June 5, 2015
- Bill Introduced to Expand Electronic Disclosure of Retirement Information; Council Voices Support
- ERISA Advisory Council Hears Testimony on Lifetime Participation, Pension Plan De-Risking Disclosures
Bill Introduced to Expand Electronic Disclosure of Retirement Information; Council Voices Support
The American Benefits Council has issued a letter of support for new legislation that would give employers the option to provide required retirement plan notices and statements in electronic format, while protecting plan participants’ right to choose notices in hard copy.
The Receiving Electronic statements To Improve Retiree Earnings (RETIRE) Act (H.R. 2656), introduced by Representative Jared Polis (D-CO), Phil Roe (R-TN), Mike Kelly (R-PA) and Ron Kind (D-WI), would amend ERISA and the Internal Revenue Code to allow for the electronic delivery of plan documents (i.e., reports, statements, notices and notifications) to participants or beneficiaries if the document:
- is “designed to result in effective access to the document by the participant, beneficiary, or other specified individual throughelectronic means.”
- permits the individual to select the specific electronic means of delivery (or allows the individual to select a preference for paper materials).
- protects the confidentiality of personal account information.
Under the legislation, electronic communication could include direct delivery by email or posting to a website or intranet with proper notice.
In its letter to the bill’s sponsors, the Council noted that “there are currently no fewer than four separate regulatory standards governing the circumstances under which an employee can be provided with a retirement plan statement, notice, or disclosure in an electronic format. The Council has long supported modernizing our disclosure system, as this bill would do, so that employers have the option to provide required notices and statements in an electronic format while preserving participants’ right to opt out and receive paper copies of notices at no charge to the participant.”
The Council’s long-term public policy strategic plan, A 2020 Vision, included a recommendation that lawmakers adopt a “presumption of good faith” standard allowing employers to use technology as it becomes available – such as email and the Internet for electronic communications – rather than waiting for regulatory approval. As the June 4 letter states, electronic delivery “would provide information in real time that can be easily accessed, encouraging more timely interaction between the participants and the plan. This means better outcomes for Americans saving for their future.”
Roe and Polis are chairman and ranking member, respectively, of the Health, Employment, Labor and Pensions Subcommittee of the House of Representatives Education and the Workforce Committee. Kelly and Kind are members of the House Ways and Means Committee and Kelly is co-chair of the House Retirement Security Caucus.
While no action on the measure has yet been scheduled, given its bi-partisan support, another measure that might move through the legislative process could become a vehicle for consideration of this bill. For more information, contact Diann Howland, vice president, legislative affairs, at (202) 289-6700.
ERISA Advisory Council Hears Testimony on Lifetime Participation, Pension Plan De-Risking Disclosures
As we reported in the May 29 Benefits Byte, the Council recently testified before the ERISA Advisory Council (EAC) on May 28 on the subject of pension plan “de-risking” disclosures. This was one of two topics covered by the EAC in a series of meetings May 27 to 29.
The EAC is a group of benefits experts established by Congress and appointed by the U.S. Department of Labor (DOL) to identify emerging benefits issues and advise the Secretary of Labor. (For more information on the composition of the 2015 EAC, including Council members on the panel, see the December 17, 2014, Benefits Byte.)
The two topics the EAC is examining this year are: (1) pension plan “de-risking” (where plan sponsors partially or fully discharge their ERISA plan liabilities), which the EAC has dubbed “pension risk transfer,” and the disclosures given to participants in these events, and (2) “lifetime plan participation” (relating to plan distributions and rollovers). The EAC has previously addressed both of these topics, examining pension fund de-risking in 2013 and lifetime plan participation in 2014, and stated that it plans to focus on notices and disclosure, providing administrative assistance to the DOL.
On May 27, the EAC discussed model notices and plan sponsor education on lifetime plan participation, relating to encouraging employees to keep retirement plan assets within the employer-sponsored retirement system.
Witnesses from financial services companies, academic institutions and employer groups generally said that plan participants are most likely to have the best outcome if they maintain their assets within the employer-sponsored system, but participants often assume it is in their best interest or they are required to rollover their funds into an Individual Retirement Account (IRA) upon termination. Witnesses noted that model notices should be flexible for plan sponsors to use and short and easy for participants to understand. They also provided a number of recommendations for the model notices, including describing the long-term impact of “cashing out,” or taking a lump sum, and clearly delineating participants’ options and their likely outcomes upon termination.
Witnesses associated with Council member organizations included Patricia Haverland, vice president, pension fund management at Siemens Capital Company LLC; Jean Roma, director of retirement plans at Citigroup; Robert Hunkeler, vice president of investments at International Paper (testifying for CIEBA); and Bradford Campbell, counsel for Drinker Biddle & Reath LLP.
Haverland suggested that model notices provide a checklist comparing keeping assets in a plan versus rolling them over to an IRA. Roma noted the importance of recognizing that participants will not engage until they are at a decision point and recommended making the advice or notice available when the individual is at that point. Hunkeler said that in order to show participants they will have better retirement outcomes if they leave their assets in ERISA-covered plans, the attitudes toward lifetime participation need to be changed first. Campbell also noted the need to change attitudes toward lifetime participation and recommended amending the safe harbor regulation for selecting an annuity provider to a defined contribution plan and encouraging retirement income projections to be based on estimated accumulated assets at standard Social Security retirement age.
