While options were presented to improve things (see “Industry Groups Urge No Changes to Retirement Savings Tax Advantages”), the discussion quickly veered toward a debate on whether and how well—or poorly—the current system is working.
That said, listening to the witnesses,1 one might well have thought they were discussing completely different systems—from one that is striking a good balance between incentivizing employers and encouraging participants to one that is all about providing tax benefits for saving to those who don’t require such enticements; from one that is putting too much responsibility on individual savers to one that has managed to, on a voluntary basis, draw the support of roughly eight in 10 workers. One that has failed, and seems unlikely to ever deliver a real retirement income solution—or one that has the potential to make that a reality.
As always, the devil is in the details—and perhaps in the definitions underlying those details. As the Employee Benefit Research Institute’s (EBRI) Dr. Jack VanDerhei pointed out in testimony submitted for the hearing, “Unfortunately, the ‘success’ of these plans is sometimes measured by metrics that are not at all relevant to the potential for defined contribution plans to provide a significant portion of a worker’s pre‐retirement income.” Among those metrics, VanDerhei cited such things as the “average” 401(k) balance and what it would provide in retirement income (with no adjustment for the reality that many, if not most, of the participants in the denominator of that calculation are years, if not decades, away from retirement age), and even the focus on what the average balance is for workers nearing retirement age—but only applying that calculation to the 401(k) balance with the employee’s current employer.2
Judy Miller, Chief of Actuarial Issues/Director of Retirement Policy, American Society of Pension Professionals and Actuaries, outlined several “myths” in her testimony, including the notion that the current tax incentives are dramatically tilted toward upper-income workers,3 that those incentives cost the government money (there is a cost to the government’s deferral of taxation, of course, but the government does get its money eventually, albeit generally outside the government’s projection windows), and that only about half of working Americans have access to a workplace retirement plan. Miller noted the Bureau of Labor Statistics (BLS) found that 78% of all full-time civilian workers had access to retirement benefits at work, with 84% of those workers participating in these arrangements—a far cry from the “common wisdom” that too many in our industry still parrot.4
In fact, the devil in that particular statistic depends on whom you want to include as the “relevant” workforce—or perhaps the point you want to make.