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Townsend Outlines DOL’s Retirement Priorities

Regulatory Agencies

Developing solutions for more Americans to have lifetime income options within their retirement plans is one of the Department of Labor’s key priorities for the coming year, according to Kathleen Kennedy Townsend. 

As a keynote speaker at the opening of EBRI’s Winter Policy Forum, Townsend, who serves as a Special Assistant to the Secretary of Labor for Retirement, outlined three big-picture priorities of the DOL. Townsend was a founder of Georgetown University’s Center for Retirement Initiatives and former chair of the Maryland Governor’s Retirement Security Task Force, which helped enact a state-run retirement plan for workers not covered by a retirement plan at work. 

Lifetime Income Solutions

Asking how the defined contribution system can provide retirees the kind of confidence that defined benefit pensions do, Townsend suggested that the Biden administration wants to help support lifetime income through a strengthened Social Security system and through workers’ savings.

Asserting that the country can do better, Townsend noted that in 2016, only 41% of African American families and 35% of Hispanic families had at any retirement savings at all. In addition, she suggested that even those with a 401(k) account are not home free, as the lack of certainty with a lifetime stream of payments often leads to senior citizens having trouble figuring out how much to spend, and this uncertainty can lead to unwelcome stress and cognitive decline.

“We aren’t starting from scratch. We still have defined benefit plans and companies that offer annuities; the SECURE Act provided for the creation of PEPs and provided a fiduciary safe harbor for selecting an annuity provider,” she explained. In addition, Townsend noted that EBSA is busy working on a rule that will provide savers with a lifetime income illustration. 

“It is too early now to see whether these actions will increase the number of plans offering this option, but they are a start. However, to make lifetime income available to everyone, we need more ideas, more options,” she further noted. When asked about the timing of the lifetime illustration rule, Townsend declined to give a timeframe, but noted that the DOL is working diligently on the guidance.

She went on to outline a number of options that she has either worked on or heard about, including the MarylandSaves program, that will offer a target date fund with a managed payout. “It’s possible that a manage payout option could be embedded as a default option in a 401(k) target date fund. The whole target date fund would not have to be turned into a lifetime income; only a portion,” she explained. 

Townsend noted that the MarylandSaves program also includes an emergency savings fund, adding that studies show that savers are less likely to draw down their retirement savings if they have an emergency account. “It might also be interesting to see if the 401(k) could include an emergency savings option. This way, workers could default into two accounts—one for emergencies and one for retirement,” she observed. 

Other potential options that Townsend highlighted included a Social Security bridge option allowing retirees to use their savings before they take Social Security benefits, and a proposal to allow Americans to purchase supplemental Social Security benefits with their savings as a way to increase monthly payments.

The Labor advisor also cited the proposal developed by Prof. Teresa Ghilarducci and Dr. Kevin Hassett that would give those who do not already have access to a plan at work access to a pension modeled after the federal government’s Thrift Savings Plan. 

“The point of these examples is to underscore that we don’t have all the answers today,” Townsend emphasized. “We need to think and act anew; the solutions of the past when people worked for a single employer and had shorter retirement are not relevant to the chaotic present and the more uncertain future.” The DOL advisor further noted that over the next year, the Department will hold a series of conversations to flesh out the best ideas in order to develop long-term income solutions.

Portability and Leakage

A second broad-based issue raised by Townsend is the issue of portability and leakage. She observed that estimates show that as much as $60–$100 billion dollars are lost each year from the retirement system and that those who have less than $5,000 in their account when they leave their jobs are most vulnerable. “In the course of my time at the Department of Labor, I’ve talked to countless young men and women who have been in lots of jobs, and they had not transferred their retirement accounts because it’s so frustrating,” she noted. 

In noting that there is little coordination between the stakeholders, Townsend suggested that the challenges in trying to transfer accounts from one employer to another is an extraordinary waste of time and that it clearly is a challenge that must be solved. 

State-based Efforts

Finally, Townsend addressed the issue of state efforts to increase the number of people who save, emphasizing that this is an area she has devoted most of her energies for the last decade. She observed that 14 states have already enacted legislation, and that legislation has been introduced in 30 other states. In addition, pointing to a study by Pew Charitable Trusts on the OregonSaves program, she noted that 80% of the businesses have not found the program to be a burden for themselves, nor did they hear objections from their employees. 

Townsend suggested that the advantage of the state programs is that they are innovative in all sorts of ways, but added that there is concern at the DOL that state IRA programs do not have the protections of ERISA. “Of course, we would prefer Congress to act, but in the absence of Congress, we are happy to work with states who, by their very nature, enjoy the close relations with their employers and workers,” she emphasized.

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