July 19, 2018

US Chamber of Commerce “Raising Retirement”

Keynote

Rep. Mike Kelly (R-Pa.)

In his remarks, Kelly addressed the “staggering” $4.3 trillion retirement savings deficit in America and the actions that can be taken by Congress and the private sector to address it. Kelly discussed at length his bill, H.R. 5282, the Retirement Enhancement and Savings Act (RESA), which he described as an effort to “change the dynamics” of retirement savings and make it easier for workers to save for their futures. Kelly said there is a need to incentivize and make it easy for employers, especially small businesses, to offer retirement plans, and also acknowledged there is much work to be done in addressing auto-enrollment, portability, and leakage issues in the retirement space.

Keynote

The Honorable Preston Rutledge, Assistant Secretary of Labor, Employee Benefits Security Administration (EBSA)

In his remarks, Rutledge addressed missing participants and efforts underway to address the issue both within the Department of Labor (DOL) and by the financial services industry. Rutledge noted that an effort began in the Philadelphia EBSA office to seek out terminated, vested plan participants who were not in pay status. This led to the discovery of many plans with participants unaware they had an account balance with their previous employer or were not aware they should be applying for benefits. Preston explained how EBSA worked to find a number of those missing participants, by sending letters to the addresses on file, using basic public search tools, and examining other benefit documents, such as health plans, group life insurance, and others for correct contact information, or for that of a designated beneficiary. Rutledge noted there are a number of best practices for missing participants, including the Employee Retirement Income Security Act (ERISA) Advisory Committee 2013 Report and the Pension Benefit Guaranty Corporation (PBGC) Report.

Rutledge advised plan sponsors should keep an eye out for red flags, such as annual notices and disclosures being returned as undeliverable, and being aware of the threat of people falling through the cracks during mergers and acquisitions. Rutledge said there is broad consensus that this issue needs to be addressed, and EBSA is therefore working on guidance to help fiduciaries understand their responsibilities to missing participants.

Panel 1: Raising Small Business Plans

  • Paula Calimafde, Partner, Paley Rothman and Chair, Small Business Council of America
  • Jeanne de Cervens, Vice President, Federal Government Affairs, Transamerica
  • Paul Davidson, Director, Human Resource Services, PayChex, Inc.
  • Moderator: Tom Sullivan, Vice President, Small Business Policy, U.S. Chamber of Commerce

The panel addressed several issues facing small businesses in creating a retirement plan for their employees. Asked how large and small businesses differ when starting a retirement plan, Calimafde said that once small businesses begin to make a profit, many have to be “sold” on the idea of setting up a retirement plan for their employees, and explained the myriad advantages. Calimafde noted that many small business owners are put off by high costs, administrative duties like distributing notices, and fear of being audited by the Internal Revenue Service (IRS) or DOL. Asked what issues small businesses face once they have established a plan, de Cervens referenced the same concerns: cost, administrative complexity, and legal liability, adding that multiple employer plans (MEPs) address many of these concerns. de Cervens continued that MEPs allow small businesses to set up a plan together, spread the cost among all employers, and hand over the administrative and fiduciary duties to a professional. de Cervens added that H.R. 5282 could help expand the use of MEPs by removing the current requirement that the businesses involved in a MEP share a “common interest.” Davidson added that while MEPs can help improve access and coverage, to truly lower costs the system needs to do away with individual testing.

Calimafde also addressed stretch individual retirement accounts (IRAs), stating that there is a misconception that benefits can continually pass down through generations, clarifying that benefits can only be passed down to one beneficiary after a spouse. Calimafde warned that changing stretch IRAs could shift retirement savings strategies, explaining that currently there is no way to “over save” in your retirement plan, because you can pass the excess down to a beneficiary. If that option is limited, she said, financial professionals may have to advise clients that they have saved enough after a certain threshold, and recommend other savings vehicles, which could cause a “severe curtailment” in retirement plans.

de Cervens said that the role of small employers in the retirement discussion is very important, particularly due to the growth in small business ownership following the financial crisis. She added that increasing small employer retirement plans could do a lot to increase coverage, as individuals with access to workplace retirement plans are much more likely to save than those without access. She noted that workplace plans have the added benefits of auto-enrollment, investor education, fiduciary oversight, and institutional pricing of funds, all “important reasons” to improve the process for small business owners.

