Friday, June 19, 2015

The Problems with Disclosures Mandated by the Government

In Congress, we are blessed with two committees among whose designated functions are to deal with employee benefits issues. In the Senate, it's the Health, Education, Labor, and Pension Committee, also known as the HELP Committee, a misnomer if I have ever heard one. In the House of Representatives, it's the Committee on Education and the Workforce (Ways and Means takes over when taxes enter the picture).

For as long as I can remember, these committees have had a pretty significant focus on helping employees to better understand their benefits and benefit programs. On the retirement plan side, much of this is done through mandated disclosures. In fact, the Pension Protection Act of 2006 (PPA) was crammed full of disclosure requirements.

You know, it's not easy to prepare informative disclosures. The best of them would give an employee or participant all of the information that they truly value in a nice, concise, easy-to-read format without any information that is of no value to them. Every time that a disclosure includes information that a reader doesn't care about, he or she is much more likely to put that disclosure down or file it in the proverbial circular file. In fact, while I can't cite any, I feel sure that some scholarly research has been done on the topic.

There are some serious difficulties with this whole concept. What's important to you may be worthless to me and conversely. Our levels of understanding our different. Our situations are different. Our needs are different. So, mandating what goes into disclosures is by no means an easy task.

To the credit of the various government agencies with purview over such disclosures (usually the Department of Labor (DOL)), they have endeavored for the most part to provide model, fill-in-the-blank disclosures for employers and plan sponsors to use. To their discredit, those model disclosures have plenty of language in them that is one or more of confusing (to the average reader), meaningless (to the average user), and of very little value to anyone unless they can both understand it and find that it applies to them.

On the topic of employee benefits, generally, I don't think it would be unfair to say that I have more understanding and interest than the typical reader. But, there is plenty in those disclosures that is of no value to me. I'll be honest; I rarely read them anymore. When I do, I usually look for one or two specifics that I know are in there and then put the disclosure down.

The DOL has done a much better job than the Securities and Exchange Commission (SEC), however. Have you ever read a stock prospectus? Did you stay awake? Did you understand it? It may be 50 pages of fine print. How can anyone be expected to digest and comprehend what is in there? Isn't it really just a CYA for the issuer?

By the same token, many plan sponsors use their required disclosures as CYAs for themselves. While they could often use the disclosures as a means to communicate information useful to their participants by adding in valuable information, that's an expensive and time-consuming process with attendant risks in our ever more litigious society.

So, here is a cry to reduce the number of required disclosures. Suggest instead that those who are currently required to issue the disclosures take the time and money saved and actually communicate to their intended audiences. Survey after survey shows that employees would much rather hear what they have than attempt to read boilerplate materials. Employees who appreciate what they have are happier. Happier employees are more productive. Productive employees make their companies more money.

Listen up government; I'm talking to you.

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