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Regulation

Washington offers hope over retirement security

Industry seeing signs that advancements will be made this year

Michael Kreps of Groom Law Group
Groom Law Group’s Michael Kreps

Updated with correction.

Recent actions by Washington policymakers are prompting guarded optimism that retirement security measures could advance in Congress or through regulatory reform this year.

"I think there is a lot of pent-up demand in Congress for policies that will expand and enhance the private retirement system," said attorney Michael Kreps, a principal with Groom Law Group in Washington and former top aide on the Senate Committee on Health, Education, Labor and Pensions.

"It has been over a decade since the Pension Protection Act, and other than some reforms to the defined benefit plan system, Congress has done very little in the retirement space," Mr. Kreps said.

The topics range from automatic portability of 401(k) accounts to increasing the use of multiple-employer plans.

One encouraging sign came in a July 19 letter from 10 Republican senators, asking Secretary of Labor Alex Acosta to address 401(k) plan leakage by issuing a formal opinion on auto portability for workers changing jobs.

The letter was inspired by a study from the Employee Benefit Research Institute in Washington showing that using a rollover clearinghouse could add nearly $2 trillion to 401(k) accounts. The biggest impact, said EBRI Research Director Jack VanDerhei, would come from accounts of less than $5,000, which make up $1.5 trillion of the projected assets in accounts.

EBRI tabulated its estimates by creating an "auto-portability scenario" in which all plan participants consolidated their savings in a new employer plan every time they changed jobs. At age 65, all participants had one account, with leakage limited to hardship withdrawals.

While plan sponsors could make their own efforts to address leakage, the senators' letter asked the DOL for formal guidance to reassure sponsors.

The Labor Department's ERISA Advisory Council has been trying to advance auto portability for years. A 2013 letter from Senate Democrats echoed this latest request from Republicans, who said "continued delay of the department's (advisory opinion) is a hurdle to the implementation of a workable, market-based solution that will help our constituents prepare for their retirement."

Spencer Williams, president and CEO of the Retirement Clearinghouse, a Charlotte, N.C.-based firm providing consolidation services for defined contribution plan sponsors, said: "Whenever something new makes its way into our industry, everyone likes legal clarity."

Mr. Williams acknowledged that the push for auto portability has ebbed and flowed for years, but he is encouraged that major associations for plan sponsors and financial service providers are backing the senators.

"I am cautiously optimistic that we have finally broken through this time. It could happen this year," he said.

The senators' letter also was prompted by legislation signed earlier this year by President Donald Trump that reversed safe harbors for states and other political subdivisions creating their own private-sector retirement savings programs. That puts more pressure on Washington to do something.

"I think more policymakers are realizing that if state and local approaches are not seen as the solution, then we need federal policies to help fill some of these gaps," said Shai Akabas, director of fiscal policy for the Bipartisan Policy Center in Washington. "It's not something that is on the front pages every day, but it is something that millions and millions of Americans are thinking about it. Any incremental changes that we can make in policy that will help many Americans wind up in a better place are worth considering."

Congress came close in the last legislative session, after the Senate Finance Committee approved the proposed Retirement Enhancement and Savings Act that called for open MEPs, higher caps on auto escalation of employee deferrals and other measures. Despite the bipartisan vote, Congress ran out of time for final passage and no legislation was passed.

This year, Sens. Susan Collins, R-Maine, and Bill Nelson, D-Fla., introduced a similar bill that would allow for open MEPs, raise the safe harbor limits for 401(k) plans, and offer tax credits for small employers to start plans or auto enroll employees into company plans.

Short of congressional action, retirement experts note that the Department of Labor has other options for making policy changes, such as the advisory opinion sought by the senators, field assistance bulletins and interpretive bulletins. But one potential hurdle is that key positions at the Employee Benefits Security Administration, which would be responsible for seeing those changes through, remain unfilled.

Congress has also shown some interest in helping defined benefit plan sponsors with legislation to ease non-discrimination testing rules for closed plans.

Further guidance to the DOL from the White House to pursue other retirement measures, such as enabling MEPs, improving portability and addressing lifetime income, also is reportedly in the works, industry sources said.

Undoing — or fighting efforts to undo — the Department of Labor's fiduciary rule that became partly effective on June 9 has consumed much of Washington's attention so far this year, yet that has also raised awareness of how much remains to be done on retirement security.

"There is bipartisan interest to do something," said Mr. Akabas of the Bipartisan Policy Center. "There is still momentum from the passing of RESA. I am optimistic that many or all of those provisions could ride along with some other must-pass legislation this Congress."

Geoff Manville, principal, government relations, at Mercer LLC in Washington, agrees that retirement "remains one of the bright spots where bipartisanship remains a possibility."

Wholesale changes involving the tax code will have to wait until Congress gets into tax reform, but on retirement issues in general, "there are lot proposals behind the dam that are likely to break loose at some point," Mr. Manville said.