Industry Groups Recommend Fewer and Staggered Retirement Plan Disclosures

Industry groups have asked the Department of Labor, Internal Revenue Service and Pension Benefit Guaranty Corporation to simplify and improve retirement plan disclosures, making specific recommendations in response to a request for information issued by the DOL in January.

Section 319 of the SECURE 2.0 Act of 2022 requires the three agencies to issue a report by December 29, 2025, that makes recommendations to Congress on how retirement plan disclosures can be consolidated, simplified, standardized and improved. The report should have an eye both to participant ease of use as well as plan sponsor compliance burden, according to the legislation.

Participant Understanding and Accessibility

The letter written by the U.S. Chamber of Commerce explained that participant understanding and retention of important plan information is often sorely lacking, and cited fees as an example. “41 percent of participants incorrectly believe that they do not pay any 401(k) plan fees,” the chamber wrote.

It also recommended that the agencies require the most essential disclosures at the time of eligibility, which include how to enroll, how to contribute, what a match is and how to get it, non-elective contributions, how to invest and change investments and how to designate a beneficiary. The chamber recommended giving this actionable and relevant information first, in order to avoid overwhelming participants with other disclosures that land all at once.

For defined benefit plans, the most important information for early disclosure would be when coverage begins, if there is an employee contribution, the vesting schedule and the benefit formula, according to the chamber.

Other information is important for participants, it wrote, but “providing it to an individual when they first become eligible may overshadow the information that is needed to enroll.”

A separate letter sent by the ERISA Industry Committee agrees that “participants tend to ignore many notices and disclosures due to the frequency and volume.”

If disclosures were streamlined and tied to specific action events, there is a greater chance that participants will read and engage with them, the organizations argued.

Plan Sponsor Compliance Burden

The chamber notes in its letter that, since employers are not required to offer retirement plans, it is important that “employers be able to administer plans with reasonable expense so that they are not discouraged from establishing or continuing such plans.”

Both the chamber and ERIC recommend that the agencies improve access to electronic delivery for disclosures and eliminate disclosures that contain information that a participant cannot act on. For example, summary annual reports for DC and DB plans and annual funding notices for DB plans could be removed, according to the groups, because nothing contained in them is likely to influence participants’ retirement decisions.

In addition, other disclosures that could be cut are “the Notice of Transfer of Excess Pension Assets to Retiree Health Benefit Account and the Notice of Failure to Meet Minimum Funding Standards,” the chamber argued.

When it comes to electronic delivery versus mailed disclosures, ERIC recommended that the IRS and DOL create a single standard for electronic delivery and permit an opt-out system wherever possible.

The agencies should also never make electronic delivery more burdensome than paper for sponsors, such as by requiring engagement trackers on electronic disclosures, since paper disclosures “may be less accessible, more likely to be immediately physically discarded, and potentially less physically secure.”

Lastly, both organizations recommended that the agencies be flexible with foreign language disclosure requirements. The chamber wrote that “given the expense of providing information in multiple languages, it makes more sense to base a foreign language requirement on the plan’s actual demographics.” It argued that plans should be free to tailor their assistance to the demographics of their participants and to make it known that such assistance exists in a foreign language within an English disclosure.

This request is in response to the DOL’s auto-portability proposal, also from January, which would require sponsors to provide autoportability notices in non-English languages and make available call center services in non-English languages if a participant lives in a county where 10% of the population speaks the same non-English language. This provision was criticized at the time by the chamber and others as being excessively burdensome.