The Insured Retirement Institute says though it’s pleased President Trump and Congress left the tax treatment of retirement plans alone as part of tax reform, there is much more to be done to enhance employees’ retirement security.
In its recently released 2018 Retirement Security Blueprint, the IRI calls on Congress to pass legislation that maintains and promotes the use of tax deferral for retirement savings, protects and preserves the different types of retirement plans, and creates tax incentives to encourage greater usage of guaranteed lifetime income products. It also asks Congress to pass legislation that expands opportunities for retirement savings, including requiring all but the smallest employers to automatically enroll employees in a workplace 401(k) plan and eliminating the barriers that discourage employers from offering these plans.
Only 40% of full-time workers have access to workplace 401(k) plans and most people are not saving enough for retirement because they don’t have access to a plan at work, says Lee Covington, senior vice president and chief counsel for the IRI. The Automatic Retirement Plan Act of 2017, sponsored by Rep. Richard Neal, D-MA, would have required all but the smallest employers to maintain a 401(k) plan and automatically enroll employees into the plan.
“[A 401(k) mandate] would also remove cumbersome legal and regulatory barriers which discourage employers from offering this benefit to their employees, while preserving employer choice and maintaining protections for employers and their employees,” says the IRI, a national consumer coalition of more than 30 organizations that represents the entire supply chain of insured retirement strategies.
Multiple employer retirement plans
Also on the IRI’s wish list is removing some of the restrictions surrounding who can form a multiple employer retirement plan and get rid of the one bad apple rule that forces a MEP to close down if one of its participant businesses doesn’t follow the rules.
The retirement industry, by and large, is a huge fan of multiple employer plans. Numerous pieces of legislation in the past year have included provisions that would make it easier for employers to be part of these retirement plans, including the Retirement Enhancement and Savings Act of 2016, the Automatic Retirement Plan Act of 2017 and the Retirement Security Act of 2017.
It is hard for many small business owners to offer a retirement plan to employees, retirement insiders contend. Many just don’t have the resources or manpower to do it successfully so they have opted not to offer one. But, by allowing diverse businesses to band together to offer plans that are managed by an outside fiduciary, more workers would gain access to retirement savings at work.
Currently, lifetime income products are taxed as ordinary income when money is withdrawn. The IRI would like to see Congress offer tax incentives, such as a lower tax rate or an exclusion from taxation, to encourage more people to use them. The group says that annuities help older Americans save for retirement and reduce pressure on Social Security and similar programs.
Consistent best interest policies
The retirement industry has talked nonstop in the past few years about best interest rules. The Department of Labor’s fiduciary rule touched on who is and isn't a fiduciary and who should be acting in the best interest of their clients. The IRI would like federal and state legislators and regulators to work together to come up with a best interest policy that works for everyone. Right now, numerous agencies are working on their own best interest standard and the IRI is worried that the various efforts will not be compatible with each other.
Lifetime income legislation
The organization would also like to see Congress enact legislation that would make annuities portable from job to job, would reduce the age requirement for in-service rollovers to purchase lifetime income products, would update required minimum distribution rules to reflect longer lifespans and would have the Department of Labor change qualified default investment alternative rules to allow broader use of lifetime income products as default investment options.
Enacting these policies is vital, Covington says, because “the dream of a secure retirement is slipping away from many people.”
The organization also is calling on Congress to require companies to put lifetime income estimates on their employees’ retirement benefits statements and allow companies to send participants electronic disclosures instead of paper disclosures. It believes that people would start saving more for retirement if they knew how far their current retirement account balance would go in retirement.
The IRI would like Congress to put more resources in place to protect older Americans. One suggestion is to allow financial advisers to report suspected financial abuse and protect their clients from suspected financial exploitation and to increase the amount of money appropriated to support underfunded federal programs that support state Adult Protective Service agencies.
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