Commentary: Retirement plan ‘disclosure’ rule may keep you in dark

By Karen Friedman

A new Labor Department regulation has just gone into effect. As a result of this new rule millions of workers, retirees and widows will no longer automatically receive critical information about their pension and 401(k) plans.

Karen Friedman

The new “notice-and-access” rule gives company and union retirement plans the greenlight to simply send individuals a notice by text or email telling them that key information is available on a website. Then, it’s up to the workers and retirees to hunt that information down — effectively making this a “no-access” rule for millions of people.

The new rule basically upends the common-sense rule that was in place for nearly two decades. Before last week, employees and retirees had to receive information about their retirement plans on paper through the mail unless they regularly used a computer at work or asked to go paperless. This system was consistent with research showing that consumers of all ages prefer to receive financial documents, including retirement-related documents, on paper.

While retirement plans are still allowed to operate under the old rule, the practical reality is most won’t. Notice-and-access is easier and cheaper for plans — but many retirees and workers will pay a steep price. Their chances of getting the information they are legally entitled to receive will be significantly diminished.

It is astonishing that, in the midst of an unprecedented pandemic, the Department of Labor would issue a regulation that will leave so many workers, retirees and their spouses in the dark about their retirement plans and benefits. At a time when people need information to protect themselves more than ever, this rule is like a cruel game of hide-and-seek, where workers and retirees are blindfolded and told that it is up to them to search for the information they will need to protect their future.

Here are key things consumers need to know about the rule:

• Workers and retirees in 401(k) plans will no longer automatically get their quarterly paper statement showing how much money they have or where the money is invested. Those in pension plans won’t receive statements showing them how much they earned and whether their plan is adequately funded.

• People will only get one initial paper notice letting them know they can choose to keep getting paper documents by mail. If they miss seeing or acting on that, all future notices will be electronic, though they can still take action to choose paper.

• Once people get a text or email telling them there are documents available, they will have to hunt for them on a website. The notice will tell them the name of the documents but won’t explain their importance or let people know if they have to act quickly, like appealing a denial of their benefits.

Why should people care? Holding on to paper statements can be critically important for workers, retirees and widows to claim their earned benefits years into the future. Without paper copies of benefit statements and summaries of plan rules, consumers may not be able to prove their rights to benefits when they retire.

Also, while many more people these days use the internet, not everyone has access or wants to go electronic to do everything. This new notice-and-access disclosure will be a nightmare for millions of people without broadband internet, computers and printers. An estimated 15 million retirement plan participants ages 55 and older do not regularly use the internet. About one-fifth of the population, including one-fourth of Black and Latino adults, depend on smartphones for their only internet access — devices not suitable for reading complex information or saving important documents.

The fact is, millions of people will simply not have the time or ability to hunt down, print and save important documents. That’s why everyone who still wants their documents mailed should take the time to read and respond to the one-time-only paper notice they will receive so they can continue receiving retirement plan statements and documents on paper. If they don’t know how to do this or have never seen this notice, they should write or call their plan administrators. People’s retirement security may depend on paper.

Karen Friedman is executive director of the Pension Rights Center, a Washington, D.C., consumer advocacy organization. The center has published three factsheets on the new rule: a guide for consumers, a detailed summary and a list of the “The Top 10 Worst Things” about the new rule.