Experts see lots of work for next administration
No matter who wins the White House in November, the next administration will have to do more to advance retirement security, a number of experts said.
Also on their wish lists: Shore up Social Security, boost the economy and better equip the SEC.
“The next administration will need to tackle two key issues when it comes to retirement,” said attorney Michael Kreps, a principal with Groom Law Group in Washington and a former Senate pension aide.
“First, they need to do the hard work of implementing policies that expand access to the private retirement system. The next administration — whether a Democrat or Republican is in the White House — really needs to take a hard look at what works and push policies that we know are going to be effective,” Mr. Kreps said.
Doing more to ensure lifetime income will be the other challenge, he said.
“Fortunately, there is a growing body of academic research pointing the way toward creative solutions, and we are seeing an increased amount of interest in the marketplace. I think there is a real opportunity for the next administration to push the ball forward and really help participants and beneficiaries.”
“With 10,000 baby boomers reaching age 65 daily, it's essential for the next administration to focus attention on asset de-accumulation,” said Derek Dorn, managing director and head of regulatory engagement and policy for TIAA in New York.
The next president should focus on financial education, especially for those with coverage that do not participate in their employer plans, said Will Hansen, senior vice president of retirement policy with the ERISA Industry Committee in Washington.
“For those without coverage, focus on encouraging expansion of the voluntary employer-sponsored retirement system. I do not want to see anything that would take away from the voluntary system as I believe that has been successful in increasing coverage rates,” Mr. Hansen said.
James A. Klein, president of the American Benefits Council in Washington, said he hopes the next administration will look at all the pieces involved in retirement security to see how they work together.
“Personal financial security involves not only robust pensions and retirement savings plans, but also health, disability and long-term care coverage, since individuals and plan sponsors are less frequently looking at these income-protection programs in separate silos and more frequently as essential components of overall health and financial well-being in retirement,” he said.
Many industry experts worry that a lack of action to make private-sector retirement programs work better and reach more people could lead to a national approach.
Kevin Albert, partner and managing director in the New York office of private equity firm Pantheon Ventures LLP, thinks defined contribution plan executives need to take a page from defined benefit plan investment tools, instead of forcing participants “to have the discipline and financial acumen to provide 100% for themselves.”
“Far too many DC plans do not even incorporate all of the technology developed and incorporated by DB plans over the years to maximize participant returns. ... The next president must focus on this critical area of citizen well-being before a nationalization of the retirement (system) becomes necessary,” Mr. Albert said.
Groom Law Group partner David Levine agreed that “the complexity of managing one's own investments is a constant concern and will continue to be a concern for the next president.”
Plan fiduciaries and participants will need help managing complexity “in a way that helps them save for retirement but not overwhelm them,” he said, and policymakers will also have to address increased longevity.
“Failure to address these items could have big societal ramifications, such as elderly Americans without financial resources, aside from cost implications in other areas, such as social support programs,” Mr. Levine said.
Carol Geremia, president of MFS Institutional Advisors Inc. in Boston, said she thinks it is time to update the Pension Protection Act of 2006. “While it introduced important savings features like automatic enrollment and qualified default investment alternatives, it simply wasn't enough to address the huge gap in retirement savings. I would challenge the next administration to focus on legislation to close this gap.”
For Rep. John Kline, R-Minn., chairman of the House Education and the Workforce Committee, “the most important priority must be getting the economy moving again” so that people don't put off saving for retirement. “Pro-growth policies would go a long way in helping more Americans retire with the financial security they need,” he said.
Mr. Kline also would like policymakers to consider modernizing multiemployer pension plans, do more to promote the long-term solvency of the defined benefit pension system, and remove regulatory barriers that restrict retirement savings options for workers and employers.
“It's going to take real presidential leadership to deliver the change families and retirees desperately need,” he said. “We owe it to every American to make strengthening retirement security a national priority.”
"Difficult fiscal action'
Economic gains will take “rational, deliberate and difficult fiscal action” on several fronts, including taxation, debt and regulation, said Greg Fitchet, investment officer at the $2 billion Phoenix City Employees' Retirement System.
“In their current state, they all represent significant impediments to real growth in the U.S. economy,” he said. Monetary policy and low rates “have done little more than exacerbate the debt/deficit problems while severely punishing savers, retirees and pension plans,” Mr. Fitchet said.
Low rates have particularly hurt Social Security, which Donald G.M. Coxe, chairman of Coxe Advisors LLC in Chicago, calls “the biggest bond fund in the dollar or pound world by far.”
“We have a Social Security trust fund which is bleeding away rapidly because it's got almost no income and increased outflow,” he said. What future Social Security administrators “should not be doing as interest rates start to rise is still investing almost entirely at the front (or short) end of the yield curve. They should be extending duration and getting more income,” he said.
Mr. Coxe thinks the next president should appoint a commission like 1981's Greenspan Commission, to consider ways to shore up the system that now has twice as many recipients.
“The last thing (the next president) needs to do is to decide to have a new committee look at Wall Street,” Mr. Coxe said. “The next president should make it clear they are not going to spend their time going after the 1%. There is no evidence right now to suggest that there is an immediate need to do something to rein in the financial community.”
More resources for the Securities and Exchange Commission will be critical for an increasingly complex investment management industry, said Kurt N. Schacht, New York-based managing director for standards and advocacy with the CFA Institute. “They are constantly trying to play catch-upwith the level of sophistication in the marketplace. If we want to maintain our primary position globally as (having) the best capital market structure in terms of the quality of its rules, regulations and enforcement, we have to pay more attention. That is one of the biggest systemic risks this country faces,” Mr. Schacht said. “I do get the concern that we are overregulated ... but the way to address that is (not) to somehow starve the regulators.”
Mr. Schacht would like to see the next administration simplify the Department of Labor's new fiduciary rule, which goes into effect in 2017, for all kinds of investors.
“I would hope the next administration through the SEC would resolve that issue (by) having a single fiduciary duty for personalized investment advice,” he said. He also would like to see Washington focus more on mutual fund fee disclosure.
“We have this multitrillion-dollar mutual fund industry that needs a major improvement in how it reports exactly what investors are paying for these products,” Mr. Schacht said. n
Barry B. Burr, Arleen Jacobius and Rob Kozlowski contributed to this story.
This article originally appeared in the July 25, 2016 print issue as, "Retirement security at top of wish lists".