Feds Look At Retirement Savings Options

By Linda Koco
InsuranceNewsNet

Federal regulators intend to add a “direct contribution function” to its myRA “starter savings” initiative later this year, Department of Treasury official Mark Iwry said at last week’s Retirement Industry Conference in Arlington, Va.

Created by executive memorandum in President Barack Obama’s 2014 State of the Union Address, the myRA program is now in the testing phase “to be sure everything is functioning properly,” Iwry said. The program’s goal is help those who currently do not have a retirement savings program at work to start saving for retirement through a simple, small-dollar payroll deduction plan from the federal government. It has only one investment, an electronic retirement savings bond, and savings max out at $15,000.

So far, the customer experience “seems to be fine,” and officials are looking to taking it out on a wider scale “soon,” Iwry said.

Along with this, he noted that government plans to add a function that will allow individuals such as self-employed persons to participate in the program. The individuals would do this by making direct contributions into a myRA (instead of through an employer’s payroll system).

His comments came during a panel discussion on the latest retirement-related developments from Washington. Iwry is senior advisor to the Secretary and Deputy Assistant Secretary for Retirement and Health in the U.S. Department of the Treasury. The conference was sponsored by LIMRA LOMA Secure Retirement Institute and the Society of Actuaries.

Iwry did not offer his perspectives on the new fiduciary proposal from the Department of Labor (DOL), other than to state that the proposal falls squarely under DOL’s jurisdiction and that Treasury will follow the guidance that DOL’s counsel provides.

He did, however, reflect on other issues related to retirement saving.  

Lifetime income

Within the next few months the Department of Labor (DOL) will move to the next stage on a project that will facilitate conversion of retirement plan accounts to lifetime income, Iwry told the audience.

Treasury Department officials are open to suggestions on what can be done to encourage lifetime income, and the problems it can solve within its powers, he said during the panel discussion.

Examples include guidance on stating the income equivalent of a 401(k) account balance in benefit statements, and a conversion of the balance into some lifetime income.

He said Treasury is glad that DOL is “starting down that road. We continue to nudge them to get that project done, and they’re telling us that they expect to do this within the next few months.”

RMD proposal

An Obama administration proposal involving required minimum distributions (RMDs) shows promise, he indicated. An RMD is the minimum amount that qualified plan participants must start withdrawing from their plans annually, starting at age 70½. The withdrawals are subject to income tax.

The administration has proposed to exempt from RMDs those individuals who have saved up no more than a certain amount — such as $100,000 or $200,000 — in all their qualified retirement plans and individual retirement accounts (IRAs0 combined.

“This proposal is likely to have legs,” Iwry said.

More than half the people who have a total $100,000 saved in such plans would benefit from the exemption, he said, adding that if the total were $200,000, an even larger percentage would be exempted.

The proposal has a “chance of moving” because “it makes so much sense,” he contended.

The existing RMD rules were meant to prevent seniors from using their qualified assets mainly for estate planning purposes, he explained. The goal, he added, is to “make sure the money is used for retirement security, not for bequests.”  So the RMD proposal would exempt those who aren’t doing estate planning anyway, he said.

The exemption would be “incredibly cheap,” Iwry added, noting that the cost estimate in terms of lost revenues would be less than $400 million over 10 years.  “We could do a lot of good for a lot of people who won’t have to worry about the rules at all, and at a minimum cost,” he said.

IRAs for new savers

About 30 states are working on some type of retirement savings program that would establish automatic IRAs for employers who do not have any retirement programs for workers, Iwry noted. The programs vary in slightly different ways, but he said they generally follow the administration’s own proposal for automatic IRAs.

The programs would auto-enroll workers into IRAs with contributions set at a fixed percent of pay (3 percent in the federal proposal). The workers have the right to opt out.

In the federal proposal, employers would not be allowed to match employee contributions. So, if an employer becomes interested in providing an employee match with the auto IRA plan, the employer would be nudged toward establishing a 401(k) program or at least a SIMPLE IRA plan, Iwry said.

The idea is to get employers interested in offering a retirement saving program for their employees, Iwry indicated.

Iwry said he believes that the increase in the number of states that are considering establishing their own auto IRA programs is a result of the federal proposal not being enacted.

Some people are concerned about the multitude of solutions and the inconsistencies that that could result from each state having its own plan, he allowed. “They want a uniform set of rules.”

If the state plans closely resemble the federal proposal, and if the federal proposal is enacted, he predicted that the state plans likely would be folded into the federal plan. But without the enactment of the federal proposal, “I think the state plans will proliferate.”

He did not predict which outcome he thinks would occur, but he did note that the federal plan does have bipartisan support.

QLACs

In comments on the new qualifying longevity annuity contracts (QLACs) created by Treasury Department regulations last year, Iwry noted that “you don’t have to call it a QLAC.” He said “we put the words together, but you don’t have to use the acronym.”

The idea is to set up a situation where retirement savers are not presented with an all-or-nothing choice, he said. It “keeps the annuity on the table” as an option within the 401(k) and IRA space — a longevity product “with relief on the RMDs.”

QLAC products are already coming out, he indicated, with a number designed for use in IRAs and some for use in 401(k)s.

InsuranceNewsNet Editor-at-Large Linda Koco, MBA, specializes in life insurance, annuities and income planning. Linda can be reached at linda.koco@innfeedback.com.

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Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at linda.koco@innfeedback.com.