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NEWS RELEASE
July 23, 2009
Improving financial literacy, simplicity of disclosures essential for promoting personal retirement security
WASHINGTON, D.C. — Testifying before the Department of Labor (DOL) ERISA Advisory Council Working Group on “Promoting Retirement Literacy and Security by Streamlining Disclosures to Participants and Beneficiaries,” American Benefits Council Senior Counsel, Retirement Policy, Jan Jacobson, emphasized that effective communication with the workforce is critical for ensuring beneficiaries’ financial security in retirement. “Plan sponsors are keenly aware that communication with 401(k) plan participants is at the core of achieving sufficient levels of participation and adequate levels of retirement savings. In the current economic environment, it is essential that the retirement plan disclosure regime provide information to participants in a manner they are likely to use and understand without becoming unduly burdensome to employers by increasing costs or potential litigation risk,” She said. Jacobson’s testimony emphasized four key issues relating to DOL oversight of employer-sponsored retirement plans: Disclosure regulations: “The Department of Labor has made diligent efforts to improve disclosure, including disclosure of defined contribution plan fees. Although some projects were not completed by the end of the last administration, we expect the department will continue in its efforts to ensure appropriate disclosures are made in manner that can be easily accessed and understood by plan participants, “Jacobson said. The Council testified on this subject before the House of Representatives Education and Labor Subcommittee on Health, Employment, Labor and Pensions in April 2009. Current notice regime: “Plan participants can be overwhelmed by the onslaught of information provided, which sometimes causes confusion and paralysis instead of enrollment and active engagement. Even well-intended notices can cause both confusion and concern,” Jacobson said. Streamlining notices and electronic delivery: “Disclosure requirements should reflect the reality of how participants generally review and understand information, particularly written and electronic notices. It is time for our disclosure requirements to come into the 21st Century,” Jacobson said. The Council believes that disclosure to participants should include the information most important to a participant, such as the investment objectives, risk level, fees and historical returns of investment options. Furthermore, electronic disclosure rules should be provided for the vast majority of participants who do have that access, with options available for individuals who prefer written notices. Promoting financial literacy: The Council’s 10-year strategic plan, published in 2004, included goals promoting financial literacy. “The Council believes that this process of learning should start earlier than the workplace and would encourage policymakers to consider making financial literacy a secondary educational requirement, just like math and English. It is likely that graduating students will find as much or more need to reflect back on their classes in financial literacy in the coming years,” Jacobson said. She also recommended that the Employee Benefits Security Administration add information on four important topics to the investing education materials referenced in participants’ quarterly statements: anticipated retirement expenses and the retirement savings balances needed to generate income sufficient to meet these expenses; key issues to consider when spending down retirement plan assets; the availability and operation of the Saver’s Credit; and an explanation of automatic enrollment and automatic escalation features. Jacobson’s full testimony is available on the Council Web site. For more information, or to arrange an interview with Council staff, please contact Jason Hammersla, Council director of communications, at 202-289-6700 (office) or (202) 253-5458 (cell).
The American Benefits Council is the national trade association for companies concerned about federal legislation and regulations affecting all aspects of the employee benefits system. The Council's members represent the entire spectrum of the private employee benefits community and either sponsor directly or administer retirement and health plans covering more than 100 million Americans.
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