May 16, 2018

House Committee on Education and the Workforce Subcommittee on Health, Employment, Labor, and Pensions “Enhancing Retirement Security: Examining Proposals to Simplify and Modernize Retirement Plan Administration”

Key Topics & Takeaways

  • Portability: Ranking Member Sablan (D-N.M.I.) asked how the bill will help workers moving from job to job, to which D’Aloia replied that it will allow workers to either take their balance and combine it with their new employer’s retirement plan or in an IRA. Iwry added that investing automatic rollovers into IRAs could be improved and stated that the Retirement Savings Lost and Found Act that Reps. Bonamici, Messer and Neal previously introduced does that.
  • E-Delivery: Full Committee Chair Foxx (R-N.C.) asked how e-delivery will improve access to information for plan sponsors and participants, or how it will help plan sponsors get in touch with “lost” participants. D’Aloia replied that companies are communicating with participants and plan sponsors more by electronic means, such as sending documents and receiving reports, leading to higher participation and contribution rates, as well as higher benefits. She continued that with an e-delivery disclosure, participants can click on links directly or access account calculators in ways that they cannot with paper disclosure.
  • Universal National Retirement Plan: Rep. Espaillat (D-N.Y.) asked what “big ticket items” Congress should focus on to increase retirement security, to which Iwry pivoted to Rep. Neal’s automatic IRA proposal that he said will take the state initiative to the federal level, leading to a universal national retirement system, and he stressed the need to take action on a federal level now. 

Witnesses

  • Tim Walsh, Senior Managing Director, Institutional Investment Solutions Distribution, TIAA
  • Krista D’Aloia, Vice President and Associate General Counsel, Fidelity Investments

Opening Statements

Chairman Tim Walberg (R-Mich.), Subcommittee on Health, Employment, Labor, and Pensions

In his opening statement, Walberg explained that the focus of the hearing is to find ways to simplify and modernize retirement plans to make it easier for employers to offer plans to their employees. He stressed the “desperate need” for retirement plan regulations to be updated due to them “beginning to show their age.” Walberg then introduced the four bipartisan proposals to be discussed:

  • H.R. 4604, the Increasing Access to a Secure Retirement Act of 2017, which will reduce compliance uncertainty faced by companies and clarify existing rules to provide a fiduciary safe harbor when choosing an annuity provider;
  • H.R. 4158, the Retirement Plan Modernization Act, which increases the automatic cash out limit for retirement plans from $5,000 to $7,600;
  • H.R. 854, the Retirement Security for American Workers Act, which would eliminate two burdensome requirements in multiple employer plans (MEPs); and
  • H.R. 4610, the Receiving Electronic Statements to Improve Retiree Earnings Act, which authorizes the electronic delivery (e-delivery) of retirement plan information to plan participants, beneficiaries or other individuals.

Ranking Member Gregorio Kilili Camacho Sablan (D-N.M.I.), Subcommittee on Health, Employment, Labor, and Pensions

Sablan stated his hope that the four bipartisan bills are marked up quickly, stressing the need to strengthen the retirement system. He also discussed each of the bills, explaining the difference between MEPs and multi-employer plans, how the bill to update safe harbor thresholds to which employers can transfer the account of a former employee to an individual retirement account (IRA) is “long overdue,” stressing that plan participants will be able to opt-out of e-delivery statements in favor of traditional paper statements, and how necessary it is to increase workers’ access to lifetime income options in retirement plans.

Testimony

Tim Walsh, Senior Managing Director, Institutional Investment Solutions Distribution, TIAA

In his testimony, Walsh focused mainly on annuities, explaining that they are the only private market solution that can offer guaranteed returns and guaranteed income to investors. He noted that only five percent of 401(k) retirement plans offer access to annuities, and that often 401(k) plan participants do not have access to products that will make retirement savings last through retirement. Regarding H.R. 4604, he explained that the changes are “critical” and “overdue,” adding that one of the areas of concerns for employers who want to offer annuities is the legal responsibilities of selecting an insurance company to provide annuity products. Walsh continued that the bill will allow employers to rely on state regulators and provide employers needed guidance. Regarding e-delivery, he stated that the bill will be a “significant step to bringing the retirement system into the 21st century” and added his support for the Retirement Enhancement and Savings Act of 2018. 

