Defined contribution plan executives should pursue a “more robust” use of consumer finance behavior research lessons to help participants raise their retirement savings rates, the Treasury Department’s J. Mark Iwry said Tuesday.
Mr. Iwry, deputy assistant secretary for retirement and health policy, said plan design modifications such as changing auto-enrollment deferral rates can help DC plans without the need for new legislation or new regulation.
Mr. Iwry made his comments in a speech at the Plan Sponsor Council of America’s 67th annual national conference in Miami.
For example, he said, DC plans should consider starting the deferral rate for auto enrollment at 5% or 6% of a participant’s pay rather than 3% — the most common rate used now by DC plans.
When the Treasury Department issued a rule in 1998 on auto enrollment with 3% as an example, “we didn’t think 3% was ideal,” Mr. Iwry said. The department used this example because it was concerned about “ideological blowback” he said, and sponsors’ willingness to offer auto enrollment.
Another suggestion, he said, is to auto-enroll all employees — not just new ones. There are ways to encourage existing employees to support auto enrollment gradually. “See what your employee relations traffic will bear,” Mr. Iwry told conference attendees.
Mr. Iwry also said DC plans can establish rules so the combination of auto features is not cut off at an artificial number, such as 6% of pay or 10% of pay. “It’s up to the individual,” he said. “Let them step off the escalator when they feel that’s enough for them.”
These and other suggestions reflect that DC plans are really “undefined contribution” plans, Mr. Iwry said. The DC plan is affected by many unknowns, such as how much a participant will contribute and how often. In addition, there is the question of the impact of a corporate match that depends on the level of an employee’s contribution, Mr. Iwry said.
Mr. Iwry also said the Treasury Department will soon issue regulations on cash balance/hybrid plans and will issue guidance on lifetime income options in retirement plans. He offered no details and no timetable.
