For small businesses, electronic document delivery is critical to the full benefit of retirement modernization

The COVID-19 pandemic has been a severe stress test for the nation, revealing a number of serious socio-economic deficiencies and vulnerabilities. One major vulnerability is the fact that a quarter of American adults have no retirement savings at all and millions of others aren’t saving nearly enough. With ten thousand Americans turning 65 every day through 2030, the retirement savings deficit is a looming threat to the economic security of millions of Americans and a ticking time bomb for the U.S. economy.

A major cause of the retirement security crisis is the disconnect between the importance of small businesses as employers and the cost to those businesses of offering retirement plans to their employees. More than half of all working Americans are employed by small businesses, and yet the cost of providing retirement plans to employees has historically been beyond the means of many businesses. As recently as 2020, half of all private-sector workers — 55 million Americans — did not have access to a retirement plan through an employer.

Fortunately, two important pieces of legislation — one already enacted, the other introduced in both the House and the Senate on a bipartisan basis — will significantly enhance retirement security of millions of American entrepreneurs, small business employees, and gig economy workers. On Dec. 20, 2019, the Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed into law. Among other important reforms, the SECURE Act modernizes retirement security law to allow small businesses and startups to band together to provide multiple-employer 401(k)-like retirement savings products (MEPs) to their employees.

Then on May 5, 2021, the Securing a Strong Retirement Act — often referred to as “SECURE 2.0” — was passed out of the House Ways and Means Committee by a unanimous vote. Two weeks later, on May 21, 2021, Sens. Rob Portman (R-Ohio) and Ben Cardin (D-Md.) reintroduced their Retirement Security and Savings Act, which largely parallels the House bill.  SECURE 2.0 would build on the original SECURE Act by making a number of additional enhancements to retirement law, including:

• Requiring most employers that establish defined contribution plans after 2021 to automatically enroll new employees;
• Allowing 403(b) plans — principally used for employees of public schools, churches, and other tax-exempt organizations — to participate in MEPs;
• Raising retirement contribution catch-up limits for people 62, 63, and 64 years of age.
• Further expanding the eligibility of long-term, part-time workers to contribute to their employers’ 401(k) plan by shortening the period for eligibility that starts in 2021 from three years to two; and,
• Permitting employers to make matching contributions under a 401(k) plan, 403(b) plan, or SIMPLE IRA with respect to “qualified student loan payments.”

But one provision of SECURE 2.0 threatens to blunt the full beneficial impact of the legislation for new and small businesses. The provision would amend the Employee Retirement Income Security Act (ERISA) of 1974 to require defined contribution plans to provide paper statements at least once annually, unless a participant elects otherwise, and defined benefit plans to provide paper statements once every three years, unless a participant elects otherwise. In other words, the section would make paper statements the default option.

The requirement — a major departure from current rules, which allow for all retirement participant benefit statements to be delivered electronically provided certain requirements are met — is highly problematic for several reasons. First, the requirement is utterly inconsistent with the continuing digitalization of new and small businesses — a process the COVID-19 pandemic has accelerated by at least a decade, according to consulting firm McKinsey & Co.  Indeed, the bipartisan infrastructure bill enacted in November included $65 billion to ensure that every American has access to broadband and to facilitate the continued digitalization of commerce and education.     

Second, the provision is a glaring exception to the nation’s broader efforts to address climate change. In 2020 alone, Fidelity Investments used more than 10,000 tons of paper in communications with customers required by regulations — paper mailings that entailed carbon dioxide emissions equivalent to the power consumption of more than 3,000 U.S. homes for an entire year.

Most fundamentally, the provision is completely unnecessary — we know it is because the Department of Labor’s Employee Benefits Security Administration just issued an important report on the issue. On Dec. 27, 2020, President Trump signed the Consolidated Appropriations Act of 2021, which directed the Labor Department to review a July 27, 2020 safe harbor regulation that allows for e-delivery of retirement documents and to assess the impact of the rule on seniors and rural populations.

The Department issued its report on Jan. 26, concluding: “Our preliminary assessment is that the subject regulation is unlikely to have any negative impact on the populations identified in the explanatory statement because of the regulation’s specific safeguards.”

The report went on to explain that the safe harbor regulation “does not apply to individuals that lack access to web-based communications” and underscored that retirement savers could “request paper copies of disclosures and opt out of electronic delivery entirely, at any time, and free of charge.” The Department emphasized that the consumer protections in the 2020 regulation were designed “specifically to protect” rural, remote, and older retirement savers.

The COVID-19 pandemic accelerated the shift to technology-powered e-commerce by at least a decade, significantly altering the nature and operation of the U.S. economy. Meanwhile, the strength of the post-COVID economic recovery depends on a more entrepreneurial, flexible, technologically sophisticated, and resilient U.S. economy. 

SECURE and “SECURE 2.0” provide the legal framework to meet the post-pandemic retirement security needs of small business employees, entrepreneurs, “long-term part time” employees, independent contractors, and gig economy workers. But the full benefit for new and small businesses of the retirement modernization legislation depends on the e-delivery of retirement plan documents.

John Dearie is the president of the Center for American Entrepreneurship.