Washington Update: Understanding the Nuances What's on the Table and What's Next?

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Barbara Ross
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2 Washington Update: Understanding the Nuances What's on the Table and What's Next? Aliya Wong Executive Director, Retirement Policy U.S. Chamber of Commerce

3 Oh The Places Plans May Go... Congratulations! Today is OUR day. We re off to Great Places! We re off and away! 401(k)s are in place. And trillions of dollars are saved. So many people ready to retire If they can just find a way.

4 Overview You don't know where you're going if you don't know where you've been. The Obama Administration Where We are Now Looking Forward

5 Obama Administration Started Very Reactive Financial Recession Implementation of the Pension Protection Act of 2006 Defined Benefit Funding Reform PBGC Premium Increases

6 Obama Administration DB Funding Worker, Retiree, and Employer Recovery Act of 2008 ( WRERA ) Technical corrections Extension of funding transition rules Treasury Department issuance of limited funding relief for certain plans Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of Extended the amortization period for both single employer and multiemployer plans Moving Ahead for Progress in the 21 st Century Act (MAP-21) Limits the interest rate assumption to an amount that is within a range ("collar") based on interest rates over a certain period ("the lookback"). The lookback period is 25 years and the collar is 10%. The collar increases 5%/year through Highway and Transportation Funding Act of 2014 Extends the time period for the reduction of the collar increase so that the maximum collar (30%) is not reached until 2021.

7 Obama Administration PBGC Premiums Single Employer Plan Increases Deficit Reduction Act of 2005 Flat-rate increases from $19 to $30/participant and indexed to wages thereafter Moving Ahead for Progress in the 21st Century Act (MAP-21) Flat rate premium increases to $49/participant by 2014 Variable rate premium increases to $18/$1000 of underfunding $8.9 billion increase over 10 years Bipartisan Budget Act of 2013 (BBA) Flat rate premium increases in 2015 to $57/participant and in 2016 to $64/participant Variable rate premium increases for 2015 to approximately $19/$1000 of underfunding and for 2016 to approximately $24/$1000 of underfunding. $7.9 billion increase over 10 years

8 Obama Administration PBGC Premiums Single Employer Plan Trends Increases not tied to funding reform PBGC Pushing to Set its own premiums Included in FY2012 and FY2014 Administration s budget proposals For FY2014, $25 billion increase over 10 years

9 Obama Administration PBGC Premiums Multiemployer Plans Deficit Reduction Act of 2005 Increases the premium from $2.60 to $8/participant and indexes to wages thereafter Moving Ahead for Progress in the 21st Century Act" (MAP-21) Increases the premium to $12.00/participant Multiemployer Pension Reform Act of 2014 (MPRA) Increases the premium to $26/participant

10 Obama Administration - On-going Legislation Lifetime Income Disclosures Lifetime Income Disclosure Act (H.R.2317 and S.1317) Requires the quarterly pension benefit statement furnished to a participant under an individual account plan to include a lifetime income disclosure at least once during any 12- month period Automatic IRA Automatic IRA Act of 2015 (H.R.506 and S.245) Requires employers not maintaining qualifying retirement plans to make available to eligible employees a payroll deposit IRA arrangement which grants such employees the right to optout of participation Open Multiple Employer Plans Retirement Security Act of 2015 (H.R.557 and S.266) Allows employers to maintain a tax-exempt multiple employer pension benefit plan even if the employers sponsoring the plan share no common interest

Obama Administration - On-going Legislation Public plan funding Public Employee Pension Transparency Act (H.R.

noncompliant with specified reporting requirements public employee pension benefit plans Electronic delivery Receiving Electronic Statements To Improve

effective access to the document; (2) an annual paper notice is provided that describes the selection of the specific electronic means for the furnishing of

11 Obama Administration - On-going Legislation Public plan funding Public Employee Pension Transparency Act (H.R.1628 ) Denies tax benefits relating to bonds issued by a state or political subdivision during any period in which such state or political subdivision is noncompliant with specified reporting requirements public employee pension benefit plans Electronic delivery Receiving Electronic Statements To Improve Retiree Earnings Act (H.R.2656) Allows notices to be furnished in electronic form if: (1) the system for furnishing such a document is designed to result in effective access to the document; (2) an annual paper notice is provided that describes the selection of the specific electronic means for the furnishing of such document; and (3) the electronically-furnished document is prepared and furnished in an appropriate style and format and includes a notice that apprises the recipient of the significance of the document

12 Obama Administration New Issues New Issues Multiemployer Plan Reform Conflict of Interest Rule State Retirement Plans

13 Where We Are Now Generally Concern about gaps in retirement saving and coverage Desire to increase DB characteristics in DC plans

14 Where We Are Now Specifically Multiemployer plans Fiduciary/Conflict of Interest Rule State Retirement Plans

15 Where We Are Now Multi-employer Plan Reform June 2015 The PBGC and IRS issue guidance implementing the Multi-employer Pension Reform Act of 2014 PBGC - Plan partitions Interim final rule (RIN 1212-AB29) outlines the application process and notice requirements for partitions of eligible multiemployer plans IRS - Benefit suspensions Temporary (T.D. 9723; RIN 1545-BM73) and Proposed regulations (REG ; RIN 1545-BM66) the program requirements for benefit suspensions Revenue Procedure describes procedures for approval of a proposed suspension of benefits.

