IRI: “Do No Harm” to Current Retirement Policy Retirement Security Policy Agenda 2016

Maintain Tax-Deferred Treatment for Retirement Savings

Congress should maintain the current tax treatment for retirement savings to help workers prepare for a secure retirement. Research conducted by IRI overwhelmingly shows Americans would save less if tax deferral is reduced or eliminated. Americans today are more responsible than earlier generations for saving for retirement, and any policy that discourages savings will diminish retirement security.

Promote Retirement Planning Advice

Advance Policies that Encourage Planning with an Advisor

Studies have shown that savers planning for retirement with the help of financial professionals save more, make more prudent financial decisions, and resist the urge to make emotional investment decisions. Public policy should preserve a wide-array of retirement planning options so that savers can seek planning assistance from a financial advisor in a way that is aligned with their financial goals. 

Advance Common Sense Retirement Security Policies

Increase Workers’ Access to Lifetime Income in Retirement Plans

1. Clarify Employer Fiduciary Responsibility

Employers need clear rules about how to select lifetime income products in their retirement plans so they are confident in meeting their fiduciary responsibilities. Employers do not have the expertise to make the decisions required by current regulations. This can be addressed by allowing employers to select products provided by insurers that meet certain existing regulatory requirements, such as minimum capital and reserving standards.

2. Enable Annuity Portability

Congress should amend a technicality in the tax code to make a record keeping change a distributable event. This change will ensure workers do not lose the guarantees they have already paid for if their employer decides to change annuity products or service providers. Unfortunately, many employers simply choose not to offer lifetime income options to their workers to avoid this possibility.

3. Provide Multiple Employer Plans with Lifetime Income Options

Congress should continue to pursue legislation to expand access to multiple employer plans, or MEPs. There is bipartisan support in Congress to make MEPs available to more start-ups and small businesses. These businesses face financial and administrative challenges, as well as legal risks, in offering a retirement plan to employees. 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.

Help Americans to Better Prepare for a Secure Retirement

4. Require Lifetime Income Estimates on Workers’ Benefit Statements

To help workers save appropriately for retirement, they need to be aware of how much monthly income their nest egg will generate in retirement. The Department of Labor is working on a rule that would require this information to be included on benefit statements – via lifetime income estimates. The Lifetime Income Disclosure Act (LIDA), which was introduced during the last Congress, would also require the inclusion of these estimates on statements. Research by IRI found that more than 90 percent of workers want these estimates and find them helpful. Additionally, more than 75 percent of workers said they would increase their savings level after seeing these retirement income estimates.

5. Increase Auto-Enrollment and Auto-Escalation Default Rates

The Pension Protection Act allows employers to automatically enroll employees in 401(k) plans. Currently the majority of private-sector employers using automatic enrollment set the default rate at 3 percent of pay, the starting point for the auto-enrollment safe harbor. 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 auto-enrollment, but will need higher savings thresholds to reach their retirement savings goals. Starting the deferral rate at 6 percent at the time of automatic enrollment with automatic escalation up to 15 percent would greatly increase retirement savings in the United States. Legislation should be enacted to increase these thresholds.

6. Preserve Employer Choice on Retirement Plan Coverage Options

Congress and the Administration should continue exploring ways to make workplace retirement plans available to Americans whose employers do not currently offer one. In an effort to expand coverage, the Department of Labor (DOL) has issued a proposed rule to help states set up and administer retirement savings programs for non-governmental employees. IRI believes the DOL should focus on encouraging employers to make private-sector solutions available to their employees. However, if the DOL enacts rules to enable states to enter the retirement plans business, IRI believes the DOL should allow private-sector plans to include the same automatic features that would be permitted in state-run plans under the proposal.

7. 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. To that end, proposed legislation is moving through both Houses of Congress to encourage reporting of suspected abuse by banks, credit unions, investment advisers, broker-dealers and insurance companies, and their employees. In addition, the North American Securities Administrators Association (NASAA) adopted a model law and regulation, and FINRA has proposed a rule to give broker-dealer and investment adviser firms and their employees the ability to help protect their clients from possible financial abuse. Most notably, the proposals would facilitate reporting to regulators and Adult Protective Services, as well as provide immunity for firms that delay disbursements when financial exploitation is suspected. IRI supports these proposals with certain modifications to ensure that firms and financial professionals can take steps to prevent financial exploitation of vulnerable investors.

8. Encourage Electronic Disclosure for Retirement Plans

Congress should permit electronic delivery to be the default option for providing required disclosures to plan participants as long as they can opt out. 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.

9. Update Required Minimum Distribution (RMD) Rules to Reflect Longer Lifespans

Legislation should be enacted to increase the RMD age from 70 and 1/2 to at least 75, and mortality tables should be updated to reflect longer life expectancies. The RMD age has been set in stone for more than 50 years. When it was set in 1962, life expectancies were considerably shorter than they are today. Today’s workers face an increased risk of outliving retirement assets as a result of longer lifespans. For a married couple age 65, there is a 60 percent chance of at least one spouse living to 90, and a 30 percent chance of at least one spouse living to 95.


IRI: Advance Initiatives to Promote Consumer Education and Choice

Promote Consumer Choice Regarding Lifetime Income Options

10. Adopt a Variable Annuity Summary Prospectus and Annual Update

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. There is widespread support among investors for a more consumer-friendly and shorter prospectus. An IRI study found 95 percent of investors would prefer a summary prospectus, and six out of every 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. The SEC’s regulatory agenda published in May 2015 indicated that a proposal to create a summary prospectus for variable annuities is scheduled to be released in April 2016. IRI maintains that all the work necessary to proceed with the rule proposal has been completed and urges the SEC to move forward with a proposal according to this timeline.

11. Implement the National Insurance Licensing Clearinghouse

With the passage of the National Association of Registered Agents and Brokers Reform Act (NARAB II) last year, focus is now on implementing 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 without the burden of dealing with multiple state insurance licensing processes – ensuring that 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 and no later than the statutory deadline.