2018 RETIREMENT SECURITY BLUEPRINT

Transcription

1 2018 RETIREMENT SECURITY BLUEPRINT 2018 Retirement Security Blueprint Americans face many challenges and obstacles in saving for retirement. In the past, many Americans relied on employer-based pension plans for retirement savings. Today, most Americans rely on other types of retirement savings plans such as 401(k) or Individual Retirement Accounts, which make individuals responsible for ensuring their own financial security during retirement. IRI s 2018 Retirement Security Blueprint includes common sense, bipartisan policies to help Americans achieve their retirement goals. IRI S 2018 BLUEPRINT WILL: 1. Maintain and enhance current tax treatment for retirement savings; 2. Expand opportunities to save for retirement by enhancing access and features of workplace retirement plans; 3. Increase access to lifetime income products in workplace retirement plans; 4. Preserve and improve access to professional financial guidance, education and information; and 5. Provide more resources to protect older Americans from financial exploitation. WHO IS IRI? The Insured Retirement Institute (IRI) is the leading association for the retirement income industry. IRI proudly leads a national consumer coalition of 40 organizations and is the only association that represents the entire supply chain of insured retirement strategies. IRI members are the major insurers, broker-dealers, distributors, asset managers, and 150,000 financial professionals. As a not-for-profit organization, IRI provides an objective forum for communication and education and advocates for the sustainable retirement strategies Americans need to help achieve a secure and dignified retirement. 1

2 Maintain And Enhance Current Tax Treatment For Retirement Savings 1. MAINTAIN TAX-DEFERRED TREATMENT FOR RETIREMENT SAVINGS The Tax Cuts and Jobs Act recognized the vital role tax deferred retirement savings plays in spurring America s economic growth and prosperity. By maintaining the tax-deferred treatment of retirement savings, Congress preserved the tools necessary to help Americans save for their retirement during their working years. Research conducted by IRI shows Americans would save less if tax deferral is reduced or eliminated. Congress should continue to promote the use of tax deferral for retirement savings to encourage more Americans to prepare and save for a secure retirement. 2. PROTECT THE CURRENT STRUCTURE AND DIVERSITY OF WORKPLACE RETIREMENT PLANS There are several types of workplace defined contribution retirement plans which consider the differences among workers in various employment sectors, such as the private, governmental, church, educational, and nonprofit sectors. The most prominent are 401(k), 403(b) and 457(b) plans. Proposals to consolidate these types of plans were considered for inclusion in the Tax Cuts and Jobs Act for purposes of simplification and consolidation. The final legislation maintained the distinct types and structures of retirement plans which were created to address the needs of distinct types of workers. Congress should continue to protect and maintain the current structure and diversity of workplace retirement plans. 3. PROVIDE FAVORABLE TAX TREATMENT FOR GUARANTEED LIFETIME INCOME IN RETIREMENT Distributions and withdrawals from guaranteed lifetime income products like annuities are currently taxed as ordinary income. However, these products provide significant social and economic benefits. By helping older Americans avoid outliving their assets, annuities reduce pressure on Social Security and similar programs. Congress should therefore create tax incentives such as a lower tax rate or an exclusion from taxation to encourage greater use of guaranteed lifetime income products. Expand Opportunities To Save For Retirement 1. REQUIRE EMPLOYERS TO OFFER RETIREMENT PLANS FOR WORKERS Most Americans are not saving enough for retirement because they do not have access to employment-based retirement savings plans. In fact, recent research has shown only 40 percent of full-time workers at small and medium-sized businesses have access to employment based 401(k) plans. To expand access for more Americans to have an opportunity to increase their savings for retirement, Congress should enact legislation such as the Automatic Retirement Plan Act of This bill would generally require all but the smallest employers to maintain a 401(k) plan and employees would be automatically enrolled (with the ability to opt out). It 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. 2

