Spark Institute Issues Public Comment to Labor Dept.

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WASHINGTON, Oct. 19 -- Tim Rouse, Executive Director, Spark Institute Inc., has issued a public comment to the U.S. Department of Labor. The comment was written on Oct. 10, 2023, and posted on Oct. 16, 2023.

The comment was on Docket No. EBSA-2023-0011-0001.

Here are excerpts:

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On behalf of the SPARK Institute, Inc., we are writing in response to the Department of Labor's ("the Department's") August 11, 2023 request for information ("RFI") regarding reporting and disclosure issues arising out of the SECURE 2.0 Act of 2022 ("SECURE 2.0").

The SPARK Institute represents retirement plan recordkeepers, mutual fund companies, brokerage firms, insurance companies, banks, consultants, trade clearing firms, and investment managers. Collectively, our member firms administer the retirement plans for over 110 million American workers.

The SPARK Institute was very pleased to see SECURE 2.0 signed into law at the end of last year, as it delivers on many of the retirement reforms and enhancements that have long been priorities for the SPARK Institute. The SPARK Institute previously submitted a SECURE 2.0 guidance request to the Department on April 25, 2023. To the extent that our April letter addresses issues covered by the RFI, we have reiterated those requests in our responses below.

A. PAPER STATEMENTS AND E-DELIVERY MODIFICATIONS (338)

SECURE 2.0. Beginning in 2026, Section 338 of SECURE 2.0 will add a new paper statement requirement for retirement plans that do not use one of the 2002 e-delivery safe harbors (i.e., the "affirmative consent" or "wired at work" safe harbor) to deliver benefit statements to participants.

Section 338 of SECURE 2.0 also includes two additional categories of changes impacting the Department's existing e-delivery rules. First, for participants receiving benefit statements in accordance with the Department's 2002 e-delivery safe harbors, plan administrators must now send a new one-time initial paper notice informing participants "of their right to request that all documents required to be disclosed under [ERISA] be furnished on paper in written form."

Second, Section 338 includes a series of regulatory directions for the Department to update its electronic disclosure guidance (other than the 2002 safe harbors) to the extent necessary to ensure that the Department's document delivery guidance satisfies a series of standards specified in SECURE 2.0.

Electronic Delivery Improves Participant Outcomes. Before responding to the RFI's specific questions regarding e-delivery, we believe it is necessary to first put the Department's existing e-delivery safe harbors and Section 338 of SECURE 2.0 in context.

For many years, the SPARK Institute has advocated for legislative and regulatory changes that promote the use of e-delivery. This advocacy is rooted in our belief that e-delivery makes retirement notices and disclosures more effective, more useful, and less costly for retirement savers. For example, a 2019 study conducted by Quantria Strategies estimated that $250 to $450 million in savings would annually accrue directly to participants by permitting plan administrators to deliver notices and disclosures electronically by default, which the Department eventually permitted in 2020./1 That same study estimated that these cost savings could increase a participant's retirement savings by nine percent during the accumulation phase, due to an increase in their net investment returns resulting from reduced costs from electronic delivery of regulatory documents./2

Research also shows that electronic delivery improves participant outcomes in terms of savings rates and participant engagement, independent of any cost savings directly attributable to reduced printing, mailing, and storage costs./3 This is because participants who access plan disclosures electronically can more easily be directed to online tools and other resources that help them: (i) understand the adequacy of their savings; (ii) plan to make improvements; and (3) immediately take action in pursuit of their goals. Other advantages that electronic delivery has over paper delivery include the ability for participants to access information regarding their accounts in real time, the ability to reduce missing participant issues by providing participants uninterrupted access to their documents when they change physical addresses, and additional levels of cybersecurity for participants who register their accounts and enable multi-factor authentication. Ultimately, the many benefits of e-delivery have improved outcomes for millions of Americans who work hard to save for a financially secure retirement.

In 2002, as part of a government-wide effort to modernize rules to reflect advances in technology, the Department published two e-delivery safe harbors - the "affirmative consent" and "wired at work" safe harbors. For more than two decades, these two safe harbors have worked well, in part, because they include regulatory safeguards that require plan administrators to implement measures reasonably calculated to ensure the actual receipt of electronically delivered documents, in addition to always honoring any participant's preference for paper delivery.

1 Quantria Strategies, Default Electronic Delivery Works: Evidence of Improved Participant Outcomes from Electronic Delivery of Retirement Plan Documents (November 2019), at 2.

