Robert L. Reynolds, Putnam Investments president and CEO, today announced a broad proposal to reform the nation’s defined contribution system that would include requiring plans to provide a lifetime annuity option that would be backed by a new federal insurance program.
According to a news release issued by Putnam today, the Reynolds proposal would mandate automatic enrollment for all plans and would provide new tax credits to employers who provide a match for employee contributions.
The lifetime annuity option Mr. Reynolds proposes would also include tax incentives to employees who invest in them.
Additional proposals in Mr. Reynolds’ plan would limit the amount that could be allocated to equities in target-date retirement funds for participants nearing retirement; require plan advisers and providers to “provide full disclosure of fees, risks and responsibilities in plain English,” and “provide legal protection to employers who offer advice and guidance and to those who offer lifetime income guarantee products,” according to a Putnam summary of the proposals.
In a telephone interview, Mr. Reynolds said the Putnam proposal was aimed at shoring up 401(k) plans at a time when the market downturn has raised questions about their viability in the minds of some federal lawmakers and others.
“What we’re saying is 401(k) works; let’s just fix the kinds of things haven’t worked in this market climate,” Mr. Reynolds said.
George Miller, D-Calif., chairman of the House Education and Labor Committee, had no comment on Mr. Reynolds’ proposal, said Aaron Albright, a committee spokesman. Mr. Miller is currently considering legislation that could lead to DC plan reforms.
Mr. Reynolds’ proposal for mandatory automatic enrollment is expected to raise concerns among employer groups, which have made clear that they would prefer to preserve the voluntary nature of the U.S. retirement system.
“We’re definitely in favor of auto enrollment, but we have advocated encouraging auto enrollment, not mandating it,” said Jan Jacobson, senior counsel, retirement policy, at the American Benefits Council. “Mandates can end up costing employers money and, at least with smaller employers, could end up discouraging plan sponsorship.”
A summary of the Reynolds plan can be found at http://www.theretirementsavingschallenge.com.