3 2. ENABLE ALL SMALL BUSINESSES TO USE MULTIPLE EMPLOYER PLANS FOR THE BENEFIT OF THEIR WORKERS Small businesses face financial and administrative challenges, as well as legal risks, when offering a retirement plan to employees. As a result, many do not offer a retirement savings plan for their employees. Allowing small businesses to band together to achieve economies of scale and to delegate to a professional plan fiduciary responsibility for sponsoring the plan would facilitate their offering a retirement plan and would expand access to a workplace plan for more workers. This can be achieved by removing the restrictions on the types of employers that can band together in a Multiple Employer Plan (open MEPs), and by protecting employers who participate in a MEP and their employees from any negative consequences caused by the acts or omissions of other employers (the one bad apple rule ). Congress should enact legislation to expand access to MEPs, such as the provisions which have been included in the Retirement Enhancement and Savings Act of 2016, the Automatic Retirement Plan Act of 2017, the Retirement Security Act of 2017, Retirement Security for American Workers Act and the Small Businesses Add Value for Employees Act (SAVE) of In addition, 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 participating employees. 3. INCREASE THE AUTO-ENROLLMENT AND AUTO-ESCALATION DEFAULT RATES Studies have shown that automatic enrollment is extremely successful in getting more people to save for retirement with participation rates at least 10 percentage points higher in plans with automatic enrollment (77%) than those without it (67%). Under current law, employers can automatically enroll employees in 401(k) plans and most private-sector employers set the default rate at 3 percent of pay. This is too low for adequate retirement savings. Research by EBRI has found that a 6 percent default savings rate would lead to significantly better retirement outcomes for workers without causing a marked increase in workers opting out of the plan. Workers across all income brackets are statistically more likely to participate when their employers have autoenrollment but will need higher savings thresholds to reach their retirement savings goals. Congress should increase the default deferral rate to 6 percent at the time of automatic enrollment and permit automatic escalation up to 15 percent. This proposal is part of several bills, including the Retirement Security Act of 2017, the Small Businesses Add Value for Employees Act (SAVE) of 2017, the Automatic Retirement Plan Act of 2017 and the Retirement Plan Simplification and Enhancement Act of ENHANCE THE START-UP CREDIT FOR SMALL EMPLOYERS RETIREMENT PLANS Under current law, small employers with up to 100 employees can receive an annual tax credit equal to 50% of the costs of starting a retirement plan, up to a maximum of $500 for three years. Unfortunately, this incentive is not having the desired impact. According to the Bureau of Labor Statistics, less than half of all workers at companies with fewer than 50 employees have access to an employer-sponsored retirement plan. Congress should therefore enact the Retirement Enhancement and Savings Act of 2016, the Small Businesses Add Value for Employees Act (SAVE) of 2017, the Automatic Retirement Plan Act of 2017, or similar legislation to make the start-up retirement credit available for the first five years and to increase the maximum credit to $5,000. 3

4 Increase Access To Lifetime Income Products 1. CLARIFY EMPLOYER FIDUCIARY RESPONSIBILITY FOR CHOOSING LIFETIME INCOME PRODUCTS Current regulations do not provide sufficient clarity about the steps employers must take to satisfy their fiduciary responsibilities if they want to make lifetime income products available to their employees. Employers should be permitted to give their employees access to lifetime income products provided by insurers that meet certain existing regulatory requirements enforced by state insurance regulators, such as capital and reserving standards. This can be achieved either through a Department of Labor rulemaking or Congressional enactment of legislation such as the Increasing Access to a Secure Retirement Act, the Small Businesses Add Value for Employees Act (SAVE) of 2017 and the Retirement Enhancement and Savings Act of ENABLE ANNUITY PORTABILITY Due to a technicality in the tax code, employees who invest in lifetime income options through an employment-based retirement plan would lose the guarantees associated with those investments if their employer changes recordkeepers. To avoid this result, many employers simply choose not to offer lifetime income options. Congress should enact the Retirement Plan Simplification and Enhancement Act of 2017 or the Retirement Enhancement and Savings Act of 2016, which include provisions to treat a recordkeeping change as a distributable event. This simple amendment will ensure workers are not harmed if their employer decides to make such changes. 3. REDUCE THE AGE REQUIREMENT FOR IN-SERVICE ROLLOVERS TO PURCHASE LIFETIME INCOME PRODUCTS Under Internal Revenue Service (IRS) rules, participants are required to wait until age 59 1/2 to purchase an annuity or other guaranteed lifetime income products. Congress should amend the Code to allow plan participants aged 50 and older to initiate special in-service rollover rules for the purchase of deferred income annuities. Allowing such purchases of deferred income annuities would help to facilitate greater access to lifetime income products for participants at an earlier age. 4. UPDATE REQUIRED MINIMUM DISTRIBUTION (RMD) RULES TO REFLECT LONGER LIFESPANS The Required Minimum Distribution (RMD) age was set in 1962 when life expectancies were considerably shorter than they are today. Workers today face an increased risk of outliving retirement assets because of longer lifespans. For a married couple age 66, there is a 66 percent chance of at least one spouse living to age 90, and 33 percent chance of at least one spouse living to 92. Congress should enact legislation such as the Retirement Plan Simplification and Enhancement Act of 2017 to increase the RMD age from 70 ½ to at least 75 and mortality tables should be updated to reflect longer life expectancies. 4