2 Id.

3 Id.

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Building on its 2002 "affirmative-consent" and "wired-at-work" safe harbors, in 2020, the Department finalized a pair of new e-delivery safe harbors - the "notice-and-access" and "direct email" safe harbors. These new safe harbors appropriately expanded the universe of participants who may receive electronically delivered documents by default and were intended to promote the many benefits of e-delivery, while also incorporating a series of regulatory safeguards to ensure that plans are delivering documents in accordance with participant preferences. The 2020 safe harbors were adopted in large part due the public's increased comfort with conducting financial transactions online and the progress that has been made since 2002 in terms of improved internet access, especially among retirement plan participants./4

The regulatory safeguards incorporated into the 2020 safe harbors operate at the time electronic delivery commences and on an ongoing basis. For example, the Department's 2020 safe harbors condition relief upon plan administrators furnishing a one-time paper notice to any covered individuals who will be receiving documents electronically. This paper notice must inform the recipient that covered documents will be furnished electronically, identify the electronic address that will be used, provide any instructions necessary to access covered documents, and inform recipients of their rights to receive documents in paper free of charge. Similar notices are also sent electronically to participants each time that documents are posted online. All of these notices and safeguards empower participants to monitor and manage their delivery preferences. Additionally, the 2020 safe harbors require plans to implement systems that alert administrators of invalid email addresses and to take additional measures to ensure the continued accuracy and availability of electronic addresses when employees terminate employment.

The point of all of this is to say that the Department's existing e-delivery framework has struck the right balance by fostering the use of e-delivery and all of its associated benefits, while also incorporating regulatory safeguards that ensure participants can access their documents, are given the right to request paper, and are given timely notices about how to exercise that right. Because this existing framework strikes the right balance, the SPARK Institute strongly encourages the Department, in reviewing its e-delivery guidance, to only make those changes that are absolutely necessary to implement SECURE 2.0's directions. Any additional changes to the Department's existing rules would threaten to disrupt a system that has worked well, and will continue to work well, for plans and participants.

Any additional changes would also contradict the general message conveyed to the Department in response to its RFI by one of SECURE 2.0's primary drafters - the Chairwoman of the House Committee on Education and the Workforce, Virginia Foxx. In her October 5, 2023 letter to the Department, Chairwoman Foxx cautioned the Department against taking regulatory action that...

4 A 2015 telephone survey conducted by Greenwald & Associates for the SPARK Institute found that 99 percent of retirement plan participants reported having internet access at home or work and 88 percent of respondents reported accessing the internet on a daily basis. That study also found that 84 percent of plan participants find it acceptable to make electronic delivery the default option, with the option to opt out at no cost to the participant.

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...goes "well beyond the provisions of section 338" and reminded the Department that "Congress' directives to the Secretary of Labor in section 338 are clear, specific, and intentionally limited."/5

SPARK Opposes "Access in Fact" Standards for Electronic Delivery. Question 21 of the RFI asks whether the Department's 2002 and 2020 e-delivery safe harbors should "be modified such that their continued use by plans is conditioned on access in fact." In this regard, the RFI asks whether plan administrators should be required to monitor whether individuals actually visit or log into plan websites, and, in the event that such individuals are not viewing their documents, should the e-delivery safe harbors require plan administrators to revert participants to paper.

The SPARK Institute strongly opposes any regulatory standard that would newly condition any of the Department's e-delivery safe harbors upon a participant actually accessing or reading any ERISA-required notice or disclosure. Such a standard would undermine, diminish, and reverse the many benefits created by e-delivery and significantly increase the costs incurred by plans that use e-delivery. For example, a participant who regularly checks their account balances and investment allocation in real time through electronic recordkeeping systems may be less inclined to regularly check the standardized notices and disclosures that are required by ERISA. Especially for these participants, we see no reason that plans should incur additional costs to monitor their activity and revert them to paper if they are not actually viewing ERISA's standardized notices and disclosures.

Furthermore, such a standard would unfairly impose onerous conditions on e-delivery systems that are not similarly imposed on paper delivery systems. To be blunt, imagine if we required plan administrators to go to a participant's house and check to make sure their mail is opened./6

The Department has already and recently considered and rejected an "access in fact" standard, as part of its 2020 e-delivery rulemaking. In reaching this conclusion, the Department: (a) cited how the costs associated with access in fact would far outweigh its benefits; and (b) pointed to the fact that the regulatory safeguards included in the 2020 safe harbors are "more than reasonably calculated to ensure actual receipt of covered documents."/7

Another reason we oppose any requirement that would revert participants to paper if they are not actually viewing their electronic notices and disclosures is because it could result in plans sending documents through a medium that is different from the medium that a participant...

5 Letter from Chairwoman of the House Committee on Education and the Workforce, Virginia Foxx, to the Assistant Secretary of the Employee Benefits Administration (Oct. 5, 2023).

