U.S. Chamber Responds to SECURE 2.0 Section 319 RFI

Section 319 RFI Comments

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Chantel Sheaks
Vice President, Retirement Policy, U.S. Chamber of Commerce

Published

May 23, 2024

VIA Electronic Delivery

May22, 2024

Office of Regulations and Interpretations
Employee Benefits Security Administration
U.S. Department of Labor
Room N-5655
U.S. Department of Labor
200 Constitution Avenue, NW
Washington, DC 20210

RE:Request forInformation:SECURE 2.0Section319-Effectiveness of Reporting and Disclosure Requirements

ToWhomItMay Concern:

This is the U.S. Chamber of Commerce's response to the Department of the Treasury, the Department of Labor,andthe Pension Benefit Guaranty Corporation's (Agencies) Request forInformation (RFI) relating toSection319of theSECURE 2.0Act(SECURE 2.0).Webelieve that the RFI should be a starting point for evaluatingthe current disclosure regime, and much more in-depth review and research is needed before any changes are suggested or implemented.

Background

Under SECURE 2.0Section 319, no later than December 29,2025,the Secretaries of Labor and the Treasury and the Director of the PBGC are required to issue a report (after consultation with participant and employer groups) on the appliable reporting and disclosure requirements and make recommendations to consolidate, simplify, standardize and improve the reportingand disclosureso that participantscan better understandthe informationthey needto monitortheirplans,plan forretirementand obtainbenefits.Accordingtothe statute, to assess the effectiveness of reporting and disclosure requirements, the report must include an analysis of how participants and beneficiaries provide preferred contact information, the methods by which plan sponsors and plans furnish disclosures, and the rate at which participants and beneficiaries are receiving, accessing, understanding, and retaining disclosures.¹

In responsetothe directivein Section 319, onJanuary 23,2024, the Agenciesissued an RFI with24 questions and subparts totally approximately 110 requests and questions.Our response does not attempt to answer each question or request, but instead it focuses on what informationis the most important for participants to receive and how current disclosures may not addressthis and what is the most impactful ways toreach participants.

Background Statistics

A recent study found that employees only spend18 minutes eachyear when they enroll in their benefits, yet they spend over four hours deciding which mobile phone to buy.² Another surveyfoundthatalmosthalf(46percent)ofrespondentsdidnotknowwhatinvestments their self-directedretirementaccounts were in.³ This likely is because many employees either do not read or do not understand current disclosures. For example, according to a Pew Study with respect to plan fees:

Nearly 7 in 10 respondents with retirement plans said they were at least somewhat familiar with their plan's fees. However, 31 percent were not at all familiar with the fees.
Roughly two-thirds had not read any investment fee disclosure in the prior years, and, even among those claiming to be familiar with the fees, 33 percent had not read any fee disclosures in the past year.
Of the third who had read a fee disclosure, nearly 7 in 10 said they found the information understandable, but only 25 percent of all respondents said they had read and understood the fee disclosures.⁴

A2021GAOreportontheeffectivenessoftheDOLfeedisclosure regulationfound that they are,in fact, not effective. Nearly 45 percentofparticipantscannotnot use the informationinthedisclosurestodeterminethecostoftheirinvestmentfee,and41 percentofparticipantsincorrectlybelievethattheydonotpayany401(k)planfees.⁵AllofthesestatisticscomeatatimewhenbetweenTitleIandTitleIIofEmployee Retirement Income Security Act of 1974, as amended (ERISA), there are 27 Title 1⁶ retirement disclosures and 27 under Title 11.⁷

Employers paynearly 1/3 of totalcompensation asemployee benefits.⁸Giventhis spend, it is imperative that employees actually understand what they are receiving. In addition, employees who understandtheir benefits are happier and feel more stable. AccordingtoaMetLife survey:

76% of workers who understand their benefits are happy, and 82% say understanding how to use their benefits would give them a greater sense of overall stability (versus only 47% and 52%, respectively, who do not); and
50% say having a better understanding of their benefits would make them more loyal to their employer. ⁹