Krista D’Aloia, Vice President and Associate General Counsel, Fidelity Investments, on behalf of the American Benefits Council

In her testimony, D’Aloia explained that updating the cash out limit will lower costs and increase the efficiency of plan administration. She continued that younger workers will have multiple moves in their professional life, making it harder to track previous plan benefits, but that H.R. 4158 will reduce the chance of investors losing track of their accounts. D’Aloia then discussed e-delivery, stating that it will allow individuals to immediately act through the electronic documents, while also allowing individuals to opt-out and instead receive paper disclosures, adding that it will improve flexibility and employee engagement. She said that H.R. 854 will expand coverage of employer-sponsored plans through the use of MEPs, increasing Americans’ access to retirement plans at work.


  1. Mark Iwry, Nonresident Senior Fellow, Brookings Institution

In his testimony, Iwry voiced his support for the MEPs bill and explained that the Department of Labor’s (DOL’s) common bond requirement limits the ability for a group of small businesses to get together to form a retirement plan if there is not a common interest. He noted that the bill also eliminates the one bad apple rule. He continued that he has advocated for an annuity safe harbor for years and stressed the need for more lifetime income in the retirement system. Regarding e-delivery, he noted that while there may be multiple advantages to the switch from paper disclosures, he questions whether there are enough consumer protections in place for the bill to be ready for markup, arguing that there are not. Iwry then discussed the cash out limit and voiced his support for the bill but recommended Congress consider legislation that does more, such as the Retirement Savings Lost and Found Act that Reps. Suzanne Bonamici (D-Ore.), Luke Messer (R-Ind.) and Richard Neal (D-Mass.) have previously introduced that promotes additional portability.

Paul Schott Stevens, President and CEO, Investment Company Institute

In his testimony, Stevens discussed the current state of retirement in America, to include over $28.2 trillion in retirement accounts and over 80 percent of near retiree households having retirement accounts through pensions, defined contribution plans or IRAs, much more than what Americans had in 1975. He cited recent research from ICI and the Internal Revenue Service (IRS) that stated the median American worker is able to replace 103 percent of their expendable income through retirement and Social Security. Stevens also cited that the retirement plan coverage gap is not as large as many believe, with 77 percent of households having a retirement plan through themselves or their spouse. He explained that H.R. 854 is a “common sense solution” that will allow unrelated small businesses to join to create an open MEP without having a prior connection and eliminates the one bad apple rule. Stevens then voiced his support for H.R. 4610, citing research that 88 percent of households in 2016 used online banking and that the e-delivery of disclosures can increase client relationships while also retaining the option for traditional paper delivery.

Question & Answer

H.R. 4604, the Increasing Access to a Secure Retirement Act of 2017

Rep. Virginia Foxx (R-N.C.), Chair of the House Committee on Education and the Workforce, noted that the DOL released guidance attempting to provide a safe harbor for annuity providers but said that there is still uncertainty, though H.R. 4604 will resolve this confusion. Walsh agreed, adding that while the intent of the DOL’s safe harbor was “spot on,” it has been unworkable for plan sponsors and consultants.

Walberg asked why having access to lifetime income options like annuities is important to retirement security, to which Walsh replied that they reduce risk by locking in guaranteed income, provide more payouts, and increase flexibility through combining annuitization and systematic withdraws.

Rep. Lisa Blunt Rochester (D-Del.) asked why a legislative fix is needed to deal with the barriers to employees in offering annuities to their employees. Walsh replied that the bill updates the current law and makes it simpler and relies on state regulators. 

