On May 14, 2019, the Senate Finance Committee held a hearing titled “Challenges in the Retirement System.” The hearing focused on a variety of issues relating to retirement security, such as increasing workplace retirement plan coverage and participation and increasing participant savings. Financial industry executives, along with experts from state agencies and trade groups, offered their observations on pending legislation and other initiatives.
Comments sought on RESA
Finance Committee Chairman Chuck Grassley, R-IA, and Committee Ranking Member Ron Wyden, D-OR, called the hearing to generate additional support from retirement industry experts on the need to pass the Retirement Enhancement and Savings Act (RESA) and other proposals. RESA, which has been repeatedly introduced and debated over the last two Congresses, represents sweeping bipartisan legislation aimed at improving the private-sector retirement system. It is similar to the Setting Every Community up for Retirement Enhancement Act of 2019 (referred to as the SECURE Act), which was passed by the House in late May. Among many other items, the bills include provisions making it easier for small employers to join open multiple employer plans (open MEPs). It also adds a safe harbor for selecting lifetime income providers in defined contribution (DC) plans.
Lynn Dudley, senior vice president, global retirement and compensation policy, American Benefits Council, testified that the passage of RESA would send a very positive message about the employer-sponsored retirement system. In her assessment of RESA, she cited two key priorities — changes to nondiscrimination testing to help older, longer-service participants after a plan modification and the proposal to expand open MEPs. She also supports the linking of student debt to retirement matching dollars.
Senate retirement bill addresses student loans
The Retirement Security and Savings Act (RSSA), an expansive retirement bill reintroduced in the Senate the day prior to the hearing by Sen. Rob Portman, R-OH, and Sen. Ben Cardin, D-MD, would address the latter concern by including a provision allowing employers to contribute a 401(k) match in the amount of student loan payments made in lieu of retirement savings. Among many other items, RSSA would raise the current required minimum distribution (RMD) age for qualified retirement plans from 70-1/2 to 75, exempt accounts with less than $100,000 in savings from RMDs, raise the catch-up contribution limit from $6,000 to $10,000 for workers age 60 in safe harbor plans, expand the tax credit for starting a new 401(k) from $500 to $5,000 and allow more part-time workers to participate in company plans.
State initiatives and fintech solutions lauded
Joni Tibbetts, vice president of product management, retirement and income solutions, Principal Financial Group, testified that online and digital enrollment solutions created by the DC retirement plan industry have driven improved outcomes for participants. She expressed support for the broader removal of barriers to allow administrative features to promote automatic plan design and also observed for open MEPs to be successful, the administrative burden must be low for employers and employees.
Tobias Read, Oregon state treasurer, testified to the early success of the OregonSaves program which requires small businesses that don’t sponsor retirement plans to enroll workers in a state-sponsored Roth IRA platform. The program sets an automatic deferral of 5% of pay per year, plus an annual 1% auto-escalation until the retirement contribution reaches 10% of pay. Employees can choose to opt out. In related questions for Mr. Read, Sen. Mike Enzi, R-WY, and Sen. Sheldon Whitehouse, D-RI, floated the possibility of a federal IRA program.
Legislation can fill the gap left by declining private pensions
In testimony from Joan Ruff, board chair of the AARP, particular attention was given to the declining role of private pensions and how this makes passage of RESA and other pro-DC plan legislation even more pressing. She noted that payroll deduction is a powerful tool and offered statistics suggesting workers are 15 times more likely to save for retirement when a savings program is offered by their employer. Among other topics, she also called for improvements in federal policy regarding part-time workers who lack coverage, improving the savers tax credit and addressing the underfunding of union multi-employer pension plans. Sen. Sherrod Brown, D-OH, agreed that no discussion of retirement security is complete without considering how to protect collectively bargained pensions — he said a new subcommittee will take up multi-employer pension funding reforms. The Investment Company Institute submitted a statement for the hearing record observing that while the US retirement system is helping millions of Americans achieve a secure retirement and there are opportunities to build on its success and cover more workers, targeted changes building on the strengths and successes of the current national system would reduce cost and increase access.
As of this writing, the Senate is considering whether to adopt the SECURE Act as passed by the House or reconcile it with the Senate version of RESA into a single final bill for the President’s signature. We’ll keep you posted.
Investment Company Institute (ICI), “ICI submits statement for Senate Finance Committee hearing record,” Elena Barone Chism, May 29, 2019
PlanSponsor, “Retirement industry witnesses press senators for action on RESA,” John Manganaro, May 14, 2019 Pensions & Investments, “Experts agree with Senate on retirement security solutions at hearing,” Brian Croce, May 14, 2019 BenefitsPRO, “Senate Finance itching to move on RESA, other retirement bills,” Nick Thornton, May 14, 2019
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