Much of what was in the Setting Every Community Up for Retirement Enhancement (SECURE) Act was, in my view, a medium-sized ball and/or something that non-dysfunctional agencies could have accomplished on their own. Examples of the latter include authorization of defined contribution (DC) open multiple employer plans (MEPs), the DC annuity fiduciary safe harbor, mandatory lifetime income disclosure, and closed group nondiscrimination relief.
More or less as an aside, it is ironic that—while former Employee Benefits Security Administration (EBSA) head Phyllis Borzi famously suggested that there are no longer enough “people of good will” in Congress capable of passing legislation necessary to make needed improvements to the Employee Retirement Income Security Act’s (ERISA)’s fiduciary rules—it took Congress to make the most obvious of these changes—open MEPs, the annuity fiduciary safe harbor, and mandatory lifetime income disclosure. The agencies, bogged down in legacy thinking and an institutional bias against change, were unable to act. I guess it depends on what your definition of “needed change” is.
That agency foot-dragging has got to change. So, as we review what is significant and what is not on the 2020 policy agenda, let’s hope that a now hopefully-less-dysfunctional group of agencies can make progress on some of these issues without having to grind them through the Congressional budget process.
Also—and obviously—2020 is an election year. With a very-divided Congress and what is likely to be a disruptive Presidential campaign, progress on as modest and obscure an issue as retirement policy seems like a long shot.
With all of that in mind, let’s consider some of the more important (in my humble opinion) things that need, or at least “ought,” in the relatively near term, to be done.
Covering the Uncovered
We need to understand this issue better. There is a consensus that “everyone” should be in an automatic savings vehicle, with an option to opt out of it. Our data on who is “uncovered” by these plans is vague—we hear different numbers. And, with the continued emergence and evolution of the gig economy, who is uncovered is constantly changing.
In this regard (see the discussion of student loan debt below), we need to consider that younger workers’ top financial and savings priorities may not be retirement. Rather, it may be starting a family, buying a house, educating their children. Or paying down their student loans. Our retirement policy needs to respect that—generally, I think a default-and-opt-out policy does so.
Frankly, I’m in the mandated-federal-auto-IRA camp. Or something like Congressman Richard Neal’s, D-Massachusetts, Automatic Retirement Plan Act proposal. I think that this approach is a simpler and less expensive solution than, e.g., SECURE’s new $5,000 small plan start-up credit, or for that matter the proposal by Senators Rob Portman, R-Ohio, and Ben Cardin, D-Maryland, to expand the Saver’s Credit.
We also need to face up to the fact that some American workers don’t make enough to save for retirement. Indeed, it’s generally believed that there is less poverty in old age than before old age. How we deal with this issue is not really a question of retirement policy—it is about social welfare more broadly. And I think it is foolish (and nearly nonsensical) to “try to get these workers to save for retirement.” They can barely make rent. We should be thinking about whether we need to improve or reform Social Security, especially with regard to individuals who for one reason or another don’t have a full career in the current Social Security system.
Bailing Out the Multiemployer System
The SECURE Act included a (somewhat unique) taxpayer bailout of the United Mine Workers pension plan. I personally think we should bail out the whole system, with the proviso that, at a minimum, it is held to much stricter funding rules in the future—rules that will assure that this doesn’t happen again.
There are different proposals for a solution in the House—the Butch Lewis Act—and the Senate—the proposal outlined November 20, 2019, by Senators Chuck Grassley, R-Iowa, and Lamar Alexander, R-Tennessee. The commonplace is, everyone agrees that something has to be done, and no one agrees on what.
It is ironic that a policy challenge that is very important to some critical 2020 swing states, e.g., Ohio and Pennsylvania, may be un-solvable in the current political context. To quote Zach Galifianakis, “Classic!”
Electronic Participant Communication
Hopefully, this very important issue will be handled via the Department of Labor’s current rulemaking project.
It’s my understanding that the White House had to get involved in prying a (in real life pretty ordinary) clearing house advisory opinion out of the DOL. And that the DOL staff is very proud of their efforts in audits getting benefits to missing participants—while not moving any regulation on what to do with missing participants in a non-terminated plan. And that the IRS is waffling on their position on forfeiture/restoration as one solution.
You know, we live in the 21st century. Pretty much every 401(k) participant has a Social Security Number. At least one reason employers are getting dinged on audit on this is that there is no clear, practical, technologically current guidance. I, for one, would be perfectly happy with a Swiss-style central clearinghouse. Or just give missing money to Social Security after, say, three years, using that money to buy the participant additional Social Security benefits. If we start covering more young, low-paid employees, we’re going to generate more small accounts that will get lost at some point. Can we please do something simple and practical about this?
Student Loan Repayment
Portman-Cardin includes a modest improvement over current rules—allowing a plan to treat a student loan repayment (subject to certain limits) as “match-able” pursuant to rules similar to those applicable to regular 401(k) employee contributions. But significant issues remain—critically there’s no proposal to count loan repayments in the ADP test.
There’s a deep problem here that we are not grappling with—and 401(k) student loan repayment policy presents an opportunity to do so.
Borrowing is dis-saving. If you borrow $1 and save $1, you have (net) saved nothing. It makes no sense to (massively) subsidize (via the Tax Code) retirement saving if we are not addressing the issue of borrowing.
A First Step Towards a Financial Wellness Policy
Moreover, focusing only on student debt is … kind of problematic. First, there’s a class issue—why is it that college students get this deal, but non-college educated students don’t? What is so special about student debt, other than that it happens to be a discrete and particularly large and acute version of a wider problem. Second, how does this work? What if a participant pays down college debt but runs up consumer debt—is our 401(k) matching contribution policy accomplishing anything?
I see “financial wellness” as addressing—in a more rigorous and fair way—the three main issues of public financial health: debt, savings, and insurance. The first two are obviously linked—if we actually care about retirement “wellness,” we have to begin—for some workers at least—with paying down debt.
But also: retirement policy has from the beginning focused on income. We know, however—intuitively and from the data—that some of the financial challenges of retirement are insurance issues—long-term care, longevity, health care and life’s random catastrophes. The most sensible solution to these challenges is often the pooling of risk. Thus, while there is still much work to do meeting retirement income challenges, we need to begin thinking about possible insurance-based solutions, for instance, for the health and nursing home care costs related to very-old-age dementia.
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There are many proposals I’ve left out. These are (in my humble opinion) the big ones. If we could just make some progress on one or two of these, 2020 will be a great year.
Michael Barry is president of O3 Plan Advisory Services LLC. He has 40 years’ experience in the benefits field, in law and consulting firms, and blogs regularly http://moneyvstime.com/ about retirement plan and policy issues.This feature is to provide general information only, does not constitute legal or tax advice, and cannot be used or substituted for legal or tax advice. Any opinions of the author do not necessarily reflect the stance of Institutional Shareholder Services or its affiliates.
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