6 The SPARK Institute was pleased to see a similar concern and sentiment expressed in the recent letter sent to the Department by Chairwoman Foxx, which stated, "To require a plan administrator to monitor electronic access is as ridiculous as requiring a plan administrator to confirm that a participant opens and reads paper mail. This is an insult to participants and gross regulatory overreach."

7 85 Fed. Reg. 31884, 31900 (May 27, 2020) ("The Department does agree, however, that imposition of a monitoring requirement could be very expensive, especially for small plans, to the extent technological systems have to be replaced or altered significantly, or additional, potentially costly, plan services have to be procured. Even the most basic requirement for website monitoring, for example tracking the instances of users visiting a particular page on a website or views of a screen on an app, would require a web analytics tool, according to the commenters.").

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...expressly requested or was informed about. For example, if a participant affirmatively opts to receive documents electronically and also chooses not to periodically review plan notices and disclosures, the participant should not have their preferences and expectations disregarded by reverting them back to paper. The impact of such a switch would be particularly concerning when participants move, are away from their principal residences, or otherwise rely exclusively on electronic communications to handle plan matters.

The idea of "access in fact" rests on two false premises. The first false premise is that somehow delivering documents electronically is inherently less favorable to participants and thus the plan should "revert" to paper when a participant fails to access the document. We reject this premise. For example, one very important advantage of electronic documents is that if the participant does not access them, they do not immediately disappear. In contrast, if a participant does not open an envelope from the plan, or opens it and then immediately discards it, the document is lost. The second false premise is the idea that it should be the responsibility of the plan administrator to ensure that participants read every single word of every single regulatory notice that ERISA requires to be sent. If a participant makes the choice to ignore or file away the benefit statement that they receive by mail or email to review later, the participant made the choice. At least, in the case of participants making this choice for electronically delivered documents, the statements will be posted online for participants to access and review, as required. Such a choice should not create additional obligations for plan administrators.

The Department Should Not Add Regulatory Conditions to the 2002 E-Delivery Safe Harbors. Section 338(b)(1) of SECURE 2.0 directs the Department to update its 2002 e-delivery safe harbors to condition relief upon the plan administrator sending a one-time initial notice of the participant's or beneficiary's "right to request that all documents required to be disclosed under [ERISA] be furnished on paper in written form." This requirement is similar, but not identical, to the one-time initial paper notice that must be sent in order to rely on the Department's 2020 e-delivery safe harbors. Question 19 of the RFI asks "whether any additional information (other than a statement of the right to request that all documents required to be disclosed under ERISA be furnished on paper in written form) should be included, and whether there are other standards that should apply to the required one-time initial paper notice that must be furnished for compliance with 29 CFR 2520.104b-1(c), the 2002 safe harbor?"

The SPARK Institute opposes any regulatory action that would impose additional conditions on the 2002 e-delivery safe harbors, beyond what is expressly required by Section 338(b)(1) of SECURE 2.0. The 2002 safe harbors have worked well for more than 20 years and include appropriate safeguards that ensure participants are aware of their rights and are receiving documents how they are most comfortable. The Department should not be increasing document delivery costs by adding new conditions to the 2002 safe harbors, especially in the absence of any evidence suggesting that the 2002 safe harbors are failing to ensure that participants can access their plan-related documents.

While SECURE 2.0 directs the Department to add the notice described in Section 338(b)(1), it also directs the Department not to take additional action with regard to the 2002 e-delivery safe harbors. Relevantly, Section 338(b)(2) of SECURE 2.0 includes a series of regulatory directions for the Department to update its electronic disclosure guidance, other than the 2002 safe harbors, to the extent necessary to ensure that such guidance satisfies a series of standards specified in SECURE 2.0. If Congress had wanted the Department to make changes to the 2002 safe harbors, beyond what is directed in Section 338(b)(1), it would not have excluded the 2002 safe harbors from the regulatory directions described in Section 338(b)(2).

To the extent that the Department issues guidance interpreting the new notice required by Section 338(b)(1) of SECURE 2.0, the SPARK Institute requests clarification that, if a participant receives documents in accordance with the 2020 e-delivery safe harbors and has already received a one-time initial paper notice pursuant to Labor Reg. Sec. 2520.104b-31(g), an additional one-time paper notice is not required in order to newly deliver documents to the participant in accordance with the Department's 2002 affirmative consent or wired at work safe harbors since the participant will already have been notified in the initial paper notice (and in notices of internet availability) of the participant's right to receive all notices in paper.