16 Where We Are Now Multi-employer Plan Reform Secretary of Treasury designated a Special Master for the Benefit Suspensions program - Kenneth Feinberg Public Hearings on September 11 First applications submitted at end of September

17 Where We Are Now Fiduciary/Conflict of Interest Rule - What s Changed Size of rule FINRA - Notice Providing guidance on the application of NASD Rules to information provided by a firm to participant-directed individual account plan participants pursuant to U.S. Department of Labor Rule 404a-5 under ERISA. Notice Providing guidance to firms on communications with the public concerning the fees associated with retail brokerage accounts and individual retirement accounts (IRA). Notice13-45 Reminding firms of their responsibilities when (1) recommending a rollover in an employer-sponsored retirement plan to an IRA or (2) marketing IRAs and associated services.

18 Where We Are Now Fiduciary/Conflict of Interest Rule - What s Changed Industry position White House support On Feb 23, 2015, President Obama spoke at AARP and directed the DOL to move forward on the rule

19 Where We Are Now Fiduciary Rule - What s Happening Rule re-proposed in April Initial comment period ended July 21 DOL Hearings August 10 through August 14 Second comment period ended September 24

20 Where We Are Now Fiduciary Rule - What s Happening Congressional Hearings Restricting Access to Financial Advice: Evaluating the Costs and Consequences for Working Families and Retirees: House Education and Workforce Committee - June 2015 Restricting Advice and Education: DOL s Unworkable Investment Proposal for American Families and Retirees: Subcommittee on Employment and Workplace Safety of the Senate HELP Committee July 2015 Preserving Retirement Security and Investment Choices for All Americans: Capital Markets and Government Sponsored Enterprises Oversight and Investigations Subcommittees of the House Financial Services Committee September 2015 House Committee on Ways and Means Subcommittee on Oversight Hearing on the Department of Labor s proposed fiduciary rule September 2015

21 Where We Are Now Fiduciary Rule - What s Happening Legislation H.R. 1090, the Retail Investor Protection Act (RIPA) Requires the Securities and Exchange Commission (SEC) to study whether it is necessary to establish a uniform standard of care for providing investment advice and, if so, to develop a rulemaking. Prohibits the DOL from moving forward on the fiduciary rule until 60 days after the SEC issues a final rule. The Secure Annuities for Employees (SAFE) Retirement Act of 2013 Changes jurisdiction for enforcement of fiduciary rules covering IRAs. FY2016 Labor, Health and Human Services, Education, and Related Agencies Appropriations bill Support a prohibition of funding for the DOL to finalize, implement, administer or enforce the proposed Fiduciary Rule.

22 Where We Are Now State Retirement Plans CA, IL, MA, OR, and WA have passed laws AZ, CO, CT, IN, KY, LA, ME, MD, MN, NE, NH, NJ, NY, ND, OH, UT, VT, VA, WV, and WI are considering laws

23 Where We Are Now State Retirement Plans California - S.B. 1234, the California Secure Choice Retirement Savings Trust Act signed into law on September 28, Will eventually require that all businesses with five or more employees that do not already offer a retirement plan enroll them in a new type of savings plan based on IRAs. Professionally managed by the California Public Employees' Retirement System or another contracted organization. Employees would be automatically enrolled in the plan and would contribute about three percent of their wages through payroll deduction, although they could opt out of the plan. A modest benefit would be guaranteed through underwriting by private insurers. The State has established the California Secure Choice Retirement Savings Investment Board and the California Secure Choice Retirement Savings Trust, as required by the statute. Reports are expected to be completed in late 2015.

24 Where We Are Now State Retirement Plans Illinois - SB 2758, the Illinois Secure Choice Savings Program - January 4, Establishes a payroll-deduction IRA for workers whose employers do not offer any other retirement savings vehicle. Requires businesses in existence for at least two years with 25 or more employees to automatically enroll their employees in the Secure Choice Savings Program unless they offer another retirement option to their workers. Default contribution level of three percent and default life-cycle investment fund. Assets are pooled into a single fund and managed by the Illinois Treasurer and a qualified board. Employees can choose to opt out of the program at any time. The law is to be implemented within 24 months unless enough funds are not made available for the project. The Board must also find that the program is self-sustaining, that it is eligible for favorable federal tax treatment, and that it is not subject to ERISA.

