Speaking at a press conference at ASPPA’s 401(k) SUMMIT in Orlando, Florida, Brian Graff, ASPPA’s Executive Director/CEO, said ASPPA wants to differentiate savings and security in the public’s eye because currently, provisions such as the proposed Lifetime Savings Account (LSA) and the Save for Family account proposed by the President’s Advisory Panel on Federal Tax Reform don’t offer incentives for long-term savings. Without emphasizing long-term savings, Graff suggests that individuals would not choose to save their money in accounts that restrict access to assets. This would most likely include business owners deciding not to offer a retirement plan because there would not be an advantage to doing so. This is a significant problem, because Graff said that studies had shown that lower income workers are 20 times more likely to save when given access to an employer-sponsored retirement plan.
Tackling the issue of pension reform, there are currently pension reform bills in both the House of Representatives and the Senate, he said (see Pension Protection Act Approved by the House and Senate OKs Compromise Version of Pension Reform Measure ), and the three tough issues that these bills address are: investment advice, cash balance plans, and basic funding rules, the first two of which Graff addressed at the press conference. The House and Senate bills each propose a version of investment advice regulation. In short, the House bill waives the prohibited transaction rules and the Senate bill mandates that if the advice is given by independent advisors, plan sponsors can be relieved of their fiduciary responsibility. Although in the past it seemed as if only one of these provisions would appear in the final bill, Graff suggested that they are not mutually exclusive, and that they could both remain in the combined bill.
When discussing cash balance plans, and hybrid plans in general, Graff explained there are differences between the House and Senate bills in addressing the legality of plans, both new plans and converted plans. “Hybrid plans are the hope for a future,” he commented. “We need clarification that these are legal.”
Sarah Simoneaux, President of ASPPA, explained that a new hybrid plan is being introduced in the pension bill, the DB(k), a concept first detailed by ASPPA and the Principal that combines the guaranteed benefits of a defined benefit plan and 401(k) employee savings in a single plan (see Bill Proposes The Principal and ASPPA DB(k) Plan Concept). This type of a plan will help small businesses because it will offer a higher limit of contributions and will also assist those over 50 in catching up their retirement savings, Simoneaux said, because it has a base DB-type contribution from the employer and then allows for DC-like contributions from the employee.
Another issue, besides the pension reform, is the need to make EGTRRA permanent, Graff said. That regulation includes provisions such as increased retirement plan saving limits, the Saver’s Credit, catch-up contributions and the Roth 401(k). Simoneaux added that the allowance of catch-up contributions have been used much more than expected and are especially helpful for people, generally women, who return to the workforce after taking time off to raise children. It allows these people to accumulate a significantly greater amount of savings in a short time, she commented, something that would disappear with EGTRRA.
“The sooner this is taken care of the better,” Graff said, because 2010, the year EGTRRA expires, is the same year that the Medicare trust fund goes into the negative. Additionally, the provisions are needed because the issue of certainty is vital, he explained; “[retirement] plans will be less attractive with unclear rules.”