H.R. 4158, the Retirement Plan Modernization Act

Sablan asked how the bill will help workers moving from job to job, to which D’Aloia replied that it will allow workers to either take their balance and combine it with their new employer’s retirement plan or in an IRA. She continued that if plan participants do not respond, those accounts will be invested into conservative options like money markets until the participants takes control of the account. Iwry added that investing automatic rollovers into IRAs could be improved and stated that the Retirement Savings Lost and Found Act that Reps. Bonamici, Messer and Neal previously introduced does that.

Walberg noted that the bill will reduce plan administration costs and asked who will see those savings. D’Aloia replied that usually administration costs are passed on to participants, which leads to decreased retirement savings and fewer opportunities to grow assets.

Walberg then asked what risks there are to participants when they lose the tax qualified status, to which Stevens explained that if a plan loses qualification during the year, the balance must be included in gross income and taxes must be paid. 

H.R. 854, the Retirement Security for American Workers Act – MEPs

Foxx asked what safeguards the bill includes to ensure Employee Retirement Income Security Act (ERISA) fiduciary standards are adhered to. Stevens replied that employers will still have an ongoing fiduciary responsibility when it comes to selecting and overseeing the MEP provider, but that other fiduciary responsibilities are held by the MEP provider.

Rep. Rick Allen (R-Ga.) asked how the bill will provide administrative relief to small employers, to which Stevens replied that the MEP will allow multiple employers to join and seek a professional services provider who will then deal with documenting the plan, preparing a description of the summary plan, filing the annual Form 5500, and more tasks. When asked why providers are not participating in MEPs now, Stevens explained that the DOL’s interpretation is that there must be a commonality between employers to create the group plan, and the IRS’s one bad apple rule discourages participation as well.

H.R. 4610, the Receiving Electronic Statements to Improve Retiree Earnings Act – e-delivery

Foxx asked how e-delivery will improve access to information for plan sponsors and participants, or how it will help sponsors get in touch with “lost” participants. D’Aloia replied that companies are communicating with participants and plan sponsors more by electronic means, such as sending documents and receiving reports, leading to higher participation and contribution rates, as well as higher benefits. She continued that with an e-delivery disclosure, participants can click on links directly or access account calculators in ways that they cannot with paper disclosure. Walsh and Stevens agreed.

Rep. Joe Courtney (D-Conn.) asked Iwry to discuss more how consumer protections can be increased, to which Iwry explained that it is not yet clear if participants will be protected by an opt-out option and questioned how the choice of paper or e-delivery will work, or if there will be a combination available. He noted that the Federal Thrift Savings Plan (TSP) is an example of a paper document that is delivered annually that works, but that other disclosures would benefit from an online option. Iwry continued that an AARP study states that 75 percent of respondents prefer to receive paper disclosures, though he recognized that other studies cite the opposite. He recommended that the committee determine how the cost savings from electronic disclosures could be allocated in the future.

Access to Retirement Accounts
Rep. Phil Roe (R-Tenn.) stated that with 35 percent of Americans over 55 having no retirement savings, anything to encourage savings should be done at “lightspeed.”

Rep. Bobby Scott (D-Va.), Ranking Member of the House Committee on Education and the Workforce, noted that some states have created savings plans for employees who do not already have access to an employer-sponsored retirement plan, to which Iwry stated that the automatic IRA proposal has been adopted by many states. He continued that these small employers receive a tax credit for automatically enrolling their employees. Iwry explained that six states have moved forward with these retirement accounts because Congress has failed to pass a federal proposal, even though there has been strong endorsement of the idea.

Rep. Suzanne Bonamici (D-Ore.) discussed the state savings plan available to Oregonians without access to retirement plans through their employers, which has 834 employers registered and 35,313 employees enrolled as of May 9. Iwry replied that Oregon is an example of how automatic enrollment with an option to opt-out “can and will work.”

Rep. Adriano Espaillat (D-N.Y.) asked what “big ticket items,” aside from the proposals discussed today, Congress should focus on to increase retirement security., Iwry pivoted to Rep. Neal’s automatic IRA proposal that he said will take the state initiative to the federal level, leading to a universal national retirement system, and he stressed the need to take action on a federal level now.

For more information on this hearing, please click here.