3 reasons to require greater retirement benefits transparency

Employee retirement plans are no longer viewed as an optional perk. Nearly seven in 10 workers agree that employers have a responsibility to ensure their employees’ financial security, according to the 2023 Workplace Wellness Survey. Yet at the same time, 45% of the employees surveyed said that saving enough for retirement is the financial issue that causes them the most stress.¹

This stress results partly from a lack of information about employer retirement plans. While an increasing number of states and cities have enacted pay transparency laws, those laws do not require employers to provide detailed disclosures about employee benefits.

The lack of benefits transparency is particularly problematic for retirement plans, according to Penn State Dickinson Law professor Samantha Prince, a leading advocate for stronger benefits disclosure laws. “People need to have more retirement wealth and security,” says Prince, who believes that access to information is a necessary first step.

Increasing retirement plan transparency could offer three key benefits.

1. Enabling informed decision-making by employees

Employer retirement plans are not only complex, but highly varied. Those variations can significantly impact a retirement plan’s value. “Without disclosure, employees and job seekers that are unaware of plan variety are unlikely to identify plan features that are critical to the accumulation of retirement wealth,” Prince explains.

For example, many companies advertise a workplace retirement plan on their websites or job postings, but plans differ on critical features. While some plans allow employees to participate immediately, other plans require a year of service before joining.

Employer-sponsored plans also vary in the existence and calculation of employer contributions. Some plans match employee contributions, but at varying percentages and with different caps. Other plans base employer contributions on employee pay. These variations can result in considerable value differences, which employees should be able to assess when making job decisions.

The differing value of employer contributions to workplace retirement plans is compounded by varied vesting rules. While employees are immediately entitled to employer contributions in some plans, other plans have multiyear vesting schedules. Employees who leave a company before reaching a vesting date may have to forfeit all or part of the employer contributions to their retirement plans.

Vesting schedules have a much larger impact than employees realize, according to a new study being published in the Yale Law Journal Forum later this year. Researchers reviewed data from 909 single-employer qualified workplace retirement plans in 2022. In just those plans alone, results revealed that more than 1.8 million employees had ended their employment (voluntarily or involuntarily) before being fully vested in their employer retirement plan contributions.²

When employment ends before full vesting, employees forfeit the employer contributions they had hoped to receive. Employers can then reuse the funds to offset costs, including future employer contributions. The study showed that in 2022, more than $1.5 billion was reused by the 909 plans to offset employer costs after employee forfeitures.²

Employer workplace retirement plans also have varied rules regarding employee access to money for emergencies. Some plans allow employee loans, hardship withdrawals, and the creation of emergency savings accounts. Other plans do not. Access to these features can be essential as more than half of employees in the 2023 Workplace Wellness Survey identified their employer retirement plan as their only significant source of savings.¹

“If employees and job seekers succumb to the mistaken belief that features of workplace retirement plans are identical across employers, they are likely to miss aspects of plans which may be critical,” Prince says.

While federal ERISA law requires employers to submit government reports on certain retirement plans, that data is not easily accessible or useful for most employees. Instead, Prince advocates for “mandatory, plain language, standardized, detailed workplace retirement plan disclosure on company websites, and in job postings.”

Uniform information about eligibility, employer contributions, vesting and withdrawal rules would enable employees to make more informed decisions when seeking, accepting or changing jobs.

2. Combating misinformation

Without retirement benefits transparency, job candidates face a lack of information as well as misinformation. The absence of disclosure rules enables companies to engage in what Prince calls, “benefits washing,” which is “misleading or vague information provided by a company to make their employee benefits package seem better than it is.”

Without employer disclosure laws, employees and job seekers often share compensation information directly or through social media and online sites like Glassdoor or Indeed. Nearly 43% of employees discuss their pay with colleagues in the same role, and 45% of employees consult third-party pay sites at least once a year, according to a 2022 Gartner survey.³

But crowdsourced data on employer retirement plans is often inaccurate. Informal sharing also rarely includes the critical features of retirement plans, including eligibility, employer contribution methods, and vesting schedules. “In addition, artificial intelligence does not know how to discern opinion from fact and thus it can replicate false information,” Prince says.

Mandated retirement plan disclosure rules could combat these problems by producing accurate, standardized data that would be easily comparable across companies.

3. Advancing gender pay equity

The variations in employer retirement plans do not have gender-neutral effects. Some retirement plan features can exacerbate existing gender pay inequality, leaving women with less retirement savings than men.

“Women have been impeded from saving for retirement in several ways,” Prince explains. “First, they have less money they can afford to defer in their company retirement plan. Second, because they get paid less than men, they receive less in matching or other contributions because such contributions are either based on the employee’s salary deferral or a percentage of their salary.”

Women also tend to be disproportionately impacted by workplace retirement plan vesting requirements. “Women are generally more transient and therefore likely forfeit more employer contributions if their plans are subject to vesting schedules,” Prince explains. “As a result, more women lack economic security as they age.”

This means that retirement plan transparency is particularly valuable to women.

“Retirement plan participation and favorable employer contributions accompanied by no vesting schedule are highly desirable employee benefits for women,” says Prince. “However, when employers do not disclose such details regarding their plans, it is harder for job-seeking women to select places to work that will help them maximize their retirement benefits.”

This article was written by Michelle Travis from Forbes and was legally licensed through the DiveMarketplace by Industry Dive. Please direct all licensing questions to legal@industrydive.com.

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