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Pension Rights Center Concerns about Proposed DOL Electronic Disclosure Rule

Date Published: 
Monday, March 23, 2020

This Is No Time to Deny Workers and Retirees Vital Information about their Retirement Plans

The Department of Labor, the agency charged with protecting people’s rights to retirement benefits, wants to adopt a new rule that would undermine workers’ and retirees’ rights by making it far less likely they  get the information they need to plan their retirement and watchdog their pension or 401(k) plan, with many never receiving the information at all. This is because DOL proposes to reverse the rule on how consumers receive retirement information: from paper disclosures sent by mail, to emails notifying consumers to come to a website and find the disclosure.

Advocates for workers and retirees call on Congress to act to shelve this rule to ensure that people actually receive the disclosures that could make or break their future economic security.

This proposal would be reckless at any time, but is particularly ill-timed as the United States, and countries across the globe, face the biggest economic and public health crisis in nearly a century. With the stock market nosediving almost daily, people are watching helplessly as their 401(k) account balances plummet, and their pension funds endure losses that could jeopardize their benefits.   

What people need, especially now, is critical information about their retirement funds and rights, delivered to them in a way that will be reliably received and preserved. But, DOL’s proposed rule does the opposite. It will all but deny them that information by enabling financial services companies to bury the information on a website and place the onus of finding it on consumers.

In reality, this would mean that workers may never see how much their 401(k) balances are falling or whether their employer stopped contributing to their account. They may never get notices telling them that their pension plans are in financial trouble due to the stock market or a business failure. They may not learn that their multiemployer plan just filed for authority to cut their retirees’ benefits by 50 percent. They may never know whether a mistake was made in calculating their benefits or even know what the terms of the plan are. 

Current Regulations Protect Consumers, the DOL Rule Endangers Them

When Congress passed the federal private pension law, ERISA, it understood that receiving key information about one’s retirement plan is necessary for people’s ability to understand their benefits and enforce their rights. Participants and their beneficiaries (such as surviving spouses) are legally entitled to receive important information such as the rules governing the retirement plan and the benefits they have earned, the rights of surviving spouses, and much more. 

Importantly, longstanding regulations provide that, unless a worker uses a computer as an integral part of their job duties – is “wired at work” as the Labor Department calls it – or has affirmatively told the plan administrator that they would like to go “paperless,” workers and retirees must receive information about their retirement plans on paper, sent through the mail. That’s a sensible default rule that protects consumers and ensures they actually receive these documents, can read them, and can save them for future reference.

However, this proposal:

  • Admits but is indifferent to the digital divide- Access to the internet has greatly expanded over the last 20 years but this growth has not been uniform; access to the internet and broadband is substantially lower for many groups. DOL admits its rule would create additional impediments for many who lack access but does nothing to fix it.
    • Rural residents– Nearly 40% of rural residentslack access to basic fixed broadband service, and more than 30% of rural residents do not own the type of device – computer or laptop– suitable for viewing and storing complex financial documents. 
    • Low earners- Many don’t have broadband because of the steep monthly cost. Nearly one-fifth of those who earn $30,000/yr. or lessdo not use the internet, and nearly half of low-earners don’t have a traditional computer or laptop. About one-fourth of black and Latino adults depend on a smartphonefor their only internet access. 
    • Older adults- More than one-fourth of all adults age 65+do not use the internet, which means that a huge number of retired participants and beneficiaries will be disadvantaged. 
  • Obliterates records needed to vindicate rights– People don’t realize they need retirement documents until they need them – often decades after participating in the plan or after a participant dies. The DOL rule also permits erasure of documents from the website as soon as they’re superseded, when it could have easily required plans to indefinitely retainall versions of all records in an easily accessible & searchable online archive. This will exacerbate the already-increasing problem of lost pensions, and disproportionately harm women who are more reliant on receiving retirement benefits as beneficiaries–as surviving spouses and as former spouses.
  • Creates windfall profits- $2.4 billion in estimated savings over 10 years would go into pockets of the financial services industry rather than being returned to the workers and retirees (e.g., as lower fees) for whosesolebenefit these plans are legally required to operate; the proposed rule does nothing to redirect the savings to consumers.

Studies consistently find that consumers of all ages prefer to receive financial documents on paper in the mailand think this should be the default rule, with an option to choose paperless. However, at the urging of the financial services industry, DOL is proposing to change the default to email notices that would tell consumers to come to a website to find the disclosure. DOL calls it “notice and access;” in reality it is “hide and seek.” Workers and retirees would be given a one-time paper notice telling them they could opt out of hide-and-seek and request paper, but the process for doing so is vague and deficient, consumers would bear all of the burden, and industry knows most people would not do so because of inertia.  

The field of behavioral economics teaches that defaults should be structured so as to take advantage of inertia – doing nothing should nudge people in the right direction, like automatic enrollment in a 401(k). But DOL’s new default would reduceretirement security because inertia would result in receiving no disclosures. This is exactly what happened when the Social Security Administration quit sending out paper benefits statements in favor of online access (number getting statements plummeted by 80%), and when the Securities & Exchange Commission instituted a notice-and-access-type system for corporate proxy voting (voting by retail accounts fell by 73%). This rule would have the same effect: people would not receive or retain vital papers about their retirement plans.

Getting information is a bipartisan issue. Twenty-two Republicans and 16 Democrats in Congress filed a bipartisan comment letteropposing the DOL proposal, because “[t]he United States has a retirement savings crisis and nothing in this proposal helps lessen it. In fact, it will likely exacerbate the crisis by making it more difficult for some individuals to prepare for the future. Nothing is stopping retirement plan participants and beneficiaries from opting into e-delivery currently.” Congress should take action to stop this harmful rule.

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