Experts Share Testimony at Ways and Means Hearing
April 17, 2012 (PLANSPONSOR.com) - The House Committee on
Ways and Means heard testimony on tax-favored retirement accounts on Tuesday.
Several organizations spoke favorably about the retirement
“Employer-sponsored retirement savings plans are an
indispensable building block of our nation’s retirement system,” said Randolf
H. Hardock, managing partner at Davis & Harman LLP, who testified at the
hearing on behalf of the American Benefits Council.
plans, like those sponsored and administered by the Council’s members,
successfully assist tens of millions of families in accumulating retirement
savings, and will provide trillions of dollars in retirement income and a more
financially secure retirement,” Hardock said.
Jack VanDerhei, research director of the
Employee Benefit Research Institute (EBRI), spoke to the Committee about the
concept of measuring retirement security. He cited EBRI research that found
43.3% to 44.3% of Baby Boomers and Gen Xers in 2012 are projected to have
inadequate retirement income for basic retirement expenses plus uninsured
health care costs, a drop of 5% to 8% from the Institute’s 2003 analysis.
VanDerhei attributed the improvement to the increase in the number of employers
using automatic enrollment for their 401(k) plans.
C. John, senior research fellow for Retirement Security and Financial
Institutions at The Heritage Foundation and deputy director of the Retirement
Security Project (RSP), provided several suggestions to help Americans improve
their retirement savings.
automatic IRA is not the only path to expand retirement savings for workers, John
pointed out, but called it a good start. “Employer-sponsored retirement plans,
including 401(k)-type retirement savings accounts, are the best way for
individuals to build retirement security,” John said.
and Hardock both stated that automatic enrollment and automatic escalation are effective
ways to boost plan participation by making it easier to save. John noted the need
to extend the benefits of automatic
saving to a much wider section of the population by combining several key
elements of the current system: payroll deposit saving, automatic enrollment,
low-cost, diversified default investments and IRAs.
Judy A. Miller, director of retirement policy for the
American Society of Pension Professionals and Actuaries (ASPPA), cited data showing
workplace savings as the key to promoting retirement security. More than 70% of
workers earning $30,000 to $50,000 per year will participate in a plan at work,
Miller pointed out, while fewer than 5%
will save on their own through an IRA.
She used data from the Bureau of Labor Statistics showing
78% of all full-time workers with access to a workplace retirement plan, and 84%
of those workers participating.
told the Committee that retirement
savings tax expenditures should not be reduced or tinkered with to pay for
other initiatives, either inside or outside a tax reform process.
the bulk of the existing ‘tax expenditure’ for retirement plans is attributable
to the deferral of tax provided to already saved retirement assets, not to
future annual permitted contributions,” Hardock commented.
savings should not be taxed in order to finance more government spending,
deficit reduction or to offset other tax initiatives, including lower marginal
tax rates,” he added.
Social Security and 401(k) Statements
John told the Committee that people need better information to make good
decisions about how much they need to save for retirement. He suggested a
statement that includes 401(k) and IRA information on balances, as well as
Social Security benefit levels.
savings account providers should be encouraged to add estimates of the account
owner’s future Social Security benefits using information provided by the Social
Security Administration (SSA) together with the annuitized value of retirement
savings balances every year on either an annual statement in the case of IRAs
or on one 401(k) quarterly statement,” John said.
According to John the Bush Administration proposed streamlining
several types of retirement savings accounts into two accounts approximately 10
years ago: a retirement savings
account (RSA) and employer retirement savings accounts (ERSA). John believes
these ideas are worth revisiting with changes from the original proposal.
the ERSA a good idea, he said, “The original
proposal would have consolidated 401(k), thrift, 403(b), and governmental 457
plans as well as Salary Reduction Simplified Employee Pension Plans (SARSEPs)
and Savings Incentive Match Plan for Employees IRA (SIMPLE IRAs) into one
simple account, which could be sponsored by any employer.
“The existing structure is confusing to employees, most
employers, many tax professionals, and many financial services firms that don’t
specialize in the specific account in question. In addition, because each account
type has specific tax incentives and restrictions, it can be difficult to
consolidate differing types of accounts,” John said.
He added that a simplified plan structure should encourage more
employers to offer an ERSA to employees or to upgrade their automatic IRA to an
ERSA. “This would almost certainly include greater coverage by small
businesses. The ERSA would expand coverage, but would not eliminate the need
for an automatic IRA,” said John.
Miller disagreed, stating, “A proposal to combine all
defined contribution plans into a single type of plan might look like
simplification on paper, but in practice, combining 401(k), 403(b) and 457(b’s)
into a single type of plan would disrupt savings for employees of state and
local governments and other nonprofits.”
To read the entire testimony from the hearing, visit http://waysandmeans.house.gov/Calendar/EventSingle.aspx?EventID=289485.Tara Cantoreeditors@plansponsor.com
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