Even though our members spend hundreds of thousands of dollars in complying with the current notice and disclosure requirements, most plan sponsor would agree that they are not effective in communicatingactual benefits. Instead, our members look to various media formats, in-person meetings, affinity groups, short, on the go podcasts and touchpoints throughoutthe year toinform and educate participantson theirbenefits.¹⁰

Discussion

Before discussing any revision to ERISA's current reporting and disclosure requirements, it is important to understand the purpose of ERISA. "Congress' main purpose in enacting ERISA was 'toensure that workers receive promised pension benefits upon retirement.' ....However,Congress also recognized that because employers are not required to offerretirementplans, itis importantthat employersbe able to administerplans with reasonableexpense so that they are not discouragedfrom establishingor continuingsuch plans."¹¹Thechange inthe workforce, benefit design,andtechnology since1974when ERISA was first enacted necessitates an evaluation of ERISA's notice requirements. However, in doing so, the Agencies and Congress should be mindful of what notices should convey, the cost of providingnotices and the cost of changingnotice requirementsso as not to add to administrative expenses and discourage employers from establishing and maintaining retirement plans.¹²

The types of retirement coverage have changed since ERISA was enacted. In1974, 401(k) plans did not exist, and, even four years later when they were created, they were not seen as the main source of employer-provided coverage. It was not until the late1990s that technology actually made self-directed 401(k) plans not only feasible but practical. However, as the type of plan coverage changed, generally neither Congress nor the Agencies reevaluated the notice requirements, but, instead, added more notice requirements. Furthermore,althoughtechnologyalsohasevolved,therulesrelatingtonoticeshave not.

Instead of focusingon each currentnotice, the Agencies should first look at the big picture of what basic information a person needs with respect to each type of retirementplan and then look at what specific information may be needed based on an event. The Agencies also should keep in mind that for information to be useful, it should be actionable. In determiningwhether a communication is effective, plan sponsors often look to see whether participants are not only taken action, but whether they are taking the right action.¹³ For example, it would not make sense for someone to receive information on rollovers when the personis first eligiblefor the plan becausethereis no actionableitem at that time.

For a self-directed 401(k) plan (which is the predominantplan for most participant), the most important information is:

How to enroll (and if autoenrolled, how to change or disenroll),
How to make an employee contribution,
What the matching contribution is, what it means, and how to obtain it,
What is the non-elective contribution, what that means, and how to obtain it,
How to invest (or change if automatically enrolled), and
How to designate a beneficiary.

There isother information thatisneeded atthetimeof anevent,but it willnotimpact allparticipant allofthetimesuchasdivorce,loans,hardshipdistributions,otherdistributions, penalties,increasing/decreasingcontributions,changing investments, blackoutsand rollovers.Althoughthisinformation isimportant, providing it toanindividual whentheyfirst becomeeligiblemayovershadowtheinformationthatisneededtoenroll.

With respect to definedbenefitplans, the initial informationparticipantsneed toknow is: when coveragebegins, whetherthere is an employeecontribution, the vestingschedule, and the benefit formula. Just in time event are narrower for defined benefit plans, but include divorce, disability, and early retirement benefits.

Therecurrentlyareanumberofnoticeswhichdonotinformparticipantsofany actions they need to take nor do they provide any information that employees can change. For example,bothdefinedbenefitplansanddefinedcontributionplansarerequiredtoprovide the summaryannualreport (SAR). With respectto a defined contributionplan, this is particularlyunhelpfulbecausethe only thing that mattersis how much is in the participants account, not the plan as a whole. With respect to a defined benefit plan,theSAR is marginally moreinformative,butnoneoftheinformationonthe SARprovidesan actionableitemnor doesitincludeanythingthataparticipantmightactuallychange.Similarly,the Annual Funding Notice is equally unhelpful because, according to DOL's model notice, it "is provided for informational purposes and you are not required to respond in any way."¹⁴ The notice then contains pages and pages of information that the average plan participanthas absolutely no understanding of and worse no use for.¹⁵This is similarly true for many other required notices, such as the Notice of TransferofExcessPensionAssets toRetireeHealthBenefitAccount and the Notice of Failure to Meet Minimum Funding Standards.