The Department Should Not Substantively Change Pension Benefit Statements. Question 20 of the RFI asks, "[t]o what extent should [pension benefit statements] contain the content of the initial paper notification described in paragraph (g) of the 2020 safe harbor, and why?" Thus, if such a change were adopted, benefit statements would newly be required to include the following information: (1) notification that covered documents will be furnished electronically to an electronic address; (2) identification of the electronic address that will be used for the individual; (3) instructions necessary to access the covered documents; (4) a cautionary statement that the covered document is not required to be available on the website for more than one year or, if later, after it is superseded by a subsequent version of the covered document; (5) a statement of the right to request and obtain a paper version of a covered document, free of charge, and an explanation of how to exercise this right; and (6) a statement of the right, free of charge, to opt out of electronic delivery and receive only paper versions of covered documents, and an explanation of how to exercise this right.

The SPARK Institute opposes any regulatory change that would require this type of information to be furnished to participants as part of the pension benefit statement because it is beyond the scope of SECURE 2.0's e-delivery provisions and would contradict the intent of SECURE 2.0. Additionally, for benefit statements that are delivered in paper, this information would not be relevant; and for benefit statements delivered in accordance with the 2020 e-delivery safe harbors, much of this information will unnecessarily repeat disclosures that are simultaneously provided as part of the notice of internet availability required by Labor Reg. Sec. 2520.104b-31(d) or the direct email disclosures required by Labor Reg. Sec. 2520.104b-31(k)(2).

Section 338 of SECURE 2.0 addresses the media that plans may use to deliver ERISA-required notices and disclosures, including the media that plans may use to deliver pension benefit statements. Section 338 does not, however, call for substantive changes to the information that is presented on pension benefit statements. Accordingly, any change to the information presented on pension benefit statements is beyond the scope of Section 338 of SECURE 2.0.

The SPARK Institute is also concerned about regulatory changes that would require new information to be presented on pension benefit statements because it would contradict the intent of SECURE 2.0's provisions that are designed to simplify, standardize, improve, and consolidate ERISA's reporting and disclosure rules./8 In recent decades, the amount of disclosures that retirement plan participants receive has significantly increased and contributed to disclosure fatigue. Participants have become numb to overly detailed disclosures and it is too difficult for participants to identify and understand the information that is most relevant to them. Regulatory changes adding unnecessary detail to the pension benefit statement, such as detailed disclosures on document delivery preferences, would only contribute to these issues and is contrary to the SECURE 2.0 provisions seeking to simplify, standardize, improve, and consolidate ERISA's reporting and disclosure rules.

In this regard, the SPARK Institute believes that adding information about document delivery preferences to the benefit statement would also dilute the overall purpose of having a concise benefit statement that provides a benefit "snapshot" to participants. As the benefit statement gets longer and longer, participants will more likely become overwhelmed by or ignore information provided through the benefit statement. Thus, the additional information contemplated by the RFI would also appear to be in tension with the apparent objective of Section 338 of SECURE 2.0 - i.e., to get participants to review and understand the contents of their benefit statement.

No Changes Are Needed to the 2020 E-Delivery Safe Harbors. The RFI asks, "What modifications or updates to the 2020 safe harbor are needed to implement section 338 of SECURE 2.0?"

Section 338(b)(2) of SECURE 2.0 directs the Department to update its electronic disclosure guidance (other than the 2002 safe harbors) to the extent necessary to ensure that the Department's document delivery guidance satisfies a series of specifications enumerated in the SECURE 2.0. In implementing this direction, the SPARK Institute urges the Department not to make changes if they would, in fact, not be necessary to achieve the specifications in Section 338(b)(2). In this regard, the SPARK Institute believes that the Department does not need to issue additional guidance to accomplish the regulatory specifications in Section 338(b)(2) because they either: (1) describe existing practices, such as the provision clarifying that plans may furnish participants with electronic duplicates of paper statements; or (2) duplicate requirements that are already included in the Department's 2020 e-delivery safe harbors, such as the rule prohibiting fees for the delivery of paper statements.

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The SPARK Institute appreciates the opportunity to provide these comments to the Department. If you have any questions or would like more information regarding this letter, please contact the SPARK Institute's outside counsel, Michael Hadley, Davis & Harman LLP ([email protected]).

Sincerely,

Tim Rouse

Executive Director

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Original text here: https://downloads.regulations.gov/EBSA-2023-0011-0024/attachment_1.pdf

TARGETED NEWS SERVICE (founded 2004) features non-partisan 'edited journalism' news briefs and information for news organizations, public policy groups and individuals; as well as 'gathered' public policy information, including news releases, reports, speeches. For more information contact MYRON STRUCK, editor, [email protected], Springfield, Virginia; 703/304-1897; https://targetednews.com