Enactment of the Retirement Enhancement and Savings Act (RESA) would be an important step in encouraging employers to offer DC plans and to expand access to various retirement savings options, panelists at a Capitol Hill retirement policy forum suggested this week.
The April 11 forum, sponsored by the National Retirement Planning Coalition, was held as part of National Retirement Planning Week to discuss ways to address the country’s purported coverage and savings gap.
Keynote presentations were provided by House Education & the Workforce Committee Chair Virginia Foxx (R-NC) and Rep. Donald Norcross (D-NJ), who serves with Foxx on the committee. In addition, the Insured Retirement Institute’s Paul Richman moderated a panel discussion with representatives from State Street Global Advisors, Jackson National Life Distributors and TIAA.
The forum coincided with the release of a report by the IRI which shows that 42% of Baby Boomers have nothing saved for retirement and, among Boomers who do have retirement savings, 38% have less than $100,000 saved. By contrast, the report also notes that nearly 80% of Boomers who have a relationship with a financial professional have at least $100,000 saved for retirement, versus only 48% of those who do not.
The topic of eliminating barriers to providing annuity income solutions in DC plans was a major focus of the forum as a way to address longevity risk and decumulation issues. The bipartisan RESA, which was recently introduced in the House for the first time and reintroduced in the Senate, includes a provision that would provide a safe harbor for plan sponsors on the selection of a lifetime income provider.
Norcross noted that he is a cosponsor of RESA and believes the legislation has a good chance of being enacted this year. In particular, he singled out the annuity safe harbor as an important component in addressing employer fiduciary concerns over adding lifetime options to their DC plans.
Foxx touched on the Department of Labor’s fiduciary rule, saying that she thinks “it’s a terrible rule... and would do more harm than good.” She explained that she was “happy with the 5th Circuit’s decision in vacating the rule, but now we need to work on getting legislation passed.” To that end, she praised the work of Rep. Phil Roe (R-TN) “in being the flag bearer” for trying to prevent the rule from taking effect and for sponsoring the Affordable Retirement Advice for Savers Act (H.R. 2823) to repeal the fiduciary rule and establish a statutory definition of “investment advice.” H.R. 2823 was reported out of the House Education and the Workforce Committee in October 2017.
Catherine Reilly, Global Head of Research – Defined Contribution at State Street Global Advisors, suggested that any changes in policy must make it easier for employers to offer a plan to address coverage issues. Reilly explained that she is a strong advocate for mandating that employees be enrolled in a retirement savings plan, similar to the U.K.’s NEST system, but realizes that a mandate like that may not go over well in the U.S. Even still, she noted that the U.K. program has had a dramatic effect on coverage.
Reilly further suggested that a mandate would make it easier for employers because they would only have to follow the “prescribed rules” in providing access to a plan and would be absolved of fiduciary responsibility, which, along with costs, is a big drawback, especially for small employers.
As a potential solution, she stated that the open MEP proposal included in RESA would be an important first step to make it easier for employers to offer coverage.
Underestimating life expectancy and having longevity protection are two of the most misunderstood factors in retirement planning, according to two panelists.
Brian Sward, SVP of Product & Investment Management, Jackson National Life Distributors, observed that retirement planning largely focuses on the accumulation phase and that many employees cannot answer basic questions about what their retirement income will be after they retire or how much they will need.
Sward suggested that lifetime income annuity options can help fill an important gap that many Americans are facing. He noted that he is seeing more firms sell fee-based annuities, including wirehouses, and believes that moving away from commission-based fees will go a long way in addressing the negative perception of annuities.
For his part, Joshua Freely, TIAA’s Public Policy Director, argued that it is important for policymakers and stakeholders to reach a consensus around the so-called guarantee gap. Freely pointed to a recent TIAA policy brief noting that one-third of men over age 65 are expected to live to 90, and the life expectancy is even higher for women. Moreover, he noted that only 1 in 20 DC plans currently provide a lifetime income solution, which he believes is critical to addressing longevity risk.
Freely contended that a simplified annuity safe harbor could help address the guarantee gap, as well as help increase portability solutions, as many employers are afraid to provide an annuity within their DC plan because they are unsure what would happen if they changed providers. He also argued for permitting lifetime income options as part of a QDIA option, as well as providing more flexible income distribution options and annuity income incentives through the tax code. “When people understand how annuities work and become more comfortable with the products, they are much more likely to use them,” Freely said.