Plan e-doc delivery would save trees, but could italso increase plan participant engagement? (Photo:Shutterstock)

The Labor Department has released a long-awaited proposed rulethat would facilitate wider electronic delivery of required plan documentsto retirement savers in workplace plans.

While a seemingly uncontroversial idea on its face, regulators,plan sponsors, and service providers have beenwrestling with the concept for the better part of two decades.

The proposed rule establishes a new safe harbor for electronically deliveringplan documents on top of an existing safe harbor promulgated in2002.

Under the new safe harbor, plan sponsors can use electronicdelivery as the default method of providing documents, so long asthey allow plan participants to opt out of the option if theyprefer paper documents.

"The proposal goes all the way and moves electronic deliveryfrom opt-in to opt-out," said Kevin Walsh, a principal with TheGroom Law Group.

Electronic delivery has been available to plan sponsors sincethe 2002 safe harbor, which applied to two categories of planparticipants: those who are "wired at work"—meaning they haveaccess to email or a computer portal as a part of their core workresponsibilities; and those that affirmatively consent to receivingdocuments electronically.

Under the original safe harbor, a participant's consent toreceive documents electronically "must reasonably demonstrate theindividual's ability to access information in the electronic form,"according to the Labor Department's description in the proposedrule.

That requirement, and others in the original safe harbor, havebeen viewed as confusing to plan sponsors and plan providers, andconsequently led to low utilization of the safe harbor.

"The prior rules were designed to try to make the use ofelectronic documents easier, but sponsors found the safe harbor tobe too onerous," explained Walsh.

According to the cost savings analysis in Labor's proposal, therule, if ultimately implemented, would create $2.4 billion in netsavings over 10 years.

Labor assumes that just under half of approximately 120 millionretirement plan participants received disclosures by mail in2016.

The savings estimate assumes the opt-out rate of electronicdelivery would be 18.5 percent initially, dropping to 7.5 percentover 10 years.

Beyond savings, rule could promote better engagement

Those cost savings, which Labor suggests could be passed on tosavers, are certainly considerable, said Chris Spence, seniordirector for government relations and public policy at TIAA.

Others, including lawmakers, have cited the environmentalbenefits of reducing paper waste, which Spence, too,acknowledged.

But the most important consequence of the proposal, if itultimately is adopted, would be improved engagement among saverswith their retirement plan, thinks Spence.

"The cost savings are important, and that will help savingsrates and savers," said Spence. "But we think the engagement factoris the top of the list. As soon as you log onto a portal to receiveyour documents, you have access to information on your savingsrates, and whether you are on track for retirement. If you receiveyour documents through the mail, in order to do anything furtheryou need to then actively log onto a website, and take other steps.Assuming you open your mailed documents."

Upon cursory review of the proposal, Spence thinks it looksgood. "We're definitely supportive of Labor's effort and think thisis long overdue," he added.

Labor wants input on improving plan docs

Labor will open a 30-day comment period on the proposal,beginning with its publication in the Federal Register on October23.

Not all paper would be eliminated under the rule. Sponsors wouldbe required to deliver one paper document describing how to accessdocuments electronically, noted Amy Ouellette, director ofretirement services at Betterment for Business.

Importantly, the proposal also includes a request forinformation on how to better improve plan documents.

"That's the next piece we are most excited about," saidOuellette. "Most participants can't tell you half of what they'veread when they do read the documents."

Betterment's sponsor clients use the 2002 safe harbor when it isavailable. The majority of its participant clients opt intoelectronic delivery of plan documents. A brand built on userexperience, the firm plans to comment on how to make required plandocuments more readable, and more negotiable when presented online,Ouellette said.

The RFI on enhancing the effectiveness of the disclosuresrequired under ERISA raises 21 questions, ranging from the way tobest measure the effectiveness of plan documents, to the length ofdocuments, to whether there is redundancy in plan documents, orwhether some are obsolete.

"Labor is focused on getting better access to documents, andhelping participants to better understand them," said Walsh of TheGroom Law Group.

"This could be a real pivot towards simpler language in plandisclosures," he added. (See the proposed rule at the EBSA site.)

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