Private Pensions:

Revised Electronic Disclosure Rules Could Clarify Use and Better Protect Participant Choice

GAO-13-594: Published: Sep 13, 2013. Publicly Released: Nov 5, 2013.

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Charles A. Jeszeck
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What GAO Found

Federal statutes and regulations under the purview of the Department of Labor (Labor) and the Department of the Treasury (Treasury) allow employers who sponsor private pension plans to furnish all pension disclosures to participants electronically:

  • as the default delivery method if participants meet specific criteria regarding access, or
  • if affirmative consent is obtained.

When neither of these conditions can be met, or when requested by participants, plan sponsors must send paper disclosures.

Industry representatives and participant advocates reported various advantages and disadvantages concerning the use of electronic delivery. Both groups agreed that the popularity of electronic delivery was growing due to various efficiencies--such as reduced costs and better tracking of disclosures--that can be advantageous to both pension plan sponsors and participants. However, both groups also raised concerns with the requirements associated with electronic delivery, citing issues with their lack of consistency and clarity as well as concerns that they may not adequately protect a participant's right to opt to receive paper disclosures.

GAO's analysis of these concerns identified several weaknesses in the current electronic delivery requirements. For example, although agencies are to draft regulations that avoid inconsistency across agencies and are easy to understand, GAO found that Labor's and Treasury's requirements describing which participants qualify for default electronic delivery to be somewhat inconsistent and unclear, which may impede use of electronic delivery by some plan sponsors. GAO also found that, although participants may request paper disclosures at any time, requirements permitting default electronic delivery and sponsors' use of a secured website to furnish disclosures may not fully protect a participant's ability to choose paper as their preferred delivery method on an ongoing, rather than a document-by-document, basis.

Why GAO Did This Study

With the advent of new technology, sponsors of U.S. private-sector pension plans have begun to deliver plan information to participants electronically in an effort to reduce plan costs and provide greater participant choice. Yet there are concerns that use of electronic disclosure could make it more difficult for some plan participants to receive important information about their plans. GAO was asked to review issues related to electronic disclosure. For this report, GAO: (1) examined the extent to which law and regulations permit electronic disclosure to participants; (2) explored the reported advantages and disadvantages associated with electronic delivery; and (3) evaluated the weaknesses identified, if any, in the agencies' electronic delivery requirements. In conducting this work, GAO reviewed and analyzed relevant federal statutes and regulations; stakeholder responses to Labor's 2011 request for information on electronic disclosure; and any weaknesses identified in interviews of participant advocates and industry representatives, selected by GAO to capture a broad array of perspectives.

What GAO Recommends

GAO recommends that Labor and Treasury consider clarifying regulatory requirements and expanding participants' ability to opt out of electronic delivery. In its written comments, Labor generally agreed with the report's findings and recommendations. Treasury and the Pension Benefit Guaranty Corporation did not provide formal written comments. All three agencies provided technical comments.

For more information, contact Charles A.Jeszeck at (202) 512-7215 or jeszeckc@gao.gov.

Recommendations for Executive Action

  1. Status: Open

    Comments: Labor agrees that similar pension-related disclosures required under federal pension laws and regulations to similarly situated participants and beneficiaries should be subject to consistent electronic delivery requirements. They will engage with staff at Treasury and IRS to discuss the differences in their respective regulatory standards in conjunction with any future rulemaking initiated by either agency regarding required electronic delivery of required disclosures under Title I of ERISA. Labor, however, does not believe that electronic delivery should be the default method of delivery for all pension-related disclosures for all participants and beneficiaries in all circumstances.

    Recommendation: The Secretary of Labor and the Secretary of the Treasury should work together to develop clear and consistent requirements for default electronic delivery of pension-related disclosures.

    Agency Affected: Department of Labor

  2. Status: Open

    Comments: In commenting on a draft of this report, Treasury did not provide any comments on this recommendation.

    Recommendation: The Secretary of Labor and the Secretary of the Treasury should work together to develop clear and consistent requirements for default electronic delivery of pension-related disclosures.

    Agency Affected: Department of the Treasury

  3. Status: Open

    Comments: In 2013, DOL stated that it was appropriate to consider the merits of broader rights to opt out of electronic delivery and would want to consult with the Treasury Department/IRS on the agencies' different opt-out standards. In FY14, the agency reiterated that dfferent opt-out standards may be appropriate for general plan information versus individual account or other personal information and would consult with Treasury/IRS. They will consider this matter as part of any future rulemaking that modifies or amends the current regulatory safe harbor.

    Recommendation: The Secretary of Labor and the Secretary of the Treasury should consider requiring pension plan sponsors to provide participants with an opportunity to opt out of all forms of electronic delivery, including (but not limited to) disclosures sent by default electronic delivery and disclosures posted on a secure continuous access website.

    Agency Affected: Department of Labor

  4. Status: Open

    Comments: In commenting on a draft of this report, Treasury did not provide any comments on this recommendation.

    Recommendation: The Secretary of Labor and the Secretary of the Treasury should consider requiring pension plan sponsors to provide participants with an opportunity to opt out of all forms of electronic delivery, including (but not limited to) disclosures sent by default electronic delivery and disclosures posted on a secure continuous access website.

    Agency Affected: Department of the Treasury

  5. Status: Open

    Comments: In FY13, DOL stated that it was appropriate to obtain further input on requiring some periodic paper reminder notice. In FY14, the agency reported that the sort of periodic notice described by GAO could be a safeguard against malfunctions in the electronic communication system and act as a reminder that important plan information is being provided through electronic media. DOL will consider and obtain further input on requiring a periodic paper reminder of as part of any future rulemaking that modifies or amends the current regulatory safe harbor.

    Recommendation: The Secretary of Labor and the Secretary of the Treasury should consider requiring pension plan sponsors to send a periodic paper notice to participants reminding them of their right to change their preferred delivery method at any time and the steps they must take to make these changes.

    Agency Affected: Department of Labor

  6. Status: Open

    Comments: In commenting on a draft of this report, Treasury did not provide any comments on this recommendation.

    Recommendation: The Secretary of Labor and the Secretary of the Treasury should consider requiring pension plan sponsors to send a periodic paper notice to participants reminding them of their right to change their preferred delivery method at any time and the steps they must take to make these changes.

    Agency Affected: Department of the Treasury

 

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