Hardly a day passes when headlines and cable news programs tell us that partisan disagreements have gridlocked Congress.
But despite today’s highly-charged politics, Congress is advancing bipartisan and much-needed retirement security legislation. Not only would this demonstrate that Congress can work across the political divide on important issues, but it also would expand opportunities to improve the financial well-being of tens of millions of Americans.
{mosads}Action is needed because retirement income opportunities of previous generations are melting away. One in three Americans has less than $5,000 saved for retirement. Today, only about 17 percent of workers are covered by a traditional defined benefit pension where long-serving employees would receive an employer-provided monthly income stream long into retirement. Worse, 45 percent of Baby Boomers report zero retirement savings.
Workplace retirement plans – offered predominantly by medium and larger employers – are now largely defined contribution plans such as 401(k)s where employees contribute to retirement accounts with pre-tax dollars and some employers match portions of those contributions.
Many people will continue to rely on Social Security to provide the bulk of retirement income but the average couple’s benefit amounts to about $28,000 per year while the average retired couple spends $55,000 annually. Social Security does not offer a sustainable retirement income by itself.
With individuals now more responsible than ever before for ensuring their own financial security during retirement, it is critical that our laws empower savers with critical information to make financial decisions and ensure that retirement income delivered from accumulated assets can be protected and last.
Congress is responding to the nation’s retirement crisis with bipartisan solutions. The House is poised to vote on a comprehensive bill – the Setting Every Community Up for Retirement Enhancement (SECURE) Act, spearheaded by Reps. Richard Neal (D-Mass.), Ron Kind (D-Wis.), Kevin Brady (R-Texas) and Mike Kelly (R-Pa.). And Sens. Chuck Grassley (R-Iowa) and Ron Wyden (D-Ore.) have re-introduced a measure with similar provisions – the Retirement Enhancement and Savings Act (RESA).
Both measures would expand multi-employer retirement plans that allow small businesses to band together to achieve economies of scale and reduce liability barriers and disincentives to these plans. The measures also offer small businesses a tax credit up to $5,000 for three years toward the cost of starting a plan to incentivize adoption of workplace retirement plans.
Additional provisions would allow retirement plans to more seamlessly offer lifetime income products within employee retirement plans. These products can be structured to protect retiree income from market swings so that a sudden downturn does not result in a large loss of accumulated assets.
However, current regulations do not provide enough clarity to employers to satisfy their fiduciary responsibilities if they want to make lifetime income products like annuities available to their employees. Employers should be permitted to give their employees access to insurer-provided products that meet certain existing, stringent regulatory requirements enforced by state insurance regulators.
Both bills also would empower consumers by allowing retirement plan benefit statements to include a lifetime income disclosure. Research shows that illustrating how a retirement nest egg would translate into monthly payments throughout retirement encourages more saving.
Finally, the measures address a technicality in the tax code in which employees who invest in lifetime income options through an employment-based retirement plan can lose the guarantees associated with those investments if their employer changes recordkeepers. To avoid this result, many employers simply choose not to offer lifetime income options.
Retirement planning and readiness is a passion for me. I’ve spent my career helping others to understand the need to plan and save for retirement then to use strategies and products to protect those savings and ensure that it lasts a lifetime.
And I’ve watched my parents and in-laws navigate their retirement years facing the very real struggles that millions of others do – medical issues and the risk that they may outlive their retirement savings. We need to do more to help people to save and prepare. And that’s why my industry supports this legislation.
Our retirement crisis is real. But so are the solutions. Congress has taken solid first steps to address some of the issues hindering adequate access to employer-provided retirement plans. Many of these ideas have been considered and debated for a decade. We know these changes will help.
Last year, Congress came close to pushing this legislation across the goal line. Now, Congress needs to marshal the existing bipartisan support for retirement security legislation and the necessary will to enact it into law this year. We should not miss another opportunity.
Wayne Chopus is president and CEO Insured Retirement Institute (IRI).