Mailing Benefits Packets? Feds Weigh the Cost and Risks of Electronic Communication

In the 25 years Steve Klapper has been the corporate payroll and benefits manager for American TV & Appliance, he has received only two questions from employees on benefits information mailed to their homes.

Yet this year, the Madison, Wisconsin-based electronics company will spend about $30,000 printing and mailing benefits information—such as 401(k) summary plan descriptions—to its 1,200 employees, he says.

In this tough economy, American TV & Appliance would much rather use the money to keep or hire an employee, says Klapper, adding that he would prefer to send the information electronically instead of mailing it.

“In this day and age when such a large number of employees are used to receiving information electronically and don’t even know the cost of a postage stamp, the idea we are fulfilling a government requirement for the good of the employee by sending it through the mail is just nonsense,” he says.

Klapper was one of 77 respondents to the U.S. Labor Department’s request for information on sending electronic employee benefit plan information to participants.

While the agency is trying to determine what to do about its current policy on electronic delivery of information, it may not happen before plan sponsors will be required to give an estimated four-page document outlining certain plan and investment fee information to its participants. Without a change in the current electronic delivery, plan sponsors will need to mail this fee information, instead of a less costly delivery via computer.

The Washington, D.C.-based Investment Company Institute said the cost of printing and mailing this particular notice to the 72 million participants in participant-directed retirement accounts ranges from $37.4 million to just under $50 million. Plan sponsors will be required to send this information by May 31, 2012.

“Companies are all focused on ways to cut down on cost, and [electronic disclosure] would be a much more effective way” of giving participants information, says Louis Mazawey, principal and head of the tax group at Groom Law Group in Washington, D.C.

The Labor Department is considering interim e-disclosure guidance and is hopeful it will be issued in late August, one official said. The official did not give more details.

Currently, companies need to get employee consent to send benefit information electronically. The current rule also says employees need to use computers as a significant part of their regular responsibilities to qualify for electronic communication.

Many of the respondents to the agency’s request for information want electronic delivery of information to become the default notification system, where participants would need to opt out to receive paper delivery—similar to how some employees currently opt out of other automatic features, like automatic enrollment.

Plus, many employees are already using the Internet to keep pace with changes in their 401(k) plans. According to the Chicago-based Profit Sharing/401k Council of America’s 2010 annual survey of plans, 91.9 percent of all plans and 96.4 percent of plans with 5,000 or more participants use the Internet for balance inquiries on their retirement accounts.

“Participants are being overwhelmed with information,” says Aliya Wong, executive director of retirement policy for the U.S. Chamber of Commerce. “We have the technology to get them information more effectively and to give them the best experience possible.”

To highlight the more timely concern plan sponsors have in delivering fee information, the U.S. Chamber of Commerce and 15 other industry groups told the department they felt the fee disclosure deadline would happen before a new rule for electronic disclosure could be finalized. In a July letter, this group asked the department to consider using existing relief that allows electronic delivery of quarterly benefit statements to apply to the delivery of fee information.

“Such transitional relief would mitigate disruption to and the cost of plan administration and provide participants and beneficiaries with a more consistent and efficient delivery experience,” the letter said. “Mailing the extensive written disclosures required by the new regulation to participants and beneficiaries who currently engage plans via online access would be wasteful, costly and, for many participants and beneficiaries, unwanted.”

The existing relief, called Field Assistance Bulletin 2006-03, allows participants to opt out of electronic delivery and get paper copies of benefit statements. The group’s July 7 letter added that expanding the provisions of the bulletin to the fee disclosure requirement would protect all participants: Anyone wanting a paper copy would have that option available.

“We think this relief is absolutely necessary for the fee disclosure rule because it is a lot of information, and a much better way to get it to people,” Wong says.

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