Current Thinking

Electronic Delivery of 401(k) Information: An Idea Whose Time Has Come

We regularly hear of businesses going paperless as the time and money spent filling out, sending and storing paperwork has continued to spiral upwards. Filing forms electronically, digitizing data, and saving it to “the cloud” can be a much more cost-effective method than continuing to stuff file cabinets with old paper records.

Now there are plans afoot to allow for the electronic delivery of 401(k) information – a move that the Investment Company Institute (ICI) estimates could save the 401(k) industry more than $500 million per year. Its report was based on estimates that more than 80 million 401(k) plan participants receive eight mailings per year.

It is important to note that these efforts are a result of an August 2018 Executive Order signed by President Donald Trump, “Strengthening Retirement Security in America.” Part of that order requested a review from the Secretary of Labor and the Secretary of Treasury on the potential for “broader use of electronic delivery as a way to improve the effectiveness of disclosures and to reduce their associated costs and burdens.”

In April, the ICI and the American Retirement Association sent a letter to Assistant Secretary of Labor for the Employee Benefits Security Administration (EBSA) Preston Rutledge underscoring the benefits of electronic delivery and other findings in their joint 2018 report, “Why the Time Has Come to Prefer Electronic Delivery,” an update of their 2011 study, “Delivering ERISA Disclosure for Defined Contribution Plans: Why the Time Has Come to Prefer Electronic Delivery.”

The updated report, they wrote, shows that the need for a shift from paper to electronic delivery “has grown even more compelling and urgent. The update concludes that electronic delivery of notices, including DC [defined contribution] plan notices, will reduce costs, provide greater access, and improve the quality of notices for Americans.”

Benefits of going electronic, they added, would:

  • Enhance the effectiveness of ERISA communications, particularly to individuals with disabilities or for whom English is not the primary language. Free translation software is now available to translate more than 100 languages, accounting for more than 99 percent of the online population.
  • Maintain security of information. Cybersecurity, while not perfect, is still preferable to the risks of relying upon paper notices.
  • Reduce the environmental impact of tons of discarded paper every single year. In the past four decades, the use of paper has risen by 400 percent, and deforestation has become a major, well-documented problem, both in developing and developed areas.

The letter also noted that in 2016, 88 percent of households owning DC accounts engaged in online banking; that plan participants who interact with their plan’s website “tend to have higher contribution rates”; and that electronic delivery of notices is increasingly becoming the norm for the U.S. government, citing the Social Security Administration, the Office of Personnel Management and the federal Thrift Savings Plan.

“From reducing costs, providing greater access and improving the quality of notices, the benefits of e-delivery are overwhelming and undeniable,” American Retirement Association CEO Brian Graff said in a statement. “Under our proposal, those who prefer paper delivery would still have that option. But we strongly believe the time has come to unleash the power of e-delivery. After all, if electronic delivery is good enough for the Centers for Medicare and Medicaid Services and Social Security, it should be good enough for 401(k) participants.”

A proposal to implement the change, “Improving Effectiveness of and Reducing the Cost of Furnishing Required Notices and Disclosures,” was sent by the Department of Labor to the Office of Management and Budget (OMB) in August for review.

We are still awaiting the OMB’s decision, and remain hopeful that the federal government approves “going paperless” in this matter. Plan sponsors, plan participants – and the planet itself – stand to benefit.

About the Author

Richard Rausser

Richard W. Rausser has more than 30 years of experience in the retirement benefits industry. He is Senior Vice President of Thought Leadership at Pentegra, a leading provider of retirement plan and fiduciary outsourcing to organizations nationwide. Rich is responsible for helping to shape and define Pentegra’s viewpoint on workplace retirement plans, plan design strategy, retirement success and employee savings trends. His work is used by employers, employees, advisors, policymakers and the media to produce successful outcomes for American workers.  In addition, Rich is responsible for Pentegra’s Defined Benefit line of business, which includes a team of Actuaries and other retirement plan professionals as well as Pentegra’s BOLI line of business.  He is a frequent speaker on retirement benefit topics; a Certified Pension Consultant (CPC); a Qualified Pension Administrator (QPA); a Qualified 401(k) Administrator (QKA); and a member of the American Society of Pension Professionals and Actuaries (ASPPA). He holds an M.B.A. in Finance from Fairleigh Dickinson University and a B.A. in Economics and Business Administration from Ursinus College.