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Massachusetts Securities regulator William Galvin has called on Congress and the Department of Labor to require that employers tell workers of any changes regarding the timing of 401(k) contributions to workers.
“Employees should be told the potential risks involved in a significant change, such as a shift to a year-end annual employer match and they should be told before the change occurs,” Galvin said in a Thursday statement.
Galvin further stated that “the financial impact on average employees cannot be overlooked — even a small percentage point difference on a yearly basis can have a significant detrimental impact on an employee’s overall retirement benefit.”
The Massachussetts Securities Division said that it had made an inquiry earlier this year into 28 of the largest 401(k) pension providers which sought information about the shift from employer contributions on a pay-period basis to an annual basis in order to establish whether there was a trend in moving from “paycheck to paycheck to year-end.”
The Division said that its efforts were hindered by service providers, many whom challenged the Division’s jurisdiction, claimed they were limited by contract on what they could provide, or would not provide the information without a subpoena.
“While our efforts were hampered by the service providers being less than forthcoming,” Galvin said, “what was established is that if there is a trend, it is moving from periodic match employer contributions to a year-end lump sum contribution.”
Galvin said they he fears “that this may become more widespread as employers are attracted to the cost savings that such a change can provide.”
“It is clear,” the Division reported, “that whether to make a match and on what terms is solely the discretionary decision of the employer or plan sponsor. The recordkeepers who responded asserted that they were not required to maintain aggregate data regarding specific timing of match contributions, whether the timing of a match contribution changed over time, or the content of disclosures provided by plan sponsors in connection with such a change.”
The federal Employee Retirement Income Security Act requires plan sponsors to file a summary of material modification with the Department of Labor and furnish it to each participant and beneficiary. However, that summary can be filed as late as 210 days after the year in which it was adopted, the Division said.
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