Expanding the electronic options for delivering required financial information to 401(k) plan participants would benefit both employers and employees, but Department of Labor and IRS rules often conflict about when employers can use electronic communication for their retirement plans.
A recent report by the SPARK Institute found that most Americans have access to online services and many are conducting their financial business online.
Besides reducing costs (with savings significantly passed through to plan participants), electronic delivery provides an efficient and reliable means of communicating important plan information, which facilitates superior participant outcomes, the white paper stated.
Sending out paper versions of plan-related notices, disclosures and statements is inefficient and costly, according to SPARK. Electronic delivery allows participants to respond quickly to plan information, makes sure the information is up-to-date and easily accessible to participants in real time, allows participants to customize how they receive the information and ensures that most recipients will actually see and receive the information.
A recent study found that companies could reduce costs by 36% by moving from paper to electronic delivery of retirement plan notices.
We calculate that switching to an electronic delivery default would produce $200 to $500 million in aggregate savings annually that would accrue directly to individual retirement plan participants, according to the SPARK Institute.
The study also found that even though most people have embraced technology in all aspects of their lives, the current rules have stopped plans from adopting opt-out electronic delivery practice for retirement plan documents. Eighty-four percent of participants in a recent poll of retirement plan participants said they thought it was acceptable to make electronic delivery the default option as long as there was a no-cost way to opt out of the option.
Electronic delivery of retirement plan notices also encourages the use of electronic tools, like retirement readiness calculators, that encourage participants to save more for retirement, the study found.
In fact, as provider data demonstrate, mere exposure to online tools has been shown to encourage participants to increase deferrals or modify their investment strategy to achieve a secure retirement, the study said.
In the Pension Protection Act of 2006, Congress promoted the use of automatic features that encourage automatic behavior. Features like automatic enrollment and automatic escalation have been very successful as the default option in many plans. Workers are much less likely to opt out of features that are automatically instituted. Recent surveys show that using an opt-out provision increased retirement plan participation rates from 49% without automatic enrollment to 91% with automatic enrollment, SPARK found. Another survey found that automatic escalation of contribution amounts increased plan deferral rates by 21%, and the increased contributions resulted in average account balance growth of 78% for plans with automatic contribution escalation, the study found.
Paula Aven Gladych is a freelance writer based in Denver.
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