After 25 years as president of the Plan Sponsor Council of America, David Wray retired at the end of September. He sat down recently with EBN to discuss the challenges facing defined contribution plan sponsors today and what he sees as some of his greatest career successes. Look for the full interview coming in the December issue.
EBN: What have been some of the highlights of your tenure at PSCA?
Wray: One of the significant changes that PSCA facilitated was to get rid of the excess accumulation excise tax. When I came on board, the tax law said that if you had more than a certain amount of money in the plan, you had to pay a 10% excise tax. That was repealed. That was clearly a tax on appropriate savings behavior.
A second issue that was really important was that, back in the early nineties, there were a lot of conversations about how the states could tax retirement plan distributions. There was an attempt by very large states with very high tax regimens to attempt to impose a system where participants would have to determine the location of the accumulation in their final retirement accumulation and pay appropriate tax to the state at that time. Of course, this would have made the DC system nearly inoperable. The recordkeeping, the incredible complexity of filing tax forms — it would have negatively impacted the system. We facilitated the federal law that said these are federal programs and, as a result, the federal government could require that the state tax paid on distributions from these programs can only be levied by the state in which the participant lives at the time the distribution is made.
EBN: What role do employers and plan sponsors have in creating a sustainable retirement system and what role does the federal government play?
Wray: It’s a partnership. It’s been recognized as a partnership since its inception. The government’s responsibility is to provide incentives so people will use these programs and provide a regulatory structure that protects participants from really bad behavior. Plan sponsors have to take action to set these plans up, manage them and oversee them. You have this partnership that has worked extremely well.
EBN: What do you see as the biggest threat to the current retirement system — plan design, the economy, federal regulations, participant inertia?
Wray: The threat is real and it is the fact that, however we got here, we’re in a situation where federal expense exceeds federal revenue. You cannot continue this level of debt accumulation because at some point, servicing the debt will squeeze out payments for all the other services the government has to do. So the threat to the system is that when we go through the process of dealing with this [deficit] situation, the changes that are imposed onto the defined contribution system to help address this will damage the system fundamentally.
EBN: What kind of retirement plan system do you envision for your grandchildren?
Wray: My intent with them is to make them understand that the personal accumulation of wealth is the most secure approach they can take to providing financial independence in retirement and that relying on third party promises is not as good as having your own money. The good news for them, I hope, is that there will be a system in place from the very first day they start their employment and that setting aside modest amounts of money in diversified portfolios will, for them, generate significant amounts of personal wealth.
EBN: Any final thoughts?
Wray: The point I try to make with people is how phenomenal it is that the defined contribution system has continued to thrive through these last five years. It really is an amazing story and it’s not been told. It’s the one place people have continued to invest and save for the long term, which is enormously beneficial to our whole country.
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