United States Senate Finance Committee
Challenges in the Retirement System
Tuesday, May 14, 2019
Statement for the Record
The Securities Industry and Financial Markets Association (“SIFMA”)1 appreciates the opportunity to provide a submission to the Senate Finance Committee as part of its hearing on challenges in the retirement system. We commend Chairman Grassley and Ranking Member Wyden on holding this hearing, and we look forward to working with the Committee to advance federal legislation to help address the challenges in saving for retirement today.
The Importance of Addressing Retirement Savings
The American retirement system, including various tax incentives to promote savings, has helped millions of Americans prepare for a secure retirement. SIFMA believes Congress can take steps toward enhancing the private retirement system even further. This includes passing bipartisan legislation, such as the Retirement Enhancement and Savings Act (RESA), the Setting Every Community Up for Retirement Enhancement (SECURE) Act, as well as other commonsense provisions that encourage small businesses to offer retirement savings plans while empowering individuals to take control of their financial security.
Additionally, SIFMA shares the Committee’s concern that American workers are not sufficiently prepared for retirement and strongly believes individuals need to make more educated choices with respect to their savings. This goal requires a steady focus on education and disclosure and greater partnership between employers, providers and employees. Financial literacy and general investment education should become part of the basic curriculum from grammar school through high school. Beyond that, there needs to be collaborative outreach by the states, the federal government, employers and providers to educate individuals about their likely retirement income needs, accessible methods of estimating those needs and the amount necessary to set aside monthly to meet those needs.
For today’s hearing, our submission will focus on the retirement provisions we support, and the importance of addressing retirement saving at a federal level, as opposed to the individual states creating 50 different plans.
Retirement Provisions We Support
Expanding the availability of employer-sponsored savings plans is one way to help boost retirement savings. The Employee Benefit Research Institute (EBRI) found that 73% of workers earning a moderate income, from $30,000 to $50,000, participated in an employer‐sponsored plan when a plan was available.2
Employers can incentivize meaningful participation in such plans by offering their employees matching contributions. Employers have also facilitated the use of auto-enrollment to bring more workers into their savings program.
Policymakers have recognized that for certain small employers, additional tools may enhance opportunities to provide retirement plan coverage to employees, and have included many great provisions in RESA to achieve that goal. Allowing employers to join a pooled arrangement that permits different types of employers to collectively offer a plan to their employees (open MEPs) holds some promise to boosting coverage at small enterprises. And, for the very smallest employers – those with less than 25 employees – the SIMPLE IRA and SEP-IRA have proven their value.
IRA programs are a very important part of the retirement savings landscape. Traditional and Roth IRAs encourage workers to set aside savings for long-term needs and provide important portability features to employer-based retirement options. SEP IRAs and one-person 401(k) plans are already working in the marketplace to provide portable savings options for workers – including for those participating in the gig economy.
For those workers leaving their place of employment, IRAs are an effective and easy tool to preserve retirement savings. IRAs provide diverse investment options for accumulating retirement savings and also benefit from a variety of options to assist with efforts to generate income in retirement. Moreover, IRA providers typically provide robust education, advice and financial planning services to millions of workers and retirees. Many of our members administer both SIMPLE IRAs and SEP IRAs. These options involve less burden and more flexibility while providing meaningful savings for employees because of matching contributions or non-elective deferral requirements.
Those businesses that have not made the choice to offer a retirement plan may be good candidates for an open multiple employer plan (open MEP). Employers often cite the cost of setting up a plan, administrative burdens, and legal risks inherent in sponsoring a plan, including the potential for expensive and time-consuming litigation, as barriers to starting a plan for their workers.
SIFMA strongly supports Congress removing legal barriers – including geographical restrictions – to allow unaffiliated businesses to form open MEPs. Such a structure can reduce the employer’s cost of sponsoring a benefit plan while also transferring much of the legal risk to professional fiduciaries responsible for the management of the plan.
1 SIFMA is the leading trade association for broker-dealers, investment banks and asset managers operating in the U.S. and global capital markets. On behalf of our industry’s nearly 1 million employees, we advocate for legislation, regulation and business policy, affecting retail and institutional investors, equity and fixed income markets and related products and services. We serve as an industry coordinating body to promote fair and orderly markets, informed regulatory compliance, and efficient market operations and resiliency. We also provide a forum for industry policy and professional development. SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial Markets Association (GFMA). For more information, visit http://www.sifma.org.
2 Retirement Plan Participation: Survey of Income and Program Participation (SIPP) Data, 2012. (2013). Employee Benefit Research Institute Notes, 34(8), p. 6. Retrieved, from http://www.ebri.org/pdf/notespdf/EBRI_Notes_08_Aug-13_RetPart-CEHCS1.pdf