The 2012 Retirement Confidence Survey recently released by the Employee Benefit Research Institute (EBRI) confirms that many U.S. workers know that they are not saving enough for retirement. Two-thirds of workers say they are behind schedule in saving for retirement and only 14 percent of workers are very confident that they are saving enough.
Moderate and lower-income Americans make up a disproportionate share of the workers who are “under-saving” for retirement or not saving at all. While 93 percent of Americans with annual household income above $75,000 report having some savings for retirement, just 35 percent of households with income below $35,000 have any retirement savings. Moreover, the EBRI survey shows that higher-income households are more likely to consult with professional financial advisers, more likely to have determined how much savings they need to accumulate, and more likely to use online technologies to help manage their financial accounts.
Moderate and lower-income workers will almost always find it difficult to put much of their pay into savings because most of their income is needed to cover basic living expenses. That difficulty is why it is especially important that these workers receive guidance for managing what savings they do put away. While public policy can’t erase the savings gap between wealthy and lower-income Americans, some simple policy changes can help democratize access to the information and planning tools that Americans need to manage their savings more effectively. Perhaps the easiest of these changes is to allow the electronic delivery (“e-delivery”) of retirement planning documents as a default option over paper, while always making paper available.
Currently, the Department of Labor (DOL) defaults in favor of printing and mailing of pension documents over e-delivery. Pension plans are allowed to use e-delivery in place of mail only for those employees who use computers as an essential part of their jobs. Other workers can elect to receive electronic delivery of pension documents, but the paperwork required to opt-in to e-delivery is burdensome so only a small percentage of employed workers do so.
Without doubt, DOL’s current policy is well intended as an effort to ensure that moderate and lower-income workers who don’t have access to a computer receive the information they need. However, the impact of this policy may be the opposite of the intent. Paper is actually vastly inferior to e-delivery, and the workers who are supposed to be helped may actually miss opportunities for better managing their savings. Here’s why:
- Because of the costs of paper, printing, and postage, plan sponsors are not likely to mail more documents than required by law, such as annual statements, plan summaries, plan changes, open season deadlines. This means that there are potentially lengthy stretches of time when a worker is not being encouraged to actively engage in the management of their savings.
- With the shift to 401(k) plans and other defined contribution plans, most employees manage their own individual accounts. They decide how much of their pay to save and choose among several investment options. Participants need timely and detailed information about all of their investment options, including guidance about how much they should save and information about the potential risks and rewards of different kinds of investments. They are not going to get all of that in mailed disclosures, but those resources can easily be available online.
- E-delivery of pension documents can easily summarize the required information while providing links to detailed guidance, frequently asked questions, tools to estimate benefits at different levels of contributions, information about fees, rights, options, and much more. There is negligible additional cost to send emails to many more people or to add links to extensive supplemental information on the plan website.
- Retirement plans’ websites include interactive tools that estimate retirement benefits at different levels of contribution or with different investment options. Participants who receive retirement communications by email are much more likely to take advantage of the guidance and resources available to them. One major administrator of employer-sponsored retirement plans has reported that 87 percent of participants doubled their savings deferral rate after using the online savings planning tool, and 55 percent revised their investment allocations after using the online investment planning tool.The participants who receive communications only through the mail are less likely to access their plans’ websites and will miss out on opportunities to improve their planning for retirement.
Federal policy and employer pension plans should encourage workers to take full advantage of interactive tools to calculate their retirement needs and use the full range of information and guidance about their investment options and rights. As the EBRI study revealed, workers who do not use services to calculate their retirement needs tend to underestimate how much they should save. Moreover, only 42 percent of workers reported that they have calculated how much savings they will need for retirement. They also are prone to start retirement planning too late and will not able to make up the shortfalls toward the ends of their work careers.
Better-informed and empowered employees will be likely to save more for retirement and take more responsibility for their investment accounts. In fact, it would be irresponsible to maintain current policy that practically guarantees that large numbers of workers will not save enough for retirement and will not realize that until it is too late. At the very least, the federal regulatory policy should seek to lead as many workers as possible to the retirement planning resources that are available to them online.
And while the Department of Labor is concerned that some households do not have access to computers, laptops, smartphones, or tablets, that concern could easily be managed without shortchanging the millions of others who do have internet access and need the full range of interactive information that is available through electronic delivery. Moreover, paper will always be available as an option for those who want it.
In fact, the IRS has supplied a template for encouraging electronic communications while ensuring that anyone who wants paper documents can continue to receive them. In 2010, the IRS sent a postcard to all taxpayers who had filed paper returns for the previous year. The postcard simply stated that IRS would not be mailing paper tax forms any longer, encouraged taxpayers to file electronically, and explained that those who still wanted paper forms could print them from the IRS website, find them at libraries, post offices, and other locations, or call a toll-free number to request them. That action by the IRS saved the government millions of dollars while improving service to the public.
Other federal agencies similarly have replaced printed and mailed documents with e-mail and online resources. The Thrift Savings Plan (TSP), the 401(k) plan for federal employees, stopped mailing quarterly statements in 2003. Participants are mailed a single-page double-sided annual statement each year and are encouraged to monitor their accounts and request any changes using the TSP website.[v]
These agencies recognized that one of the basic efficiency gains of the technological age is the elimination of the expense of printing and mailing millions and millions of documents. At much less cost, documents can be transmitted electronically or stored on a secure site where account information can be accessed, downloaded, printed, or saved. Emails and other electronic interactions can include links to layers of detailed information and guidance, far beyond what would be practical to include in mailings.
Modern technology also is individually empowering. Millions of households use online resources for banking, bill paying, buying, selling, and researching their financial and commercial options. These resources provide access to vast networks for information, communication, and interaction. It would be negligent for federal regulators to assume that certain groups of workers are permanently on the wrong side of a digital divide and should be cut off from the superior resources that are available to higher-income and white collar workers.
The Department of Labor should revise its regulations to permit pension plans to default to e-delivery while ensuring that paper documents are easily available by mail or from the employer for participants who wish to receive them. The rules also should encourage employers to ensure that their employees are aware of the full range of resources and guidance available to help them with retirement planning. If the Department of Labor is reluctant to expand e-delivery, Rep. Richard Neal has introduced H.R. 4050, the Retirement Plan Simplification and Enhancement Act, which could put this change into the hands of Congress.