Retiring overseas and impact on plan administration

The dream of traveling in retirement may have been supersized to retirement abroad. Once, retirees planned international travel adventures. Now, retirees move to warmer (or less expensive) climates and host their friends.  8.7 million Americans live abroad, according to the State Department and that number is shifting towards retirees.  According to the Social Security Administration, they sent 100,000 more payments (to 500,000 from 400,000 in 2016). Some experts think the number of retirees as ex patriots (ex pats) may be even higher, as many retirees may receive their payments in the U.S. but live abroad.

While the focus for many retirees may be on whether to purchase or rent (including understanding foreign laws on property being held by non-citizens) many retirees also must focus on access to bank accounts.  They may have concerns about whether foreign banks will provide consistent access to cash.  Ex-pat retirees, however, may face certain penalties for moving retirement income, unlike social security payments, into a foreign account including additional withholding tax.

For financial advisors, this trend of retiring abroad may pose other special issues. The most salient of those special issues is ensuring retirees obtain disclosure materials from a plan.  Opting for email, rather than printed mail may be a solution to questions about delivering disclosure materials. The Department of Labor and the Internal Revenue Service both have guidance concerning email that is worth keeping an eye on. By the DOL’s rules, “a plan administrator must use measures ‘reasonably calculated to ensure actual receipt of the material.’”  The DOL hazards that “merely making a disclosure document available or posting it on a bulletin board does not satisfy this general standard.”  This begs the question of whether e-mail would suffice to be “reasonably calculated.”  The DOL and IRS rules for e-mail can be categorized as location-specific and status-specific.  Those two agencies have a safe harbor for electronic, rather than paper, disclosure when the information is reasonably sure of being received.  Under this Safe Harbor guidance, the DOL will treat electronic disclosure equally to first class mail, so long as the guidance is followed.

The DOL’s rules have requirements about the method of delivery that must be met first.  Plan information will meet the requirements so long as the system used to send the electronic disclosure is designed to assure actual receipt and is tested or monitored frequently.  This system also requires plan administrators to audit the system for unopened mail and follow up on or troubleshoot those communications.  The system must also protect the confidentiality of the recipient. Contemporaneous with the disclosure, the recipient must also be provided with a notice explaining the importance of the document.  The Safe Harbor rule also has certain format requirements based on document type and requires that paper copies of documents must be available upon request.

This electronic disclosure rule seems like it might solve the trick sending information to retirees lounging on tropical beaches, but there are a few other elements to note.  The DOL requires that the plan participants must affirmatively consent to electronic disclosure.  To qualify as an affirmative consent, a plan participant must receive a disclosure from the plan administrator that notes essential elements including, the types of documents the electronic disclosure consent would apply to, the procedures for changing consent, the right to request a paper version of a document, and computer system requirements for viewing documents and receiving disclosures.  Other requirements for consent for current employees would fall into the DOL’s “Wired at Work” rules not discussed here.  

The IRS has equivalent electronic disclosure guidelines. That agency specifies two methods of electronic delivery of plan information: the General Method which is equivalent to the DOL’s Safe Harbor provisions and the Alternative Method which allows plan information to be sent by any method so long as the recipient has an effective ability to access the disclosure. This rule includes website access, in addition to email.  Concerns for plan administrators relying on email to send disclosure materials include whether they have the most updated email address for retirees and whether retirees can consistently access their email system while abroad.