Pension Plan De-Risking Disclosures
On May 28, the EAC examined model notices and disclosures for pension plan de-risking activities, in which companies transfer their ERISA pension plan liabilities by either offering participants a lump sum payout or providing an annuity through an insurer.
In addition to the Council’s testimony, witnesses from consumer groups, financial services companies and employer groups discussed the balance between providing participants with adequate information needed to make an informed decision and overwhelming participants with too much information. While some witnesses suggested that participants do not need additional disclosures in pension transfers, as the participants do not make a choice, other witnesses, along with EAC members, stated that participants need to be informed that they lose certain ERISA fiduciary protections, annual disclosures, access to federal courts and Pension Benefit Guaranty Corporation (PBGC) coverage in a pension transfer transaction. They also suggested that participants need to be informed they are losing important ERISA protections when they take a lump sum distribution and move pension funds to an IRA as well.
Craig Rosenthal, a partner with Mercer, gave testimony on behalf of the American Benefits Council emphasizing that any future guidance on pension plan de-risking disclosure to participants should allow plan sponsors the flexibility to accommodate their unique plan provisions. Other witnesses from Council member companies included Matthew McDaniel, partner at Mercer, and Roberta Rafaloff, vice president of retirement products at MetLife. McDaniel noted that lump-sum payouts and annuity transfers are two distinct types of risk transfers that require very different model notices and explanations and recommended an online tool that would help participants evaluate which option would be better under different scenarios. Rafaloff discussed how most participants tend to elect a lump sum when given the choice between an annuity and a lump sum distribution under the mistaken impression that it has greater value, due to generally underestimating their future needs while overestimating the wealth effect of a lump sum. She noted that though the retail market offers a variety of annuities that provide flexibility and individual choice, it is important for participants to realize the additional cost of replicating a group annuity using a retail annuity purchased with a lump sum payout.
The EAC heard testimony on May 29 from experts on cybersecurity and cybertheft issues, who discussed how those issues might relate to the EAC’s work with regard to model notices.
Witnesses from financial services companies discussed how new technology platforms and increasing complexity, coupled with more information being stored in clouds and accessed remotely, place employee data at risk both internally and externally. Witnesses also noted that with no single comprehensive federal law governing cybersecurity and without integrated statutory and regulatory rules at the state and federal level, there are gaps in security.
Witnesses from Council member companies included Thomas Doughty, corporate information security officer at Prudential Financial; Mark Lobel, principal at PricewaterhouseCoopers; and David Dunne, chief data officer at TIAA-CREF. Each provided suggestions of how to improve employee data security, including standards for information exchange as well as for formatting data. The Council’s Policy Board of Directors discussed cybersecurity and cybertheft at length at its meeting in March and will continue to pay attention to this important subject.
On May 29, the EAC received an update from officials from the DOL’ s Employee Benefits Security Administration (EBSA), including testimony from Phyllis Borzi, assistant secretary; Judy Mares, deputy assistant secretary; and Tim Hauser, deputy assistant secretary for program operations.
Borzi discussed the proposed regulations defining the term “fiduciary” with respect to employee benefit plan investment advice. She stated that the DOL wants to hear from the public and that the DOL looks forward to an engaged conversation with interested parties. She indicated that DOL will shortly announce hearing dates during the week of August 10. She also said that there will be additional opportunity for comment after the hearing. (See the May 18 Benefits Byte for more information.The Council is holding a Benefits Briefing webinar scheduled for June 11 at 2 p.m. ET to discuss the proposed rule and its impact on large and small employers, as well as the potential practical effects including potential litigation issues. Click here to register.)
Borzi noted DOL will soon likely be submitting a “lifetime income” proposal to the Office of Management and Budget (OMB) for review and indicated that there will be considerable changes in the new proposal. The proposal will amend current pension benefit statements guidance and address Pension Protection Act (PPA) benefit statement requirements as well as determine whether and how the individual benefit statement should present a participant's accrued benefits in a defined contribution plan as a lifetime income stream of payments in addition to in the form of an individual account balance. The Council filed written comments in August 2013 on the Advance Notice of Proposed Rulemaking, issued in May 2013 (see the August 7, 2013 Benefits Byte). The DOL is expected to address electronic disclosure later.
Secretary Borzi also stated that the Form 5500 project was a high priority for the DOL and discussed the recent report released by EBSA on the quality of plan audits, which she called disappointing given the amount of effort that has been put into improving audit quality. Along with the report results, the DOL announced that it will be proposing legislation, among other measures, to address audit quality (see the May 29 Benefits Byte).
Mares discussed the upcoming White House Conference on Aging, scheduled for July 13. She noted that the biggest issue identified by attendees in earlier forums was Social Security, followed by financial literacy and retirement security.
The EAC is expected to hold additional hearings on these topics August 18-20. For more information on the EAC’s activities and opportunities to testify, contact Jan Jacobson, senior counsel, retirement policy, at (202) 289-6700.