Defined contribution plan executives have many opportunities to encourage participants to save more for retirement without needing extra legislation or regulation. And even if they wanted more rules and laws, there’s little chance significant legislation or regulation affecting the retirement plans will appear in the near term.
This two-pronged theme was offered as part of the annual conference of the Chicago-based Plan Sponsor Council of America held Sept. 15-18 in Miami.
The do-it-yourself without Washington theme was articulated by a prominent regulator, J. Mark Iwry, deputy assistant secretary for retirement and health policy in the U.S. Department of the Treasury.
The theme of Washington not doing much was offered by Russell Sullivan, a Washington-based partner and senior adviser for public affairs at McGuireWoods Consulting. Mr. Sullivan knows how Washington works — and doesn’t work — having spent nine years as staff director of the Senate Finance Committee, a key committee for retirement security and health-care legislation.
In a Tuesday keynote speech, Mr. Iwry said executives can make plan design changes that encourage greater savings, such as raising the initial automatic-enrollment deferral rate to 5% or 6% of pay rather than the typical 3%.
Plans should consider auto-enrolling all employees — not just new workers, he said. And they should add an auto-escalation component, in which employees must choose to opt out after having been automatically placed in this program, he said.
DC executives should also adjust their auto-feature guidelines to accommodate participants willing to save more than a restricted limit of 6% or 10%, he said: “It’s up to the individual. Let them step off the escalator when they feel that’s enough for them.”
Mr. Iwry said plan executives should pay closer attention to findings of behavioral economics research, applying the findings to plan design, education and communication efforts. For example, if existing employees are reluctant to participate in auto enrollment, plan executives should take a gradual approach to encouraging them, he said.
Ask a hesitant employee if he or she would be willing to make a commitment to saving more next year, he added. Or plans could consider allowing participants to transfer unused sick-leave pay to retirement accounts rather than cashing out, he said.
While Mr. Iwry was telling DC plan executives to act, Mr. Sullivan was telling them there won’t be much action from Washington until after the November midterm election. Even then, it’s hard to predict, he said.
Although there’s a lack of trust between the Republican Party and President Barack Obama, “gridlock doesn’t mean that Washington is irrelevant,” Mr. Sullivan said in a speech Wednesday. Still, he added, “nothing of significance” affecting the retirement industry will be done this year.
Although one big political question is whether the Republicans can win a majority of seats in the Senate, a GOP victory won’t be big enough to overcome presidential vetoes. “Tax reform can’t happen without support of the president,” he said.
And, he added, citizens might not like what legislators define as tax reform because that could mean reduced tax advantages linked to contributions to retirement and health plans.
Mr. Sullivan pointed out, as have many representatives of retirement industry trade groups, that when Congress comes looking for money, retirement plans could be vulnerable in the name of tax reform. When Congress decides to overhaul an entire tax law, some changes might be based on policy while others may be based on raising money, he said.
One plan executive, speaking at the conference, suggested changes will be needed to the Employee Retirement Income Security Act, which just celebrated its 40th anniversary.
“While some say 40 is the new 30, ERISA hasn’t necessarily aged well in all respects,” said Annette Grabow, the outgoing chair of the PSCA board of directors, in a Tuesday speech to members. “Many would argue that it’s time for the legislative equivalent of some nips and tucks — maybe a full-on facelift.”
Ms. Grabow didn’t cite specific examples, but she exhorted members “to be vocal and engaged with lawmakers about where changes are needed and where compliance burdens are doing more to stifle rather than to protect.”
Also at the PSCA conference, members on Thursday elected Stephen W. McCaffrey as chairman of the PSCA board of directors for a one-year term, succeeding Ms. Grabow. Mr. McCaffrey is the Brooklyn, N.Y.-based senior counsel for National Grid USA Service Co. Inc. Ms. Grabow is the Charleston, S.C.-based retirement program manager for Sonepar USA.
And PSCA issued its first lifetime achievement award honoring people “who have made important contributions to the growth of the defined contribution industry,” said Robert Benish, executive director, in announcing the awards Tuesday to Karen Barnes, managing counsel for McDonald’s Corp., and David G. Booth, co-founder, co-CEO and chairman of Dimensional Fund Advisors.
“Her unique background combines the corporate plan sponsor perspective with legal expertise,” said the PSCA citation for Ms. Barnes, noting she has more than 25 years’ experience in employee benefits.
Mr. Booth, the PSCA citation said, “has spent more than 30 years helping translate compelling academic research into practical investment solutions for thousands of plan sponsors and millions of Americans.”