25 Where We Are Now State Retirement Plans Massachusetts - HR 3754, an Act Providing Retirement Options for Nonprofit Organizations - March Allows the State Treasurer to sponsor a retirement savings plan for workers at small non-profit organizations in the Commonwealth. Participation by the organizations is voluntary. The retirement plan would be a tax-qualified defined contribution arrangement with various investment options available to employees. Contributions could be made by workers, their employers, or both. Automatic six percent payroll deduction with an option for the employer to opt for a four percent initial automatic contribution with an escalation of up to 10 percent. The plan will fall under the jurisdiction of ERISA.

26 Where We Are Now State Retirement Plans Washington - SB 5826, the Washington State Small Business Marketplace Retirement Savings Bill - May 18, Establishes a small-business retirement plan marketplace in the state Department of Commerce. Participation in the marketplace is completely voluntary for both employers and employees, Participation is limited to self-employed, sole proprietors or employers with fewer than one hundred employees. The marketplace must include at least three types of plans: a SIMPLE IRA, a payrolldeduction IRA that does not allow employer contributions, and the myra. The financial services companies approved to participate in the marketplace must offer a minimum of two product options: a target-date or other similar fund, and a balanced fund. Although these plans are subject to ERISA, Washington State is not exposed to ERISA liability.

27 Where We Are Now State Retirement Plans Oregon - HB 2960/SB 615, Creating the Oregon Retirement Savings Board in the office of the State Treasurer July 13, The board would develop a defined contribution retirement plan for Oregon workers that would be pooled and professionally managed. Employers not providing a retirement savings plan are required to offer their employees the opportunity to contribute to the Oregon Retirement Savings Plan through payroll deduction. Automatic enrollment with a default contribution level. Before the plan can be established, the board must conduct a legal and market analysis to assess the feasibility of the plan and the applicability of ERISA. The plan cannot be created if the Board determines it would be subject to ERISA. Otherwise, the bill requires contributions to begin no later than June 16, The Board is required to report to the Legislative Assembly with the results of the market and legal analysis, potential cost to employers, timeline for implementation and other issues, including recommendations regarding ways to increase financial literacy, by December 31, 2016.

28 Looking Forward Multi-employer plans Rules should be finalized by the end of the year. Anticipation

29 Looking Forward Multi-employer Plans Possible Legislation Ed and Workforce Committee Hearing» The Subcommittee on Health, Employment, Labor, and Pensions of the House Education and Workforce Committee held a hearing entitled, Examining Reforms to Modernize the Multiemployer Pension System to discuss ways to further strengthen the multiemployer pension system. New plan designs Withdrawal liability PBGC premiums» The PBGC must report to Congress no later than June 1, 2016 as to whether the premium levels enacted are sufficient to meet the basic benefit guarantee obligations for the 10- and 20-year periods beginning in If the PBGC report concludes that premium levels are insufficient, the PBGC must propose a schedule of revised premiums.

30 Looking Forward Fiduciary Rule Reproposal Withdrawal Final Rule??? Litigation?

31 Looking Forward Retirement Legislation 21 bills have been introduced. Most of the concepts have bipartisan support. However, there are limited legislative days in this year. And next year is an election year so that generally covers "must do" legislation.

Looking Forward New Administration in 2017 Concerns with Social Security Trustees project depletion of the DI Trust Fund in 2016. Trustees project depletion of the OASI Trust Fund in 2034.

32 Looking Forward New Administration in 2017 Concerns with Social Security Trustees project depletion of the DI Trust Fund in Trustees project depletion of the OASI Trust Fund in Workforce Demographics Life expectancy in the US is 78.8 years and at age 65 it is 19.3 years 10,000 Baby Boomers turning 65 each day At age 65, a married couple needs $326,000 saved for health care costs (EBRI, 2014) The national median annual cost for long term care ranges from $44,000 to $91,250 (Genworth 2015 Cost of Care Survey)

33 Conclusions Generally Broadening definition of Retirement security to include overall financial well-being, health care costs, and longevity concerns Multiemployer Plan bailout or salvation? State retirement plans leading to a national "solution"

34 So Be you an employer, record-keeper, lawyer, or TPA We re off to Great Places! Today is our day! Retirement plans are waiting. So let s get on our way!

35 Questions Aliya Wong U.S. Chamber of Commerce

36 Washington Update: Understanding the Nuances What's on the Table and What's Next? Aliya Wong Executive Director, Retirement Policy U.S. Chamber of Commerce

Bank of America Merrill Lynch Legislative and Regulatory Brief

Bank of America Merrill Lynch Legislative and Regulatory Brief May 2015 baml.com/publicpolicyinsights DOL Regulatory Project Fiduciary re-proposal Update NOTE: The DOL is using significant resources on this project and as such, several other initiatives on the DOL