Panel 2: Raising Portability

  • Evan Avila, Women’s Institute for a Secure Retirement 2018 iOme Challenge Winner
  • Dave Gray, Head of Retirement Products and Solutions, Fidelity Investments
  • Spencer Williams, Founder, President & CEO, Retirement Clearinghouse
  • Moderator: Julie Stitzel, Managing Director, Policy and Strategic Initiatives, U.S. Chamber of Commerce Technology Engagement Center

Panelists discussed portability of retirement plans, the challenges of portability, and possible solutions. Stitzel said it is important to identify opportunities for improvement while preserving what is working in the current system, noting issues of portability are particularly important for gig economy workers, sole proprietors, and microbusinesses. Williams stated that while portability is statutorily embedded in the defined contribution system, in the real world it is “highly bifurcated.” He noted that although both individuals and financial service providers have a common interest in retaining assets in the system, the issue of leakage remains prevalent when people change jobs. Williams highlighted the rollover IRA as an example of a portable benefit that works “exceedingly well,” but stated that there needs to be more “auto portability” options to make it easier to move old accounts into new ones.

Gray discussed the current employer-based retirement system, saying it has been a “very successful” model to help individuals be better prepared for their financial future. Gray said there is an opportunity to help expand coverage through small businesses, adding that “commonsense” reforms could help gig economy workers, sole proprietors, and that modernizing the system is essential to ensure more workers have access to retirement saving plans.

Panelists also discussed the importance of a “culture shift” from a consumer mindset to a saver mindset, which would help preserve the money that is already in the system from being withdrawn. Panelists agreed that simplifying the system, including using MEPs to make it easier for small businesses to start plans, auto-enrollment and auto-escalation, will help address coverage gaps. Panelists also agreed that H.R. 5282 will help provide a federal framework for addressing coverage gaps.

Panel 3: Raising Other Benefits

  • Scott Astrada, Director of Federal Advocacy, Center for Responsible Lending
  • Phil Bongiorno, Executive Director, Home Care Association of America
  • Janet Boyd, Director of Government Relations and Legislative Counsel, The Dow Chemical Company
  • Joshua Dietch, Vice President and Group Manager, Retirement & Financial Education, T. Rowe Price Associates, Inc.
  • Marty McGuinness, Vice Presdient, Government Affairs, UNUM
  • Moderator: Aliya Wong, Executive Director, Retirement Policy, U.S. Chamber of Commerce

Panelists addressed a number of benefits that businesses can address, including disability insurance, home care costs, student loan assistance, and others that can help alleviate the burden on retirement planning. McGuinness noted that when a disability or other emergency occurs, the “first thing to go” is retirement planning as people address their immediate needs, so additional benefits like disability insurance can help cover costs while protecting an individual’s retirement savings. Bongiorno added that with 10,000 people turning 65 daily, home care needs for aging relatives will also be a large cost for families that could affect retirement savings. Bongiorno said that because most home care costs are paid out of pocket, the money spent to care for aging relatives is money that could be invested in retirement plans.

Astrada discussed the cost of student loans and other debt that prevent individuals from fully contributing to their retirement plans, as well as the importance of homeownership in building wealth. Astrada said employers should look for solutions to prevent employees from needing to take on small loans and “predatory debt,” including no interest advances and other solutions to help their employees avoid “bad debt” in the event of an emergency. Dietch also discussed the negative impacts of student debt on employees, and how it affects decisions about employment, homeownership, and family, and how financial education can provide “foundational elements” for employees to manage their budgets and plan for retirement.

Boyd discussed how companies can design a retirement plan with these additional financial concerns in mind, and how additional benefits and financial safeguards can help attract workers today, many of whom have student loan debt and other financial interests that play a role in their employment decisions.

Panelists agreed that retirement modernizations, like auto-enrollment and electronic delivery of fund statements, can help employers better inform their employees and address the coverage gap, as well as help employees optimize their plan.

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