By Lisa Gillespie
Benefits managers working 10 years ago may remember two politicians who crossed the aisle to create retirement plan design policy that featured both Republican and Democrat ideology: Rob Portman (R-Ohio) and Ben Cardin (D-Md.). The duo trumpeted features such as auto-enrollment and the Comprehensive Retirement Security and Pension Reform Act, signed into law under the Economic Growth Tax Relief and Reconciliation Act in 2001, which set higher contribution limits, simplified discrimination tests, a tax credit for low-income savers and incentives for small-business retirement programs. Portman and Cardin have joined forces yet again to set policy designed to meet today's retirement challenges.
Amid current proposals to incorporate lifetime income options into defined contribution plans and a threat to take away investors' existing tax incentives, Portman and Cardin were back together again last week at an event in Washington, D.C., along with several retirement industry experts to discuss what retirement will look like for Gen Y, Gen X and baby boomers.
"Coverage among workers and small business is still inadequate because of cost and liability issues. The notion isn't just to have an IRA, but to spread it out over lifetime," said Portman, who was a member of the infamous congressional "super committee" tasked last year with making difficult cuts to the federal budget. "The defined benefit world is eroding and we need to supplement it with retirement income."
Since 2000, 401(k) and other defined contribution plan participation has increased by 50%, despite "a period where many of our assets dropped from what seemed like a 401(k) to "201(k),'" Cardin said. In 2001, there was $11.7 trillion in retirement savings; in 2011 there was $17.9 trillion and 73% of Americans had access to a workplace plan.
Both Cardin and Portman spoke out against new proposed Department of Labor regulations that would broaden the definition of "fiduciary." Those hit the most would be small business attempting to offer a plan and low- to middle-income retirement plan participants.
"Some can't afford a formal investment advisor; we want to make sure they get it without triggering a fiduciary relationship," Portman said. With recent criticisms, the DOL has pulled back, but they've also simply said they've postponed it until January. Portman estimated it would cause seven million people to stop getting advice because financial advisors would stop offering it. "We would have restricted investment availability to those who need it the most."
When asked whether every American could be mandated to maintain a retirement savings account, Cardin referred to the upcoming decision by the Supreme Court on the health care reform individual mandate.
"I want to see the parameters [in] which Congress can operate," Cardin said. "It may not directly answer question, but we're looking at options that would have to wait not just on SCOTUS, but the partisan division that has to be amended. We're looking for balance between taking responsibility for the future and a climate where every American has an opportunity. We're not there yet."
William Chetney, executive vice president of retirement partners at LPL Financial, said that retirement policy is crucial to real life implications, especially when it comes to not only financial literacy, but advice.
"We throw around education and advice interchangeably but they're not so much," he said. For workers in an employer plan, sometimes there are more than 100 choices, Chetney noted. However, with little guidance, it can be difficult for employees to make sound financial choices. "If you look at the choices affluent people have, there are hundreds of thousands of advisers going after them. They meet with an individual investor and most conversations aren't really, "You should be in this new plan,' it's, "My kid is going to college and how should I be planning for that?'" He suggested financial advisors go into workplace lunchrooms and do monthly lunch & learn sessions, but with proposed fiduciary rules that ability may dissipate. "We have to evolve as an industry for employees to have financial literacy and advice the senators are talking about."