Recent legislative proposals, executive order address expanding workplace retirement savings
Between a recent White House retirement directive and more legislative proposals from Capitol Hill, plan executives and other retirement security advocates are encouraged that, while it might take months or years to see concrete change, Washington is paying attention.
"It's been a while since retirement was a big issue," said Jack Towarnicky, executive director of the Chicago-based Plan Sponsor Council of America, a division of the American Retirement Association.
The ideas coming out of Washington include promoting open multiple employer plans to allow unrelated businesses access to professionally managed retirement accounts for workers; reducing paperwork burdens on plan sponsors, establishing tax credits to encourage small employers to offer retirement plans; setting higher default contributions for automatic enrollment and escalation in defined contribution plans; and updating timetables for required distributions.
"I think they are all constructive. It's just a matter of whether they truly move the needle much," said Erin Turley, partner, McDermott Will & Emery. The Dallas benefits attorney said it also depends on which ideas gain enough political traction to translate into reality. "If the agencies got together and Congress said, 'This is how it's going to work,' it could easily be done," Ms. Turley said.
The stage was set in March, when Senate Finance Committee Chairman Orrin Hatch, R-Utah, and ranking member Ron Wyden, D-Ore., reintroduced the Retirement Enhancement and Savings Act, which enjoys widespread bipartisan support. Among other provisions, RESA would make it easier for smaller employers to join open multiple employer plans, ease non-discrimination testing rules for plan sponsors, lift a 10% safe harbor cap on default contributions for automatic enrollment and escalation in defined contribution plans, and reduce Pension Benefit Guaranty Corp. premiums for cooperatives and small charities that sponsor plans.
More controversial provisions include annual lifetime income disclosure by plan sponsors, and a ban on "stretching out" payments from defined contribution accounts with large balances to extend the tax benefits.
The House followed suit Sept. 10, introducing a tax reform 2.0 package of three bills, including the proposed Family Savings Act of 2018, with many of the same concepts that are in RESA. It also would end required distributions for defined contribution accounts of less than $50,000 and remove the age limit for individual retirement account contributions, now set at age 70½.
Unlike RESA, the House proposal does not include a safe harbor for plan sponsors to select a retirement plan annuity, or a requirement for lifetime income disclosure. To the dismay of cooperatives and small charities, it also does not reduce what they consider disproportionately high PBGC premiums but does call for a review of single-employer premiums.
The package was approved along party lines by the House Ways and Means Committee on Sept. 13, but without the bipartisan support for RESA, its prospects are not bright.
White House weighs in
Further impetus for new retirement ideas from Washington came Aug. 31, when President Donald Trump signed an executive order directing officials at the departments of Labor and the Treasury to expand retirement savings options by revisiting rules on open multiple employer plans and minimum distributions.
The executive order also told them to reduce the paperwork and administrative burdens of the many notification requirements of plan sponsors, by paving the way for electronic delivery. That's a long overdue idea that could save employers compliance headaches while making those disclosures more meaningful to plan participants, said the PSCA's Mr. Towarnicky, who noted the Department of Labor solicited industry input on updating those requirements more than six years ago, with no further action.
"I am very hopeful we'll get regulatory guidance (on electronic delivery). This would help everybody," he said.
Plan sponsors also are cautiously optimistic about the effort to update the mortality tables so people over age 70½ could have more time to spread out retirement distributions. The caution comes from not knowing how much plan changes and reporting demands would mean for employers, Mr. Towarnicky said.
There is little hesitation when it comes to embracing MEPs, whether that happens through regulatory guidance, legislation or both, Mr. Towarnicky said. "I think what you'll see if either one of these comes to fruition, existing plan sponsors will be the first to look at these as an opportunity. I think you will see a lot of interest. Some will maintain their existing plans, some will migrate to the new plans," he said. The MEP concept is enjoying strong support from a variety of interests, giving it the best odds of becoming a reality.
Congress and the White House are both interested in getting more employers to offer retirement plans, but they are on distinctly different timetables.
White House officials expect it to take 180 days or more to propose regulations putting the executive order into play, and up to a year to finalize them.
Preston Rutledge, assistant secretary of labor for the Employee Benefits Security Administration, stressed on a press briefing call that administrative efforts do not compete with Capitol Hill. "If Congress chooses to act, we're certainly not ruling out any further partnerships with Congress that help further the president's goal of protecting Americans' retirement and security," said Mr. Rutledge, a former Senate Finance Committee senior aide who drafted much of RESA.
Congress, on the other hand, is facing a dwindling calendar and looming November elections, where tax reform 2.0 is a Republican House priority. It is quite the opposite in the Senate, where RESA has better odds.
RESA should be enacted, said J. Mark Iwry, a non-resident senior fellow at the Brookings Institution in Washington and a former senior adviser to the secretary of the Treasury on benefit tax issues.
"Overall RESA would do significantly more good than harm," Mr. Iwry said. "There are some provisions that I think are intended well, but, through aggressive lobbying, have become overreaching," while the House proposal "omits important provisions, including RESA's annuity fiduciary safe harbor and lifetime income disclosure," he said.
The White House executive order sends a powerful message to Capitol Hill to get something done, said Doug Fisher, director of retirement policy for the American Retirement Association in Arlington, Va.
"The vectors are kind of lining up for the right kind of momentum to work out a final package. This is part of the process for getting things done," Mr. Fisher said.