Employers should have the ability to move away from their role as retirement plan sponsors and instead serve as facilitators to provide employees with access to plans administered by new entities, according to an initiative unveiled Friday by the American Academy of Actuaries.
Moving to third-party-administered plans would improve efficiency through economies of scale and promote portability for participants, while enabling employers to focus on their businesses.
Redefining the employer's role away from the traditional model as sponsor of retirement plans and relieving them of the administrative and financial complexity would open new ways to establish and sponsor plans under other entities, although a new set of regulations would be needed to enable such a program.
A better alignment of interests between employer and employee is one touchstone of a focus on four critical areas for recommendations to improve retirement income outcomes, according to the AAA's 23-page report on its initiative, “Retirement for the AGES: Building Enduring Retirement-Income Systems.”
The other focal points embrace recommendations for defining principles in:
- governance, including specifying responsibilities, reducing conflicts of interest and balancing interests of all stakeholders;
- efficiency, including lowering costs, improving transparency and maximizing return-and-risk trade-offs; and
- sustainability, including the withstanding of financial turmoil while providing an adequate level of income and providing for intergenerational equity.
The AAA plans to use the framework for evaluating both private- and public-sector retirement plans through objective scoring for insights on how well they meet retirement needs.
“What has been missing in the debate over America's retirement systems, and how to improve them, is a common framework for evaluating them,” said Thomas S. Terry, AAA president, who is also president of The Terry Group, a consulting actuarial firm, in a statement about the initiative. “Often retirement income systems are so complex that it's hard to judge whether they have been well-designed.”
The AAA plans to release on April 28 the first of a what it plans as ongoing scoring based on the principles, said David Mendes, assistant director of communications and public relations.
AAA leaders on Friday briefed congressional staffers on the initiative, Mr. Mendes said.
“Through a careful reconsideration of the rules surrounding employer-provided retirement plans, more individuals can attain secure and sufficient retirement incomes,” the report states.
The AAA seeks to promote its framework recommendations to policymakers to seek “the success and sustainability” of the U.S. retirement system, including its transformation from employer-sponsored defined benefit plans to 401(k) and other defined contribution programs, shifting responsibility of funding and investment risks to participants.
The “initiative focuses on principles for retirement plan design,” rather than addressing adequacy of retirement income and expanding coverage to more individuals, although the recommendations can guide improvements under these concepts, the report states.
The report was developed by the AAA’s pension practice council’s eight-member forward-thinking task force, chaired by Anne M. Button, senior actuary at the Department of Energy.
The focus of the AAA, a 17,500-member association, includes setting standards for the profession and advocacy on actuarial-related public-policy issues.