Many other notices many be relevant, but they are far too long to be meaningful.For example, the current model rollover notice is19 pages. Although there are many different factorsthatmightpossiblyimpactasmallportionofthepopulation,thegeneralrollover notice does not need to contain each and every scenario that might possibly impact someone. Instead, this notice should state what a rollover is, what distribution options generally are available, and general tax consequences. There can then be an embedded link for each and every particular scenario or one link to the longer rollover notice.

Althoughveryimportant,it isobvious fromthestatisticsandother research,thatthe currentregulatoryregimesurroundinginvestmentoptionsandcostsalsoisnotworking,yetit iscostingmillionsofdollarsincompliance.Asaninitialmatter,nearly14yearsagowhenit finalized theSection2550.404a-5 Fiduciary requirements for disclosure inparticipant directedindividualaccount plansregulation,asthenamesuggests,DOLconflatedfiduciary responsibilitieswithnoticeobligations.Throughthisregulation,DOLcreatedanentirelynew noticeregimenototherwisecontemplatedbyCongress.Inaddition,therequirementsare typical ofmanycurrentdisclosure regulations inthatmoreisbetter,ratherthanfocusing on providingthemostrelevantinformationtohavethemostimpactatthetimeitisreceived.For example,underthecurrentregulationaparticipantisrequiredtoreceivealistofallindividual expenses thatpossiblycouldbechargedagainsttheaccountonorbeforethedatethe participant mayfirstdirect theparticipant's account.Thisinformation isclearlyunnecessary atthattimeandnotonlywillit beoverlooked, butit willcrowd outother more important information, such as the investment options.

Thisisnottosaythatparticipantsdonotneedinformationonindividual charges. However, they need that information when they are going to incur that charge, which is why the DOL should support more enhanced electronic disclosure which allows exactly for this and to allow more enhanced and effective disclosure.

The 2020 electronic media regulation (29 CFR Section 2520.104b-31 Alternative methodfordisclosurethrough electronicmedia- Notice-and-access) was a goodstep forward, however, much more can be done to allow for and encourage disclosure through electronic media.¹⁶ For years, industry has been advocating for electronic disclosure to decreasecostsandimprovetheuserexperience. Forexample,in2015,almost adecadeago, the SPARK Institute published a paper showing not only that electronic delivery would save participants money but that it also:

Allows participants to respond quickly to plan information received electronically,
Ensures information remains up-to-date and is accessed by participants in "real time,"
Provides information that is more accessible and digestible,
Provides information that can be more readily customized, and
Provides a better guarantee of actual receipt of information.¹⁷

The report also highlighted that electronic disclosures can lead to better retirement outcomesthroughexposuretobenefitcalculatorandotheronlinetoolsthathelp participants manage their accounts. Given the advancesin technology since 2015 and the fact that according toa PewCharitable Trust report datedJanuary 312024,95 percent of USadults say theyusethe internet,¹⁸itisnowevenmoreimportantthat theAgenciesencourageplansto use electronic communication to disclose information. Furthermore, such use also allows plan sponsors to determine if information has been accessed and by whom, which can then allow themtodeterminewhatinformationismostrelevanttoparticipants.Thissimplyisnot possible with paper disclosures. In addition, providing disclosures electronically allows participants to have access to information when they need it and allows for easy retention of such documents.For example, mostplans provide access todocumentsvia a webpage through the service provider. The webpage will include not only the immediate information someone needs to enroll and make investment elections, but also information on one-time events, such as divorce or distributions and the cost associated with such events. Such informationcanbe foundwitha quicksearchoftherelevantterm.Also, inthiscase,thereis no need for participants to requests to have disclosures resent because the informationis readily available at any time.