5 5. REFORM THE RULES GOVERNING THE USE OF QLACS Current Treasury Department regulations governing qualifying longevity annuity contracts (QLACs) imposed certain limits on the exemption from the minimum distribution rules until payments commence which have prevented QLACs from achieving their intended purpose in providing longevity protection. The regulations limit the premiums an individual can pay for a QLAC to the lesser of $125,000 or 25% of the individual s account balance under the plan or IRA. These limits were included in the regulation because the Treasury Department lacked the statutory authority to exempt more than 25% of any account. Congress should enact legislation, such as that contained in Section 203 of the Retirement Plan Simplification and Enhancement Act of 2017, to provide the statutory authority the Treasury Department requires to enhance QLACs by easing the administrative challenges associated with rolling over funds to purchase a QLAC and increase the size of the exemption from the required minimum distribution (RMD) rules. 6. ALLOW BROADER USE OF LIFETIME INCOME PRODUCTS AS DEFAULT INVESTMENT OPTIONS Under the Pension Protection Act of 2006 (PPA), the Department of Labor (DOL) was directed to adopt rules to allow capital appreciation and/or capital preservation products to qualify as Qualified Default Investment Alternatives (QDIAs). However, the DOL regulations require that the product be transferable every 90 days. As a result, employers cannot provide their workers with capital preservation lifetime income products, leaving workers without access to guaranteed lifetime income. This is inconsistent with Congress s intent. Congress should enact legislation directing the DOL to revise the QDIA regulations by removing the 90-day transferability requirement, so employers can include lifetime income products for their workers. Help Savers Make Decisions About Their Finances 1. ADOPT A CLEAR, CONSISTENT AND WORKABLE BEST INTEREST STANDARD OF CARE FOR FINANCIAL PROFESSIONALS For nearly a decade, Congress and regulators at the federal and state levels have been working to formulate appropriate standards of conduct for financial professionals who provide personalized advice about investments and/or insurance to retail consumers. The Department of Labor (DOL) fiduciary rule, which took effect in part last year, is under review by order of the President, while the Securities Exchange Commission (SEC) and the National Association of Insurance Commissioners (NAIC) are developing their own proposals to establish a best interest standard for financial professionals who provide investment advice. Moreover, Congress and several state legislatures and regulators are considering or have introduced their own proposals. IRI and its members have long supported the principle that financial professionals should be required to act in their clients best interest when providing personalized recommendations. To avoid the creation of duplicative or conflicting rules, IRI urges all regulatory bodies including the SEC, the NAIC, the DOL, the Financial Industry Regulatory Authority (FINRA) and the North American Securities Administrators Association (NASAA) to work constructively and collaboratively to develop a clear, consistent and workable best interest standard that will provide meaningful and effective consumer protections without depriving Americans of access to valuable financial products and services. 5

