401k Disclosure Rules Are Out of Date; It’s Time for Common Sense Reform Blog Feature
Eric Droblyen

By: Eric Droblyen on June 1st, 2016

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401k Disclosure Rules Are Out of Date; It’s Time for Common Sense Reform

401(k) Fees

It probably won’t surprise you to learn that government 401k regulations are often inefficient or ineffective. That’s too bad because superfluous regulation generally increases the cost of a 401k plan, which in turn, lowers participant returns.

The posterchild for bad 401k regulation is the ERISA participant disclosure rules. That’s unfortunate given their important job - to give 401k participants the information they need to make educated decisions about their account. Today’s rules fall short for two key reasons:

  • The number of required disclosures has grown dramatically during the past 15 years. Much of this information is redundant, making new information more difficult to discern and act upon.
  • Plans need to jump through too many hoops to use cheap modern technology for distributing disclosures, increasing 401k expenses unnecessarily.

Bottom line – to better educate 401k participants and lower plan expenses, disclosures need to be more streamlined and easier for 401k plans to deliver using modern technology. It’s time to reform the regulations that govern these disclosures.

High 401(k) Fees

Runaway 401k disclosure

401k plans are obligated to disclose a lot of information to a participant prior to their enrollment date and each year thereafter. The most common disclosures are listed in the table below.

Unfortunately, a lot of the information in these disclosures is redundant. Why? Because cross-referencing information is often not allowed. This redundancy results in lengthy disclosures that participants are less likely to read. I also think it de-emphasizes the importance of the SPD – which 401k participants should be conditioned to use for plan information.

Pre-Enrollment Disclosures

Annual Disclosures

All plans:

·Summary Plan Description (SPD)

·404a-5 Participant Fee Notice


Some plans:

·Qualified Default Investment Alternative (QDIA) Notice

·401(k)/(m) Safe Harbor Notice

·Automatic Contribution Arrangement (ACA) Notice

All plans:

·Quarterly Benefit Statements

·Summary Annual Report (SAR)

·404a-5 Participant Fee Notice

Some plans:

·Qualified Default Investment Alternative (QDIA) Notice

·401(k)/(m) Safe Harbor Notice

·Automatic Contribution Arrangement (ACA) Notice

Confusing electronic delivery rules

Today, paper delivery is the default method for distributing participant disclosures. This is unfortunate for two reasons. Paper delivery is costly and increasingly at odds with the way most people intake information. I mean, when was the last time you read a paper book, magazine or newspaper? It’s probably been a while. In 2016, most people get their information electronically.

Why is paper the default distribution method? An outdated patchwork of DOL and IRS electronic media rules with complex affirmative consent requirements for electronic delivery. Many of these rules were written over 15 years ago!

It’s time to change the default to electronic. In 2015, The SPARK Institute published a white paper outlining a case for this change. In it, they cited the following advantages of electronic delivery:

  • 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.

Come on already!

Small business 401k sponsors are obligated by 401k regulations to only pay reasonable plan expenses. Why? Because participant returns suffer when a 401k plan pays unnecessary expenses – and lower returns make it more difficult for participants to grow a proper nest egg for retirement.

When this is understood, it seems ironic that some 401k regulations actually increase 401k expenses unnecessarily. The posterchild for counterproductive 401k regulations is ERISA’s participant disclosure rules. It’s time for them to change.

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About Eric Droblyen

Eric Droblyen began his career as an ERISA compliance specialist with Charles Schwab in the mid-1990s. His keen grasp on 401k plan administration and compliance matters has made Eric a sought after speaker. He has delivered presentations at a number of events, including the American Society of Pension Professionals and Actuaries (ASPPA) Annual Conference. As President and CEO of Employee Fiduciary, Eric is responsible for all aspects of the company’s operations and service delivery.

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