SECURE 2.0’s Disclosure Tug-of-War Strains Employers, Regulators

Workplace retirement plans are trying to implement a hodgepodge of 401(k) disclosure provisions Congress enacted late last year that’s left regulators juggling simplifying jargon and not overburdening employers.

The SECURE 2.0 Act (Pub. L. No. 117-328) President Joe Biden signed into law in December modifies the list of yearly notices employers provide their workers to include at least one paper statement and regular sign-up reminders for unenrolled employees. The law also simplifies rollover forms and gives regulators the option of combining duplicative information.

The mishmash of soon-to-be-effective disclosure requirements embodies underlying tensions in the federal retirement plan reporting regime.

The US Labor Department and IRS are left balancing the interests of employers, participants, and lobbyists. They seek to implement provisions that give workers enough, but not too much, information while simultaneously preserving corporate legal cover and ensuring that third-party service providers have a steady stream of paperwork to bill.

Woven into the law are clashing answers to two questions: How much information is too much, and how should it be delivered? Employers and trade associations want to receive less information overall, using an electronic format, while older savers and participant-rights groups want more information, but delivered in old-fashioned paper and ink, said David Whaley, a partner at Thompson Hine LLP in Cincinnati.

“The pull between those two is where you end up seeing this legislation go in both directions,” Whaley said. “This is a Christmas list that was written by lobbyists and trade associations.”

For its part, the Labor Department is trying to keep up. Earlier this month, its Employee Benefits Security Administration launched the prerule process to create a public record for reporting and disclosure requirements under SECURE 2.0 (RIN 1210-AC23). Another rule the agency is working on (RIN 1210-AC09) would reportedly “improve the effectiveness” of notices while balancing plan costs.

Regulators want to make sure participants are getting enough information to direct the investments they’re ultimately responsible for without getting bogged down in the minor details that their employers use to reduce legal exposure.

“As we go into reviewing these types of issues with the SECURE 2.0 Act, we want to determine how we can be most effective with these disclosures,” EBSA Assistant Secretary Lisa M. Gomez said last week. “These projects are part of that bigger picture.”

Automatically Inactive

The disclosure tug-of-war is already evident in employers’ SECURE 2.0 implementation strategies.

Employers are eyeing ways to combine the annual paper statement and unenrolled participant disclosures into one effort, according to Whaley.

Recordkeeping service providers charge employers per individual retirement account login, and a wave of newly enrolled participants under SECURE 2.0’s mandates could mean swaths of workers with little or no balance in those accounts. Even if they’re not interacting with the platform, employers are paying for their accounts.

“Employers are going to want to start signing workers up with pen and paper, so that, if they opt out, they’re not swallowing the costs of inactive accounts,” Whaley said.

A key feature in the SECURE 2.0 Act is a new mandate that established 401(k) and 403(b) plans automatically enroll new hires into their plans.

Workers can always opt out of the plan, but their employers will have to send them annual reminders to start taking advantage of workplace tax-advantaged savings. It’s expected to contribute to a big rise in the total number of “participants.”

“I would expect the market to adjust in some way,” said Andy Banducci, senior vice president for retirement and compensation policy at the ERISA Industry Committee, an industry group representing established employers with plans under the Employee Retirement Income Security Act (Pub. L. No. 93-406).

Meanwhile, most plans that don’t offer workers a way to directly interact online will have to send at least one of their quarterly, annual, or triennial disclosures in paper form. This was the result of a major legislative push by the AARP, which advocates for participants who struggle to get information about their retirement accounts electronically.

“We think it’s critical that people get at least an annual benefit statement showing what they have and showing how their accounts are doing on an annual basis,” said David Certner, legislative counsel and director of legislative policy for government affairs at AARP. “In the individual-account world, it’s up to individuals to manage their accounts. If they can’t get an annual statement, they won’t be able to do that.”

Groups such as the ERISA Industry Committee opposed the annual paper requirements, arguing electronic media are well-established and offer a cost savings that employers will pass off to participants.

But Banducci acknowledged that push and pull of disclosures in SECURE 2.0 are an inevitable part of the regulatory process.

“There is an ongoing quest in the retirement community to make sure participants receive helpful information to make appropriate decisions in a way they understand but to also make sure that’s balanced to ensure it’s cost efficient and beneficial for employers,” he said.