Why Don't Employees Read What We Send Them? Would Reading Mandatory Disclosures Make A Difference, Anyway? My Verbal Testimony. Part Two of Three.

In a recent post, we shared PSCA’s written testimony to the DOL’s ERISA Advisory Council on August 23 on the subject of mandated retirement plan disclosures. In this post, w wanted to share the highlights of my verbal testimony. I responded to specific questions posed by the ERISA Advisory Council concerning mandated disclosures:

• Can some disclosures be combined or eliminated?  
  The number of notices and disclosures has exploded.  I call this the accumulation problem – there are so many that workers pay no notice (pun intended).  We recommended the Council create a list of all benefit plan notices, models and disclosures to include in their final report to the Secretary of the DOL - whether mandated by the DOL, IRS, HHS, PBGC, etc.  An unofficial count puts the total at close to 100.  
• Is content understandable?  
  The simple answer is no.  Plan sponsors must write defensively – anticipating that each mandated notice may become Exhibit A in a court challenge, and many disclosures arrive out of context.  Because median tenure of American workers is about 6 years, each worker may end up with 7, 8, 9, 10 or more employers over the course of a career.  That means worker must learn the terms, processes and value of each employer-sponsored plan, program or HR policy (401(k), medical, dental, vision, life, LTD, FSA, HSA, vacation, educational assistance, etc.) – as many as 10 times.  
• Are disclosures reasonable in view of guidelines?  
  When you summarize a legal plan document, the result is almost always difficult to read.  Many workers have difficulty understanding written content above 9th grade levels yet most of these materials are above this level.  Retirement plan materials offer the added complexity of multiple variables, extended time frames, and complex, unusual, obscure concepts.  Further, in America, the rates of innumeracy may well exceed the rates of illiteracy.  So, if the goal of the ERISA-mandated Summary Plan Description (SPD) was to ensure workers understand their 401k and the value it offers, the SPD has been a 50 year failure.  

  But this isn’t a lost cause.  You can make the SPD more readable. Increase the use of single syllable words, and shorten the sentences. But, it won’t take much to lengthen your summary to be 20 – 30 pages long.  The typical worker puts it on the shelf to be read later, and later never comes!

With respect to ERISA Advisory Council proposals to change the ERISA 404a-5 participant fee disclosures. We offered these thoughts:

• All surveys confirm the most important determinant of fees is the size of the plan and the average account balance.  Fees have an inverse relationship with plan size and average account balance – fees decline as the plan size (number of participants, assets under management) and average account balance increases.  However, the DOL omits those variables from its mandated fee disclosures.  
• We recommended the DOL refrain from changes.  Instead, the DOL should revisit the cost benefit analysis it previously offered under Executive Order 12866 which suggested that the time participants saved looking for fee information exceeded the cost of compliance.  I’m certain the results will show the opposite.  Remember that while the cost of mandated fee disclosures may have been initially paid by plan sponsors, plan participants bear most of the burden and impact of plan expenses.  

Next:  Do You Have Better Ideas?