07 Feb. 2014 | Comments (0)
On January 28, 2014, President Obama gave his State of the Union address. He included some provisions for improving retirement security for those who do not have access to retirement plans. Professor Jeffrey Brown provides us with a good perspective on the MyRA proposal. I agree with his perspective. Richard Shea also provided a very interesting perspective on why this proposal may be helpful to existing plan sponsors as well. More information from the Treasury can be found at http://www.treasurydirect.gov/readysavegrow/
There were many financial security system issues that the president did not address. Most are unlikely to be top priorities in the short term, but I feel they are important. My actuarial background has encouraged me to think about the long term and to focus on risk. Here is my wish list of some things that I would like to see the Congress, the regulators and the President address.
- 1. Remove barriers and offer safe harbors for continued work during retirement including rehire by former employers. Related policy issues include bona fide termination of employment, wage and hour rules, maybe age discrimination, and phased retirement. As an actuary, I am very aware of changing demographics and longer life spans, and feel that facilitating longer employment is very important.
- 2. Remove barriers to providing continued savings in DC plans during periods of long-term disability. Enable and encourage DC plans to provide what is the equivalent of a “waiver of premium” benefit in a life insurance policy. As an actuary, I am very focused on a range of risks. Disability is often overlooked.
- 3. Adjust retirement ages as longevity improves and regularly update retirement ages. Index both Social Security and private plan required normal retirement ages (ERISA) or at least increase them. Don’t forget to update disability benefits as retirement ages are adjusted.
4. Offer a menu of default distribution options to be available to defined contribution plans. A menu of default distribution options including lifetime income alternatives would encourage more support for regular income in retirement.
5.Support lifetime income and also enable use of defined contribution funds for risk protection. Change defined contribution regulatory structure so that 401(k) funds could be a retirement risk protection account, and after retirement, balances could be used to purchase a variety of risk protection options, either through the plan or through employer offerings on a cost-effective basis. Some of the choices should include lifetime income with survivor protection, with or without inflation protection, supplemental health insurance, and long-term care benefits.
- 6. Unify regulation of advice and expand reach of fiduciary requirements. Pay attention to addressing the needs of middle income Americans. Support development of new models.
7. Unify regulation or where not possible provide “road maps” to enable users to understand multiple regulations. Think about long term disability regulation as an example. Insurance contracts are regulated by state insurance departments and benefit plans by Federal agencies under ERISA. The Americans with Disabilities Act regulates discrimination in employment and the EEOC also enters the picture. The Social Security administration deals with both disability and retirement benefits. Some disability is connected to worker’s compensation. It is particularly important that regulations support each other and are not inconsistent where there are multiple agencies or where there is a mix of state and federal regulations.
- 8. Simplify/amend retirement plan regulatory structure to enable new plan design models that allow for more risk sharing. New plan design models have been adopted in the Netherlands and New Brunswick, Canada. These designs provide for a combination of risk pooling and risk sharing that provides for sustainable retirement plans that are expected to do a better job for both individuals and plan sponsors.
- 9. Support long-term and balanced planning through public education and safe harbors for employer sponsored education. Focus on longer-term thinking. Emphasize expected life spans and their variability. Emphasize importance of understanding multiple options and trade-offs. Balance messages about investments, leisure, and working in retirement with messages about risk, long life, and the need for retirement income.
10. Change the terminology about retirement ages. While it does not seem practical to get an entirely new term, it is suggested that the terms “normal” and “early” retirement are not helpful in 2013. Social Security would be a logical place to introduce such a change and start changing the “signals”.
This list reflects my personal views and it is what I would focus on if I could set the agenda. While I recognize that this is not of list of what is on anyone else’s agenda at the moment, I would like to encourage discussion of these items and get more of them on other people’s agendas.
What do you think?