Harkin Plan Gets Many Thumbs Up

January 30, 2014 (PLANSPONSOR.com) – Approval for an auto-enrolled retirement plan at the federal level is near unanimous, but there may still be some bumps to iron out.

Advocacy groups and industry providers support a proposal by Senator Tom Harkin, D-Iowa, for a portable retirement plan. “The need for action has never been greater,” says Hank Kim, executive director and counsel of the National Conference on Public Employee Retirement Systems (NCPERS).

Pointing to the vast numbers of private sector workers without access to an employer-sponsored plan, Kim states that the majority of employees depend on defined contribution (DC) plans, which were designed originally as a supplement to traditional pension plans, not a replacement. “A crucial leg of the three-legged retirement stool—pensions, personal savings and Social Security—has all but disappeared,” Kim says.

Greg Burrows, senior vice president of retirement and investor services at Principal Financial Group, spoke approvingly of several reforms for 401(k) plans and other DC plans that can help improve retirement outcomes. “We support the provision that requires an illustration on participant statements that shows how savings translate into a lifetime stream of income in retirement,” Burrows says. “Converting an account balance into a lifetime income can be a powerful incentive to save.”

Karen Friedman, executive vice president and policy director for the Pension Rights Center, calls the proposal creative and innovative, and said it would expand pension coverage for millions of workers. She spoke approvingly of the USA Retirement Funds’ adoption of many of the best features of traditional pension plans.

“They are pooled and professionally invested, they lock the money in until retirement, and they pay out a stream of monthly payments that cannot be outlived,” Friedman notes. “Also, investment and life expectancy risks are shared by all participating workers and retirees, improving on 401(k) plans, where the risks are borne by each individual.

Room for Improvement?

At the same time, Friedman notes, “The bill could be strengthened by requiring employers to contribute to these funds. If the goal is to enable people to retire with adequate income, it is critical that both employers and employees contribute."

Judy Miller, director of retirement policy of the American Society of Pension Professionals and Actuaries (ASPPA), feels it may be misleading to think the act will affect only those employers without a plan. The summary mentions the need for employers who do offer a 401(k) plan to amend it, she points out.

Miller is concerned about potential costs for employers that do offer a defined contribution plan. “You’re going to force them to amend that plan in order not to have to come under this arrangement,” Miller told PLANADVISER. “That is very troubling. If that’s the case, then I don’t like it. If I’m wrong, great.”

Miller said she appreciates Harkin’s intention, but it is ASPPA’s position to support and assist those employers that already offer a retirement plan.

Harkin maintains that the plan is business-friendly, both from an administrative and a practical business standpoint. “Business thrives when customers can afford goods and services,” he said in a press conference, “while an aging customer base with limited means is bad for business.”

“Allowing millions of Americans to age into retirement without sufficient financial assets will put additional burdens on state and local government services and on our economy as a whole,” Kim says.

President Obama’s plan allows people to save small amounts of money, Harkin said. While he is in favor of saving, a savings vehicle should not be confused with a retirement plan.