As noted in the RFI, the Agencies currently have standards relating to the manner in which notices must be written. For example, DOL regulation requires that the summary plan descriptionbe writtenin a mannerreasonablycalculatedtobe understoodby the average plan participant.¹⁹ Because the American workforce is so diverse, it would be impossible for DOL to devise a specific standard that would fitevery worker in theworkforce. The current standard allows plan sponsors to evaluate their participants' needs to determine how to write and present information to them.

With respect to the foreign languagerequirement, in a recentproposedregulation, DOL attempted to impose a health plan regulatory requirement on a retirement plan notice, even though there was no statutory basis for it. The proposal would have required autoportability notices not only to provide taglines in a variety of languages, butalso ensure that any call centers also have such language services available.²⁰ This requirement would have applied on a county-by-countybasis where10%of the populationresidingin the county is literate only in the same non-Englishlanguage. This is very different from the current requirementapplicable to summaryplan descriptionsunder 29 CFR Section 2520-102-2 which requires foreign language assistance depending on the actual plan demographics. Given the expenseof providing information in multiplelanguages,itmakesmore sense to base a foreign language requirement on the plan's actual demographics. Furthermore, under the current summary plan description regulation, the plan administratoris required to provide non-English speaking participant with "an English-language summary plan description which prominentlydisplaysa notice, in the non-Englishlanguage commonto these participants, offering them assistance."The currently summary plan description regulation allows for such participants to receive information in a non-English language so that they are "informed as to their rights and obligationsunder the plan."However, itis flexible enough so that the plan administrator can determine the appropriate type of assistance.

With respect to the presentation and design of notices, DOL should not mandate a one size fits all standard. Currently, plan sponsors use a variety of mediums and styles to communicate with their workforce. As noted above, given the importance of benefits to both employers and employees, plan sponsors have every incentive to ensure that the benefits are communicatedin a format that is approachableand understandable to participants.

Conclusion

It has taken fifty years toget where we are with respect to reporting and disclosure, and,even though we know many of the current disclosures are not optimal, neither Congress nor the Agencies should rush into making changes merely for change sake. Instead, the Agencies should recommend a multiyear project with stakeholders to determine what disclosures are in fact needed, how they can be structures to change as needs and technologieschanges, and what will cause the least disruptionand cost for the system.

We appreciate the Agencies' issuance of the RFI, and we look forward to working with you on this project.

Sincerely,
Chantel Sheaks
Vice President, Retirement Policy
U.S. Chamber of Commerce

¹ It is unclear why Congress asked for the rate at which participants and beneficiaries are receiving, accessing, understanding, and retaining disclosures. First, they are receiving disclosures at the rate required by law or regulations. Secondly, participants are accessing disclosures through whichever medium they are sent. Thirdly, there is little data to show whether participants are understanding disclosures, but given what is there, most do not. Finally, there is no data on how participants are retaining disclosures. Similarly, there is little to no data on many of the requests in the RFI, which is why our response is more general in nature.

² "On average, employees spend 18 minutes enrolling in benefits" Lisa Burden published May 20, 2019 available at https://www.hrdive.com/news/on-average-employees-spend-18-minutes-enrolIing-in benefits/555041/#:-:text= Employees%20spend%20just%2018%20minutes,benefits%20administration% 20technology%20firm%20PlanSource.

³"46% of 401(k) investors are clueless about their investments, CNBC survey finds. That's not always bad" Greg lacurcl published Sept. 7, 2023 available at https://www.cnbc.com/2023/09/07/almost-half-of-401k-investors-clueless-about-their-investments-cnbc.html

⁴ "Many Workers Have Limited Understanding of Retirement Plan Fees" Nov. 15, 2017 available at https://www.pewtrusts.org/en/research-and-analysis/issue-briefs/2017/11/many-workers-have-limited-understanding-of-retirement-plan-fees.

