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After diligent work from retirement plan sponsors to get participant fee disclosures out by the Aug. 30 deadline set by the Department of Labor, employers received virtually no response from plan participants, practitioners and employer groups told BNA in a series of interviews.
Edward Ferrigno, vice president of Washington affairs at the Plan Sponsor Council of America (PSCA), told BNA Nov. 1 that the participant disclosures were “an absolute nonevent. … [It was] shocking to the degree of lack of interest.”
Michael Weddell, principal in Mercer's Detroit office, agreed with Ferrigno's assessment, telling BNA Oct. 25 that “the people who predicted there'd be all kinds of ruckus were wrong.”
Weddell said recordkeepers “staffed up their call centers” to prepare for call volumes on par with those received after quarterly retirement statements are sent out, but the calls never came.
“They didn't really see a surge in call volume at all when the participant fee disclosures were mailed out during the second half of August. They didn't see any meaningful spike,” he said. “When I talked to the plan sponsor clients I have, none of my clients received more than two inquiries directly from participants. So, it just didn't turn out to be that big of an event,” Weddell said.
Results of a “snapshot” survey released Nov. 8 by PSCA indicated that an average of 1.4 percent of participants asked questions about their disclosures, and 95.9 percent of the 176 responding plan sponsors said they observed no change in participant behavior following the mailing of the fee disclosures.
Aug. 30 was the deadline for plan sponsors to furnish plan-fee disclosures to participants of Section 401(k) plans and those Section 403(b) plans covered by the Employee Retirement Income Security Act. DOL issued the regulations (29 C.F.R. §2550.404a-5) in October 2010, requiring plan administrators to disclose certain plan- and investment-related information to participants of participant-directed individual account plans (198 PBD, 10/15/10; 37 BPR 2261, 10/19/10).
The lack of calls could be attributed to length of the disclosures, as well as a reluctance on the part of plan sponsors to stray too far from the regulations, Weddell said.
“You've got something that is fundamentally designed to comply with government mandated rules. Everybody looks at it as, 'I want to make sure we don't mess this up. There's some liability if we don't follow the regulations.' So nobody is going out of their way to try to say, 'No, we need to make this short. We need to put appealing graphics on it.' That's a different purpose than what the providers had in mind. The providers want to make sure they're not liable,” he said.
As a result, “government-mandated disclosures” often do not have the intended impact on their recipients, he said. Shorter statements with better graphics are more participant-friendly, “but you know that's not going to make your compliance staff happy,” he said.
Weddell said this causes a “tension” between the needs of participants and the need for plans to comply with regulations.
“An effective communication piece means that you've got a lot of freedom to vary the content, the media, and the graphics, depending on your audience, but that runs counter to making sure we comply with a checklist of legal requirements,” he said.
Because of this, the participant disclosures “didn't turn out to be that impactful of a communication piece,” Weddell said.
While the mass mailing of disclosures left many employers wondering whether participants read the disclosures or if they threw them in the trash, the lack of feedback should not be blamed on employer noncompliance, Kathryn Ricard, senior vice president of retirement policy for the ERISA Industry Committee, told BNA Nov. 1.
“I think it's unclear when you've got a paper mailing. You don't know [if they were received]. If you have an electronic mailing, you could obviously track that a little bit better, but with a paper mailing, you just don't know what happens when it lands in some of these mailboxes,” she said.
“Our concern was, you put too much stuff out to people and they stop opening it and they stop reading it and it's not helpful,” Ricard said.
Craig P. Hoffman, general counsel and director of regulatory affairs for the American Society of Pension Professionals and Actuaries, told BNA Nov. 2 that one possible reason for the lack of response is that participants read their disclosures and understood them. But that is not the most likely possibility, he said.
“One potential [outcome] is the participants read everything, understood it, and life was good. Another potential is they didn't look at it, and so they didn't have any questions about something they didn't read. At this point, it's hard to say, but one might suspect it's more the latter than the former,” Hoffman said.
“We've been hearing that a few participants have actually read them and had questions, but frankly, far fewer than folks expected,” he said.
Some practitioners indicated that the use of electronic communication for disclosures might increase participant awareness and interest in the disclosures.
“There's a lot more things you can do in the electronic world. You can make things more interactive, you can track if somebody's opened it, you can update things more quickly if you've got these live websites; if you've got an error, you can correct it,” Ricard said.
Ricard said ERIC backs a more expanded use of electronic communication for employers, especially in the realm of disclosures, provided that DOL puts into place “the right protections and the right safeguards.”
