New research overwhelmingly supports the Labor Department’s proposal to allow default electronic delivery of retirement plan documents.
According to the study by the SPARK Institute, allowing retirement plan sponsors to make electronic delivery the default method for plan communications would significantly reduce overall administrative costs, potentially saving participants up to $450 million annually.
These findings are consistent with a report commissioned by the American Retirement Association (ARA) and the Investment Company Institute in 2018 that estimated that participants could save more than $500 million per year, assuming about eight participant mailings per year across more than 80 million 401(k) account holders.
Prepared by Quantria Strategies on behalf of SPARK, the 50-page study also estimates that, under conservative assumptions, a 35-year-old worker who is defaulted into electronic delivery and engages with online tools and educational resources could gain nearly 150% – or a cumulative $265,000 – more in retirement savings over the course of his or her career.
“Allowing plan sponsors to use default electronic delivery would help overcome the inertia that currently results in many plan participants remaining in default paper delivery despite their preference for electronic delivery,” the paper states.
In fact, modest increases in deferral rates alone driven by “e-delivery nudges” and engagement with online tools could increase final account balances for retirement plan participants by 63%, the study shows.
“This latest research significantly endorses the Department of Labor’s electronic delivery proposal and the undeniable benefits for the nation’s retirement savers,” SPARK’s Executive Director Tim Rouse said in releasing the report. “It clearly demonstrates improved retirement outcomes with electronic delivery and online access that can reduce costs and increase savings for the average retiree by 9% over the accumulation period.”
Announced in October 2019, the DOL proposal would allow plan administrators who satisfy specified conditions to provide participants and beneficiaries with a notice that certain disclosures will be made available electronically. It fulfills a key component of President Trump’s August 2018 retirement security Executive Order and is a top priority of the American Retirement Association. In fact, the ARA recently submitted comments on the DOL’s proposal, citing its longstanding support for the DOL’s initiatives regarding electronic delivery of ERISA disclosures.
The SPARK report also observes that electronic delivery can also provide a better guarantee of actual receipt of information, and thus help address the problem of missing participants and strengthen cybersecurity to prevent online account fraud.
Moreover, the report notes that nearly all Americans have access to online services through a smartphone or via broadband services, and that in many cases, discrepancies across age, race and household income have been eliminated. Citing a recent Greenwald & Associates survey of online habits, SPARK notes that retirement plan participants are overwhelming willing to accept electronic communications, as nearly all retirement plan participants (99%) have internet access and 88% use the internet daily.
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