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Attorney James Delaplane
discussed a number of critical issues and recommendations for improvements to
the employer-sponsored retirement system in testimony before the U.S. Department
of Labor ERISA Advisory Council. Here are excerpts from his presentation:
Defined contribution plan
policy: "The 401(k) system today is not the bare-bones supplemental savings
system that came into being in the early 1980's. At least 95 percent of
employers make either matching or profit-sharing contributions into defined
contribution plans, and many design enhancements and policy improvements have
been adopted to improve retirement outcomes for participants," Delaplane said.
His testimony included Council recommendations for expanded fiduciary safe
harbors to assist sponsors in meeting their legal obligations and new incentives
for automatic enrollment and escalation features.
Defined benefit plans: "Recent
market and economic conditions have increased the funding challenges for defined
benefit plan sponsors but have also highlighted many advantages these plans
offer participants from a retirement income security perspective. We feel
strongly that policymakers must not give up on this important plan design,"
Delaplane said.
The Council has recommended a
number of short-term, temporary relief measures to remedy the unfortunate
confluence of the market downturn and the new funding regime instituted by the
Pension Protection Act of 2006, which has imposed unanticipated and extremely
large funding requirements on many defined benefit plan sponsors. At the same
time, the Council encourages permanent reform to help keep the defined benefit
plan design a vital and viable choice for employers into the future. Delaplane's
testimony relayed the Council's view that this reform should encompass
predictability in the funding rules, hybrid plan certainty and favorable
treatment for defined benefit plan accruals under nondiscrimination safe
harbors.
Encouraging workplace savings
arrangements: In addition to recommendations for reform of existing defined
contribution and defined benefit plan rules to encourage more adoption and
better utilization of these plans, Delaplane outlined Council recommendations
for new simplified retirement plan designs, new tax incentives for both
employers and individual savers, expansion of workplace IRAs, improved promotion
of retirement arrangements to small employers and expanded financial education
and literacy efforts.
Weaknesses
in Retirement Plan Operations
A retirement-plan adviser in
Georgia notes:
- Most retirement plans have issues with their
Investment Policy Statement or fail to follow it.
- The roles and responsibilities of the plan fiduciaries
are not documented in the IPS or acknowledged in writing.
- The IPS does not contain sufficient detail to define,
implement and monitor procedures for controlling and accounting for
expenses.
- Applicable Safe Harbor provisions related to
Department of Labor Regulation 404c are not met.
The Financial Services
Roundtable represents one hundred of the largest integrated financial services companies
providing banking, insurance, and investment products and services to the
American consumer.
It has recently offered
several specific recommendations for strengthening retirement security. For
example, regarding leakage, or pre-retirement withdrawals, from retirement
savings as a major challenge to retirement security the Roundtable recommends
allowing employers to automatically enroll employees that leave the company into
an IRA if the employee's balance is below $10,000.
Other Roundtable
recommendations include using tax incentives for small businesses to create
auto-enrollment plans, and allowing employers to set an employee's initial
contribution rate to their retirement plan at 3 percent or higher. |
The Investment Company
Institute presented the following views at a June 18 hearing held by the
Department of Labor and the Securities and Exchange Commission. These include:
PERA in Trouble
Following the loss of more
than $10 billion last year, Colorado's largest public employee retirement
system, PERA, can now meet only 51.8% of its obligations to retirees, a
development that could mean higher deductions from government workers' paychecks
and greater taxpayer subsidies. PERA now has just $29.5 billion in assets and
faces $27.5 billion in unfunded liabilities. The retirement system saw a 26%
loss on investments in 2008.
Career Partners International
has announced a new retirement coaching program called New Horizons. Designed as
a program that companies can offer to their eligible employees, New Horizons
will help prepare individuals for a successful retirement customized to meet
their personal needs. CPI offices across the United States and around the world
are participating in the training and coach certification process so that
organizations with far-flung offices and facilities can deliver a company-wide
retirement program to their employees.
Four in ten households headed
by people ages 60 to 69 had a mortgage in 2007 and, of those, one in two had
enough to pay down their mortgage. In other words, one in five households had a
mortgage and the resources to pay it down.
Rep. Susan A. Davis,
D-California, has introduced the Retirement Savings Transparency Act of 2009
that would require individual account plans which permit participants and
beneficiaries to direct the investment of assets in their individual accounts to
include in pension benefit statements appropriate points of comparison to
demonstrate relative performance of investment options under such plans.
Virginia Retirement System
The value of the Virginia
Retirement System declined about $12 billion, or 21%, in the first half of 2009.
The decline was slightly higher than the average of other state pension systems.
The system has 600,000 members from the state and local governments and public
schools.
Enhancing the Judge's Retirement
Rep. Dennis J. Kucinich,
D-Ohio, has introduced the Administrative Law Judges Retirement Act of 2009. It
would provide for enhanced retirement benefits for administrative law judges.
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