6 2. REQUIRE LIFETIME INCOME ESTIMATES ON WORKERS BENEFIT STATEMENTS To save appropriately for retirement, workers should understand how much monthly income their nest egg could generate in retirement. Research by IRI found that more than 90 percent of workers want retirement income estimates and would find them helpful. Additionally, more than 75 percent of workers said they would increase their savings level after seeing these estimates. Congress should enact the Lifetime Income Disclosure Act (LIDA), which would direct the Department of Labor to adopt a rule requiring the inclusion of lifetime income estimates on benefit statements. This provision was also included in the Small Businesses Add Value for Employees Act (SAVE) of 2017 and the Retirement Enhancement and Savings Act of ADOPT A VARIABLE ANNUITY SUMMARY PROSPECTUS A variable annuity summary prospectus would improve consumers understanding of their investment choices and reduce regulatory burdens by streamlining disclosures to facilitate better decision making regarding lifetime income options. There is widespread support among investors for a shorter, more consumer-friendly prospectus. An IRI study found that 95 percent of investors would prefer a summary prospectus and six out of 10 individuals said they would be more likely to talk to their financial advisor about, and consider, a variable annuity if they had access to a variable annuity summary prospectus. IRI urges the SEC to move forward expeditiously to promulgate a summary prospectus for variable annuities. 4. ENCOURAGE ELECTRONIC DISCLOSURE FOR RETIREMENT PLANS Encouraging the use of modern electronic communication would have a direct and beneficial impact on workers and beneficiaries. Participants of all ages and incomes increasingly prefer to access information online, allowing them to more easily act on that information. According to the Progressive Policy Institute, the volume of printed disclosure is intimidating to workers and the static nature of printed documents does not invite the interactive engagement consumers need to manage their retirement portfolios appropriately. Congress should enact legislation, such as the Receiving Electronic Statements to Improve Retiree Earnings (RETIRE) Act, to permit electronic delivery to be the default option for providing required disclosures to plan participants, with an option to receive paper if desired. 5. IMPLEMENT THE NATIONAL INSURANCE LICENSING CLEARINGHOUSE With the passage of the National Association of Registered Agents and Brokers Reform Act (NARAB II) in 2015, focus shifted towards implementation of the law. NARAB II establishes a one-stop federal licensing clearinghouse for financial professionals holding state insurance licenses in multiple states. Financial professionals who have passed background checks in their home state will be able to apply for NARAB membership, enabling them to sell guaranteed lifetime income products in other states and reduce the regulatory burden of dealing with multiple state insurance licensing processes, while ensuring clients have access to a full suite of lifetime income options. The law maintains important consumer protections, retains states authority to regulate the marketplace, and improves consumer choice. To realize the benefits of this law, IRI urges the President to appoint NARAB s board and allow NARAB operations to begin as soon as possible. 6

7 Provide More Resources to Protect Older Americans from Financial Exploitation 1. ENABLE FINANCIAL ADVISORS TO PROTECT THEIR CLIENTS FROM FINANCIAL ABUSE With an aging population, it is critical to have rules in place to protect older Americans and other vulnerable adults from financial exploitation. It is also critical to have laws in place to encourage the reporting of suspected abuse by banks, credit unions, investment advisers, broker-dealers and insurance companies, as well as their employees. Congress should work expeditiously to enact the Senior $afe Act of 2017, which has also been included in the Financial CHOICE Act, the Economic Growth, Regulatory Relief, and Consumer Protection Act, and the HOME Act, all of which will serve to protect millions of older Americans who suffer financial exploitation each year, costing retirees at least $2.9 billion per year. 2. INCREASE FEDERAL APPROPRIATIONS TO STATE ADULT PROTECTIVE AGENCIES State Adult Protective Services (APS) agencies serve a critical role in the effort to protect older Americans against financial fraud and exploitation. Unfortunately, APS offices across the country are badly underfunded, leaving them without sufficient staff or resources to fully investigate all reports of suspected financial abuse. While these agencies are primarily funded by their individual states, funds can also be obtained through a variety of federal programs such as the Social Services Block Grant program, the Prevention of Elder Abuse and Neglect program, the Elder Rights Support Activities program, and the State Grants to Enhance Adult Protective Services program. Congress should enact legislation to increase the amounts appropriated to support these and other similar federal programs to ensure that state APS agencies have the resources they need to investigate and prosecute suspected abuse and exploitation of the growing population of older Americans. 7