⁵"401(k) Retirement Plans: Many Participants Do Not Understand Fee Information, but DOL Could Take Additional Steps to Help Them" GAO-21-357 published Jul 27, 2021 available at https://www.gao.gov/products/gao-21-357. However, many of the GAO recommendations did not match up with the findings or with participant overall behavior. For example, GAO recommended providing ticker information for investments. If participants only spend 18 minutes enrolling in their benefits, it is highly unlikely they will actually take time to look up investment information based on the ticker information.

⁶See "Reporting and Disclosure Guide for Employee Benefit Plans" available at https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/publications/reporting-and-disclosure-guide-for-employee-benefit-plans.pdf.

⁷See "Publication 5411 Retirement Plans Reporting and Disclosure Requirements" available at https://www.irs.gov/pub/irs-pdf/p5411.pdf.

⁸"Employer Costs for Employee Compensation Summary" released Mar. 13, 2024 available at https://www.bls.gov/news.release/ecec.nr0.htm.

⁹ "Employees Who Want Happiness and Stability Can't Overlook Benefits: New Study" Sept, 12, 2023 available at https://www.nasdaq.com/press-release/employees-who-want-happiness-and-stability-cant-overlook-benefits:-new-study-2023-09.

¹⁰See "Retirement plan communication: reach them where they are" Jan. 12, 2024, Donna Westervelt available at https://hrexecutive.com/retirement-plan-communication-reach-them-where-they-are/.

¹¹"ERISA Disclosure Decisions: A Pyrrhic Victory for Disclosure Advocates" Eugene P. Schulstad available at https://mckinneylaw.iu.edu/practice/law-reviews/ilr/pdf/vol34p501.pdf

¹² "[ERISA's] ...reporting was seen as a means to provide employees and the government with enough information to know whether the plan was being properly administered with financial integrity. In short, reporting requirements were intended to provide employees with enough information to reveal what benefits will be received, what procedures must be followed, who is responsible for the plan, and whether the plan is adequately funded." Id. at p. 506 (citation omitted). Contrary to what may have been implied in the RFI, the purposes of the reporting and disclosure requirement is not for third parties to be able to aggregate and use reported information to inform academic, industry, participant advocacy or other work. Requiring additional information for this purposes merely adds to administrative expenses that can be passed onto participants.

¹³"Plan Sponsors Need Help Communicating Benefits to Employees" Remy Samuels, Mar. 15, 2023 available at https://www.planadviser.com/plan-sponsors-need-help-communicating-benefits-employees/.

¹⁴ "DOL Model Funding Notice" available at https://www.dol.gov/agencies/ebsa/laws-and-regulations/rules-and-regulations/public-comments/1210-AB18.

¹⁵SECURE 2.0 amended the Annual Funding Notice for Defined Benefit Plans, but it is unclear why and it is especially unclear that these amendments added anything to help any participant in further understanding his or her plan or benefits.

¹⁶ Although we believe that the Agencies should encourage electronic disclosure, if a participant wants to receive disclosures in other media forms, such as paper, such disclosure should be allowed because a participant should be allowed to receive notices in whichever form that best suits the individual. However, a plan should be allowed to elect the default media for disclosures.

¹⁷ "Improving Outcomes with Electronic Delivery of Retirement Plan Documents" prepared for The SPARK Institute June, 2015, available at https://www.sparkinstitute.org/content-files/improving_outcomes_ with_electronic_delivery_of_retirement_plan_documents.pdf

¹⁸ "Internet, Broadband Factsheet" Jan. 31,2024 available at https://www.pewresearch.org/internet/fact-sheet/internet-broadband/#who-uses-the-internet.

¹⁹ 29 CFR § 2520.102-2(a).

²⁰Chamber Comments on Automatic Portability Regulation I U.S. Chamber of Commerce (uschamber.com).