Pooled employer plans, plan portability and automatic enrollment in employer retirement plans were cited as three ways to make it easier for Americans to save more money for retirement as the Senate Health, Education, Labor & Pensions Committee held a hearing on “Retirement Security: Building a Better Future” Thursday.
Lori Lucas, president of the Employee Benefit Research Institute, testified that the 2006 Pension Protection Act achieved great strides in improving the defined contribution retirement system. The act incentivized employers to “automate” their defined contribution plans so that the “default” is for workers to be enrolled in the plan, to save at higher levels over time, and to invest in diversified portfolios.
However, Lucas also pointed out there is opportunity to further improve the system by promoting greater access, reducing plan leakage, and supporting thoughtful post-retirement spending.
“We know that the biggest gap when it comes to access to workplace retirement plans lies with small businesses that don’t have the wherewithal or resources to offer traditional defined contribution plans. Solutions such as multiple employer plans and pooled employer plans may serve as appealing alternatives,” said Lucas.
“When it comes to stemming leakage, a clear area of focus is cashouts upon employment termination, along with improving the existing force-out safe harbor, and helping employees with emergency savings. Finally, as more and more private-sector workers rely solely on their defined contribution as their only workplace retirement savings plan, there is a need to sharpen their financial skills around debt, and find ways to help them spend down their retirement nest egg more confidently.”
'No Silver Bullet'
“There is no silver bullet to solve Americans’ retirement security challenges,” said Shai Akabas, director of economic policy with the Bipartisan Policy Center.
He called on Congress to relax fiduciary obligations for small businesses that want to establish retirement savings plans for their workers. He also recommended autoenrollment of workers into a company retirement plan and suggested that employers offer their workers an emergency savings plan as a way to prevent workers from taking hardship withdrawals from their retirement funds.
Deva Kyle, attorney with the law firm Bredhoff & Kaiser, has worked as a benefits counsel with 401(k) and related retirement plans. “Defined contribution plans are an important source of retirement income but right now they are insufficient to provide funds for most people,” she said.
Kyle recommended shoring up Social Security while providing workplace retirement savings plans that are portable as people move from one employer to another.
Nearly half of private-sector employees lack access to an employer-provided retirement savings plan, said Dave Gray, head of workplace retirement benefits at Fidelity Investments, the nation’s largest provider of workplace retirement savings plans.
Gray called for greater use of PEPs as a way of closing the coverage gap for workers employed by small businesses that don’t offer retirement plans.
He said Fidelity supports a number of bills under consideration in Congress that address the need for employers to help workers save for emergencies, tackle student debt and improve access to health savings accounts.
Susan Rupe is managing editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at [email protected]. Follow her on Twitter @INNsusan.
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