President Barack Obama's State of the Union address may have been short on retirement-related issues, but pension industry officials had plenty of comment on his proposals earlier this week to change some retirement regulations.
Mr. Obama did not specifically discuss other changes in retirement regulations that were detailed in his “Supporting Middle Class Families” initiative, released Jan. 25. That proposal would establish automatic enrollment in IRAs for workers who don't participate in a retirement plan, expand retirement savings tax credits, promote annuities and other guaranteed retirement income strategies and require greater disclosure of target-date funds.
In his address, Mr. Obama's only retirement-related reference was that the freeze on federal spending he proposed for 2011 would not affect Social Security.
James Klein, president of the American Benefits Council, said in a telephone interview that the council hasn't seen the details of the retirement proposal but generally supports the auto-enrollment initiative.
“The details are very important, and we expect to work with the administration and Congress to make sure these ideas are put forward in a way that works for both plan sponsors and individuals,” Mr. Klein said.
Roger Ferguson, president and CEO of TIAA-CREF, released a statement also championing plans for automatic enrollment and escalation of retirement savings.
“Research from McKinsey shows that the average American family will face a savings gap of $250,000 at the time of retirement,” Mr. Ferguson said in an e-mail. “Measures that help Americans build adequate savings, like automatic enrollment — included in the proposal — along with auto escalation of saving, and objective, non-commissioned retirement plan advice, are crucial to real retirement security.”
Mr. Klein said pension plan funding relief also should also be an essential component of the administration's jobs plan.
“Historically low interest rates, the dramatic drop in the market and Pension Protection Act funding rules are requiring companies to infuse (pension) plans with huge amounts of money,” he said.
The funding requirements of the Pension Protection Act are impeding the ability of companies to maintain existing jobs and invest in new ones, he said.
Mr. Klein said the ABC has submitted a number of proposals, including requiring strapped pension plans to pay just interest on the funding requirements for two years and spreading out the seven-year amortization period for full funding to 15 years.
In his State of the Union address, Mr. Obama called for increasing taxes on investment fund managers, oil companies and those making more than $250,000 a year, as well as assessing a fee on Wall Street banks that received federal bailout money. He provided no details on either proposal.
“I know Wall Street isn't keen on this idea, but if these firms can afford to hand out big bonuses again, they can afford a modest fee to pay back the taxpayers who rescued them in their time of need,” he said.
He said the country needs “serious financial reform” and that the country must “guard against the recklessness that nearly brought down our entire economy.”
Alan Glickstein, senior consultant at Towers Watson, similarly noted in an e-mail response to questions that defined benefit plans face “significant challenges” from contribution requirements over the next couple years.
“It is essential that Congress enact additional funding relief for those (plan) sponsors as they will otherwise be faced with some very difficult choices that could well impact the primary theme of the address — job creation,” he wrote. “This relief is simply a short-term deferment of the dramatically increased contribution requirements until we all have a better view of the true funded status of the plans as the markets and economy continue to stabilize.”