timely since it is distributed after the Form 5500 has been filed, which takes place well after the end of the plan year.

The council proposes that plan administrators be allowed to provide a simple notification to participants about the availability of the Form 5500, including instructions regarding how to access that filing, either as a standalone notification or included as a part of other mandatory disclosure(s) such as the Quick Reference Guide to the SPD.

Electronic Delivery

Testimony at the council’s hearings offered differing views on the merits of paper delivery of information and electronic delivery. Proponents of electronic delivery argued that it reduces distribution costs and administrative burdens, that it would get information to participants in a more timely fashion, and that the IRS and SEC already use electronic means to disseminate important information. Furthermore, they said, participants do not read paper disclosures anyway. Supporters of paper delivery, on the other hand, argued that it still has its place due to generational and socioeconomic circumstances as well as limitations on accessibility.

“Electronic delivery presents opportunities to increase user interaction and related calls-to-action by acting as a gateway,” the report says. It outlines four best practices for electronic delivery:

  • Content navigability
  • Layered or nested presentation of information
  • Enhanced user interaction including real-time call-to-action, where applicable
  • Cross device and platform compatibility

The council concludes that “an effective disclosure protocol would include aspects of electronic and paper delivery” and suggests that the utility and effectiveness of electronic delivery mechanisms should be explored further.

2018 Advisory Council Focus

The Advisory Council met on March 27 to discuss and determine the topic issue areas to be examined in 2018. According to a Bloomberg Law report, the council decided to focus on fidelity bonds and lifetime income issues over the next year, and agreed to examine plan-to-plan transfers as a sub-issue of lifetime income.

Lifetime income has long been a focus area for policymakers looking to help participants as the retirement system has transitioned from DB plans to DC plans. Most recently, legislation introduced by Senate Finance Committee Chairman Orrin Hatch (R-UT) and Ron Wyden (D-OR), the committee’s Ranking Member, would provide a fiduciary safe harbor for DC plans that offer lifetime income options, among other related provisions. Preston Rutledge, the current Assistant Secretary of Labor for the Employee Benefits Security Administration, worked for Hatch prior to his confirmation at DOL.

The Advisory Council is scheduled to meet again in June.

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