DOL's current regulation (29 C.F.R. §2520.104b-1(c)) requires that disclosures under ERISA be made electronically only to those plan participants who work on computers in their day-to-day employment or those participants who consent to such a delivery method. In Technical Release 2011-03R, the department said that, with regard to the ERISA Section 404 participant-level disclosure rules, disclosures in the pension benefit statement may be provided electronically (236 PBD, 12/9/11; 38 BPR 2293, 12/13/11).
Hoffman agreed that electronic disclosures would be more beneficial to plans and participants. “DOL needs to allow for electronic disclosure as the default method of distribution,” he said.
He added that, if participants want paper statements, those can certainly be provided, but the use of electronic disclosures would mean a significant cost savings for employers and would allow for a more-interactive experience for employees.
“The fact of the matter is, the younger workers have grown up in generations where technology was the norm and they expect information to be delivered that way. Our members have a lot of bells and whistles, which consist of educational services that really can be provided in a nifty way through web-enhanced vehicles that simply are not used because plans are slow to embrace new technology given the DOL position,” Hoffman said.
Larry Goldbrum, general counsel at the SPARK Institute, told BNA Nov. 5 that the use of electronic media for these types of communications is preferred by many employers, and electronic communication would provide a clearer way for the disclosures to be digested by participants.
“Their intention and goal of greater transparency is good and in the right place. What everyone is experiencing with this particular disclosure is that it's difficult to get participants to read, and the more complicated materials come across, it's more challenging,” he said.
Joan M. Neri, counsel at Drinker Biddle & Reath in Florham Park, N.J., told BNA Nov. 5 that she has seen a proactive response from employers regarding participant disclosures.
“I think we were all expecting phones to be ringing and the participants to be questioning them right away,” Neri said.
“Although we're not seeing a great deal of participant reaction to those disclosures yet, and that's probably because they're still digesting the information … what we're seeing, and this is what I think is a real positive reaction, is a real proactive response” from employers, she said.
With virtual silence from participants, Neri said plan sponsors and advisers are looking for ways to reach out to participants and educate them on the meaning behind the disclosures.
Neri said DOL's disclosure regime fostered a heightened awareness among plan sponsors as to their fiduciary duty under ERISA.
“Because of that heightened awareness, [sponsors] also recognize that anything they are sending out to participants in the form of these disclosures, their responsibility includes making sure the participants understand it,” she said. Alongside that, advisers are looking for ways to help plan sponsors educate participants about their disclosures, Neri said.
Documentation of any education project that plan sponsors undertake is key, Neri said, because this documentation will provide “clear evidence” that they are fulfilling their fiduciary duty.
“I think the disclosures went out and there was very little reaction from participants, and I think employers on their end, they're now anticipating. They're anticipating the reactions and they're also viewing this as an opportunity to reach over to employees and say, 'We're here to help you. We care,' ” Neri said.
Employer-provided education could be paired with Section 401(k) plan enrollment meetings or be offered on a periodic basis, Neri said, but the driver behind these efforts should be making sure that participants can “really digest” the information the disclosures provide them.
The future is unclear as to whether plans will receive more of a response from participants after they receive their quarterly retirement plan statements, Jan Jacobson, senior counsel of retirement policy at the American Benefits Council, told BNA Nov. 1, but there might be an uptick in participant response after the quarterly statement.
“[Emphasis] on the word might,” she said. “Quarterly statements are a little different from disclosures and, when people are seeing actual information on their statement, there might be more of a reaction, but it remains to be seen whether that will happen or not,” she said.
ERIC's Ricard agreed, saying, “maybe that's the next test, to see year-end what happens with that. I think year-end is a very busy time for people, so I don't know that they're opening their 401(k) statements and then acting on it.”
The amount of reaction also might be dictated by the state of the economy, Ricard said. “If people are looking at their statements because there's been a downturn, you're gonna have more interest in that,” she said.
Mercer's Weddell also was unsure whether plans would get more calls.
“Any quarterly statements, when they get mailed out, tend to generate questions. The one possibility that might cause more action on the quarterly statements is if some participants are paying charges that are taken directly from their accounts. … If there's a charge taken from their account and it's not been separately shown on the quarterly statements before, that'll generate some calls. But most of the time, participants have already been seeing those charges on their quarterly statements anyway,” Weddell said.
Goldbrum said he does not expect more of a response after the quarterly statements are sent out because most of the information on the statements has been provided on the statements in the past.
Nevertheless, there has been a lot of discussion about whether there will be more reaction to the quarterly statement, but right now, it's a waiting game, ASPPA's Hoffman said.
“I really don't know, but I can tell you, I do know that folks are asking that very same question and waiting to see what the impact will be of folks seeing this on their quarterly benefits statement,” he said.
The Plan Sponsor Council of America survey results are at http://www.psca.org/uploads/Research/fees/Fee_Disclosure_Snapshot_Results_FINAL.pdf.
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