Expanding access to workplace retirement plans and increasing access to lifetime income options are two of the top priorities for the Insured Retirement Institute in 2016.
As the retirement industry prepares for President Barack Obama’s State of the Union Address on Jan. 12, the IRI released its own agenda for 2016.
Of greatest importance is the Department of Labor’s much-anticipated fiduciary rule, which is expected to be released this spring. In its Retirement Security Policy Agenda 2016, the IRI said that policymakers need to ensure that all Americans, especially those with small retirement account balances, will continue to have access to retirement planning services from financial professionals.
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“Based on its initial proposal, the Department of Labor’s fiduciary rule will significantly restrict consumers’ access to guaranteed lifetime income through their IRAs and prevent consumers from accessing retirement planning services through full-service brokerage accounts,” the IRI said. “Research shows that those who work with a financial professional have better savings habits and exhibit sounder retirement planning behaviors. Congress should advance bipartisan legislation to develop a best interest standard for financial professionals that also would preserve access to retirement advice and a wide array of lifetime income products.”
Cathy Weatherford, president and CEO of the IRI, said during a conference call on Monday that, “we believe that our work is to help millions of Americans achieve a much more dignified retirement through sustainable retirement solutions and getting them better prepared at earlier ages to have the type of savings that provides them with important retirement security.”
This mission is important because as recent research has found, most generations are not really prepared for retirement, including the ones closest to it: the baby boomers.
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In its 2015 research, the IRI found that only 27% of baby boomers are highly confident their savings will last through the entirety of their retirement years and four in 10 boomers continue to report that they still have not put any savings away for their retirement.
Only 29% of millennials say they have actively started planning for retirement and 60% say that planning for retirement “is so difficult they would rather plan a diet and stay on that diet than plan for retirement,” Weatherford says. “We think that is because younger folks have educational debt.”
Many were just getting out of school when the financial crisis hit and were unable to secure reliable employment. Many went back to school to get an advanced degree, accruing even more educational debt, she adds.
Generation X hasn’t fared much better with half of Gen Xers saying they haven’t tried to calculate how much they will need in retirement and 70% saying they have less than $150,000 saved up for retirement.
“We know these stats are troubling. They show that we still have retirement security challenges in America,” Weatherford says. That’s why she believes a bipartisan effort needs to be made to expand and provide greater opportunity and access for all Americans to save for retirement.
Americans need adequate financial education. They need access to financial advice and Congress needs to pass a bill that would require companies to include lifetime income estimates on their quarterly benefits statements, she says.
Defined benefit plan statements always included how much an employee’s monthly defined benefit was going to be so a person could then add it to their estimated Social Security check and figure out how much they would have to live on in retirement.
In defined contribution plans, like 401(k)s, companies only tell plan participants how much they have in total. Helping workers understand how much money they will have to live on per month in retirement can spur them into action, says Weatherford, adding that some employees may begin saving more once they are faced with real numbers.
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The IRI also believes that private-sector employers need to do more about getting workers enrolled in their 401(k) plan. It encourages them to use automatic enrollment to get employees into the retirement plan, but at a higher rate than is the norm: 6% or higher.
“Research by EBRI has found that a 6% default savings rate would lead to significantly better retirement outcomes for workers without causing a marked increase in workers opting out of the plan,” the IRI report stated. If companies pair auto enrollment with auto escalation, plan participants will reach the 15% savings threshold that most experts agree should be enough to get them through retirement.
The IRI would also like to see rules that promote consumer choice regarding lifetime income options, like variable annuities.
“A variable annuity summary prospectus and annual update would improve consumers’ understanding of their investment choices through more streamlined disclosures and facilitate better decision making regarding lifetime income options,” the report said.
The IRI also would like Congress to pursue legislation that would expand access to multiple employer plans to start-ups and small businesses.
“Allowing small businesses to band together to offer their employees a retirement plan greatly reduces the number of workers without access to a workplace plan. Given that lifetime income strategies greatly reduce the risk of outliving retirement savings, these plans should be required to make a lifetime income option available to their employees,” the IRI said.
Paula Aven Gladych is a freelance writer based in Denver.
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