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Iwry Outlines Ideal Plan at PSCA Annual Gathering

The U.S. Treasury Department’s Mark Iwry, author of the Pension Protection Act of 2006 — the law that heralded the auto-plan — outlined what he considers the ideal DC plan at this week’s Plan Sponsor Council of America annual conference in Miami. 

While Iwry conceded the dramatic differences between DB and DC plans, he urged plan sponsors to design their plans with the benefit in mind, not the contribution — a notion echoed by Nobel prize-winning MIT professor Robert Merton earlier the same day. Though the PPA was a good start, Iwry recommended the use of behavioral finance (BeFi) techniques made popular by UCLA professor Shlomo Benartzi to create the ideal plan. That plan would focus on the desired benefit of replacing sufficient income at retirement on behalf of participants, rather than making them figure it out by themselves.

The 3% auto default number suggested by PPA 2006 is too low, Iwry conceded, noting that the 3% number was only offered as a suggestion, based on the rationale that when a default is introduced, a higher number might scare off early adopters. Today the default might be better set at 6%, auto-escalating to 10% or 12% — or even no cap at all, allowing the individual to decide when to stop escalating. 

Many believe that a larger match is a good thing, even though research shows that you can’t buy increased participation via a match. Iwry suggested a stretch match where, rather than matching 50% of the first 6%, plans match 30% of the first 10%. This, as you might expect, raised a question from a plan sponsor about the use of a 6% match for traditional safe-harbor plans.

On the agenda at Treasury, Iwry noted: new regulations on hybrid cash balance plans, roll-ins and lifetime income strategies.

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