The ERISA Advisory Council, experts appointed by the Secretary of Labor that identifies and investigates priority regulatory issues relating to employee benefits, will soon submit its findings to the U.S. Labor Department.
This year, the Advisory Council's working group on "Promoting Retirement Literacy and Security by Streamlining Disclosures to Participants and Beneficiaries" seeks to identify what actions the Secretary of Labor can take to make ERISA's retirement plan disclosure requirements "more useful in promoting retirement literacy and security for participants and beneficiaries while not imposing a costly burden on employers."
In hearings over the summer, the Advisory Council heard testimony from academic, legal and benefits professionals on the next best steps.
But there were two elephants in that hearing room: proposed DOL rules on a number of relevant topics, including investment advice and defined contribution plan fee disclosure, were shelved or indefinitely delayed by the Obama administration in January, leaving many important regulatory issues in limbo. And in the meantime, the House Education and Labor Committee quickly advanced brand new legislation to address advice and fee disclosure, taking a somewhat more forceful approach than that outlined in the proposed DOL regulations.
Education and Labor Committee Chairman George Miller, D-Calif, has made the resolution of these issues a key legislative priority. Along with new language providing some limited funding relief for defined benefit plans affected by the economic downturn, this legislation could form the basis for broad retirement legislation in the House of Representatives.
Plan sponsors are emphasizing that effective communication with the work force is critical for ensuring beneficiaries' financial security in retirement. However until these issues are resolved, it is essential that the retirement plan disclosure regime provide information to participants in a manner they are likely to use and understand without becoming unduly burdensome to employers by increasing costs or the risk of costly litigation. Lawmakers in Washington must adhere to four key principles when developing new laws or rules:
Disclosure requirements for defined contribution plans must ensure that appropriate information is relayed between service providers, plan sponsors and participants in a manner that can be easily accessed and understood. In particular, disclosure to participants should include the information most important to a participant, such as the investment objectives, risk level, fees and historical returns of investment options.
The regime governing notices to participants must be simplified. Plan participants can be overwhelmed by the sheer volume of information provided, which sometimes causes confusion and paralysis instead of enrollment and active engagement. Even well-intended notices can cause both confusion and concern.
The design and delivery of notices should be modernized. Disclosure requirements should reflect the reality of how participants generally review and understand information, particularly written and electronic notices. Electronic disclosure rules should be provided for the vast majority of participants who do have that access, with options available for individuals who prefer written notices.
Promoting financial literacy should be a priority. The process of financial education should start earlier than the workplace. Policymakers ought to consider making financial literacy a secondary educational requirement, just like math and English. It is likely that graduating students will find as much or more need to reflect back on their classes in financial literacy in the coming years.
Employer sponsors of defined contribution savings plans and investment advice programs believe that their employees need transparent, useful information, and to clearly benefit from investment advice when making decisions for their future financial security. As lawmakers move forward with new rules for these plans, it is critical that legislative and regulatory measures are seamlessly coordinated. Above all, we must ensure that voluntary employer sponsorship of these arrangements is not disturbed.
