At the first hearing on retirement security issues in the 116th Congress on Feb. 6, enactment of the Retirement Enhancement and Savings Act (RESA) again took center stage as a vital step in expanding access and addressing the coverage gap.
Featuring a single panel of witnesses, the four-hour hearing of the House Ways & Means Committee ran the gamut — from the importance of enacting RESA to addressing multiemployer pension plan funding issues, reforming Social Security and expanding state-based retirement solutions.
Members and witnesses also debated whether there even is a retirement security crisis. But despite this dispute, most witnesses agreed that there are important steps that can be taken to reduce gaps in the system and improve retirement income adequacy.
Chairman Richie Neal (D-MA), who has made retirement security reform a priority, stated that this hearing will be the first of many conversations on the issue. “Pensions have had a long history of being a bipartisan issue. Now more than ever, it’s time to put politics aside and really work together to address this crisis,” Neal stated.
Neal pointed to RESA’s provisions strengthening open MEPs – reintroduced Feb. 6 in the House by Reps. Mike Kelly (R-PA) and Ron Kind (D-WI) – as a good starting point for discussion, as well as his Automatic Retirement Plan Act (ARPA) to require all but the smallest employers to maintain a 401(k) plan for their employees and his Retirement Plan Simplification and Enhancement Act (RPSEA).
To bolster his argument, Neal cited statistics showing that for workers earning between $30,000 and $50,000 per year, more than 70% will participate if offered a retirement plan at work, but only 5% would save on their own through an IRA. “These facts underscore that the retirement crisis in America is real and will only worsen unless we strengthen Social Security, make saving easier, and do more to encourage employers to offer retirement plans,” Neal said.
Several witnesses testified in support of RESA, as well as Neal’s ARPA and RPSEA legislation.
Roger Crandall, Chairman, President and CEO of MassMutual, suggested that while existing tax incentives for private retirement savings have been a tremendous success in encouraging Americans to save for retirement, there are still significant gaps in the nation’s private retirement savings system. He noted that lower participation and savings rates are disproportionately experienced by women, minorities, low-income employees and employees of small businesses.
To help increase retirement saving opportunities for these populations, Crandall urged support for RESA, including its open MEP proposal, as well as its expanded small employer tax incentives to help offset the costs of establishing a new workplace retirement plan.
Crandall also applauded Neal for his leadership in introducing ARPA. “We believe that a robust dialogue and legislative action on this bill are very much needed. We need to find a way to cover the employees of small employers without burdening those employers, and the Chairman’s bill offers intriguing opportunities to work together on this,” he testified.
Lifetime Savings Options
Also singled out was creating new protections for employers that offer lifetime income solutions as part of their plan and helping to make lifetime income products more portable.
“One of the most important potential innovations for retirement savings would be to encourage lifetime income and other drawdown solutions from defined contribution plans, as UTC has done and as has been proposed” in RESA, stated Robin Diamonte, United Technologies’ Corporate Vice President for Pension Investments.
Diamonte reiterated that plan sponsors often are hesitant to incorporate innovative approaches in DC plans over the legal risk. Consequently, she urged Congress to “create a pathway toward plan sponsor and fiduciary innovation, using clear and specific guidance and reducing legal impediments.”
She highlighted UTC’s Lifetime Income Strategy as an example, explaining that the program is like a personalized target date fund in that starting at age 48, participants’ assets begin to shift into a component that provides several key features plan participants typically look for in a retirement income solution, such as guaranteed cash flows, growth potential, flexibility and continued access to savings.
Arguing that there is a retirement savings crisis, Diane Oakley, Executive Director of the National Institute on Retirement Security, suggested that policymakers need to go beyond incremental steps.
“One bold stoke would be to promote universal access to a retirement saving vehicle through employer payroll so all Americans could take that first important step to pay themselves first with a retirement contribution,” Oakley testified. She contended that Neal’s previous advocacy for an automatic IRA is improving the retirement security of workers in California, Oregon and Illinois, further noting that more states have plans in the works.
Echoing this recommendation was Luke Huffstutter, who owns a salon in Portland, OR. Testifying how the OregonSaves program has transformed the savings opportunities for his employees, Huffstutter urged the committee to consider making it easier for other states to follow in Oregon’s steps by removing “federal obstacles,” noting: “If my experience is any indication, employees around the country will thank you for the chance to save more easily.”
Oakley also urged Congress to expand and transform the Savers’ Credit to improve retirement security for low- and moderate-income taxpayers. “The combined impact of these two bold strokes could meaningfully improve the retirement income of those American workers who today have nothing saved for retirement,” Oakley stated.
The committee also heard from witnesses about multiemployer plan funding issues and funding problems facing the Social Security system, where members engaged in an extensive, but civil debate over potential solutions.