Senate Finance Committee
“Helping Americans Prepare for Retirement: Increasing Access, Participation and Coverage in Retirement Savings Plans”
Thursday, January 28, 2016
Key Topics & Takeaways
- myRA: Sen. Wyden noted his support for the President’s My Retirement Account (myRA) as it is a “good way to build a nest egg” for those workers “shut out of retirement.”
- State Run Retirement: Boston College’s Munnell noted her support for the federal auto IRA legislation, as having “50 separate [state] programs is a crazy idea.”
- Part-Time Employees: Panelists agreed that long-term part-time workers should have access to workplace retirement plans.
- Portability: Prudential’s Kalamarides stressed the importance of workplace plans and added that Open MEPs will help with portability, as employees will not have to switch plans when they move, as opposed to state-run MEPs.
- Dr. Alicia Munnell, Peter F. Drucker, Professor Of Management Science, Director, Boston College Carroll School of Management, Center for Retirement Research at Boston College
- John J. Kalamarides, Head Of Institutional Investment Solutions, Prudential Retirement
- Thomas Barthold, Chief Of Staff, Joint Committee on Taxation
In his opening statement, Chairman Orrin Hatch (R-Utah) noted the fiscal pressure on public programs, such as Social Security and Medicare, and explained how important participation in private retirement plans is. He stressed how retirement savings is successful mainly due to participation in workplace plans, however many employers do not offer plans to workers due to cost, complexity and the administrative hassle. Hatch explained that the Committee’s Tax Reform Working Group identified opportunities for reform, including tax policies related to savings and investment, and noted the bipartisan support the working group, as well as the President, has for the Open Multiple Employer Plan (MEP) proposal.
In his opening statement, Ranking Member Ron Wyden (D-Ore.) stated that “barely more than half” of Americans have access to workplace retirement plans, which is why his state of Oregon passed an automatic individual retirement account (IRA) law to fill in the gaps for those without employer plan options. He noted his support for the President’s national auto IRA proposal and that the “my retirement account” (myRA) is a “good way to build a nest egg” for those workers “shut out of retirement.” Wyden stated that he will be introducing legislation to strengthen the Saver’s Credit and that he and a coalition of Senators is looking to expand retirement plans through Open MEPS, which would lower costs and ease the burden on employers.
Dr. Alicia Munnell, Peter F. Drucker, Professor of Management Science, Director, Boston College Carroll School of Management, Center for Retirement Research at Boston College
In her testimony, Dr. Alicia Munnell stressed the “enormous retirement income challenge” and that people do not save if they do not have access to a workplace plan. She explained that the Working Group’s report includes four types of proposals to reduce the coverage gap and increase savings for workers: (1) broaden access to MEPs; (2) increase the incentives for small businesses to start new plans and for auto enrollment, and credit employers for making contributions; (3) increase coverage for long-term, part-time workers; and (4) enhance the Saver’s Credit by making it flexible and increasing eligibility. Munnell noted her support for the federal auto IRA legislation, as having “50 separate [state] programs is a crazy idea,” adding that the default contribution rate should be set at a “meaningful” level.
John J. Kalamarides, Head Of Institutional Investment Solutions, Prudential Retirement
In his testimony, John Kalamarides stated that while only half of small businesses offer retirement plans, Open MEPs can be an “important part of the solution.” He recommended changes to MEP legislation, to include: (1) remove the commonality of interest requirement and allow unrelated businesses to pool together; (2) limit the fiduciary responsibility of employers; (3) create a model MEP that eliminates discrimination testing; and (4) ensure the Departments of Treasury and Labor have the enforcement ability to protect employers and employees.
Kalamarides noted his support for the proposals the Working Group offered and added support for expanding the current safe harbor for auto enrollment to 10 percent, as well as expanding the Saver’s Credit to encourage families to save more for retirement.
Thomas Barthold, Chief Of Staff, Joint Committee on Taxation
In his testimony, Thomas Barthold explained the obstacles for defined contribution (DC) plans, to include low participation and contribution rates, leakage, and access to plans, adding that the goals for policy are to increase access, participation and contribution, as well as discourage leakage. He stressed that setting up plans for small businesses is more costly per employee due to overhead being spread across a smaller number of workers, and that small businesses need incentives for creating plans.
Barthold continued that one of the proposals the Working Group offered would allow long-term part-time employees to be included in retirement plans, as the Employee Retirement Income Security Act (ERISA) currently allows part-time employees to be excluded. He concluded that the Saver’s Credit should be refundable and stressed the issue of portability for employees.
Question and Answer
Wyden asked for the panelists’ recommendations to the committee for updating retirement policies. Munnell said it should be mandatory for each employer to auto enroll their employees into a plan with the option to opt-out. Kalamarides noted the importance for long-term part-time workers to be able to access plans, as well as offering Open MEPs to reduce barriers to employers.
Sen. Sherrod Brown (D-Ohio) asked about to concept of Open MEPs. Kalamarides explained that they will help small businesses by allowing them to pool purchasing power, as well as transfer fiduciary responsibility to professionals, adding that this would increase participation by 250 percent.
Sen. Tim Scott (R-S.C.) asked how the committee can make savings easier for the average person. Kalamarides stressed the importance of workplace plans and added that Open MEPs will help with portability, as employees will not have to switch plans when they move, as opposed to state-run MEPs.
Sen. John Thune (R-S.D.) asked the panelists if increasing the amount of the Saver’s Credit will also increase the number of small businesses that take advantage of it. Munnell noted that increasing the credit will not “hurt,” but that it will not have a big impact, adding that there are “a lot of barriers” to setting up plans. Kalamarides stated that Open MEPs and expanding the tax credit will “increase the take up rate” for small business owners.
Tools for Saving
Sen. Mark Warner (D-Va.) asked panelists how the committee can think broader about the retirement experience. Munnell stressed the need for Americans to have Social Security as their retirement base, to which Kalamarides agreed and continued that the most effective way for employees to save for retirement is through a payroll-based deduction.
Sen. Robert Casey (D-Pa.) asked Munnell about the “best tools” available for workers to save for retirement. Munnell explained that all workers need to have access to plans through auto enrollment with their employer with the option to opt-out. She expressed her desire for legislation that mandates 401(k) plans have auto enrollment for all employees with a default level of six percent, including auto escalation over time, stressing that “everything needs to be automatic.”
Sen. Chuck Grassley (R-Iowa) asked what barriers there are to allowing employers to offer plans to part-time employees. Munnell explained that ERISA allows companies to not include these employees which creates “temptation” to not include them, and continued that such employees can be expensive for companies because they “come and go.” She added that long-term part-time employees who have been with the company for multiple years “is different.” Kalamarides noted that Open MEPs would allow long-term part-time workers to save for retirement due to their portability.
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