Report Offers Proposals for Improving Retirement Security

The Bipartisan Policy Center’s Commission on Retirement Security and Personal Savings issued a report of a comprehensive package of bipartisan proposals to address key challenges to retirement security.

To improve access to workplace retirement savings plans, the commission recommends the creation of a new, streamlined option called Retirement Security Plans that would allow small employers to transfer most responsibilities for operating a retirement savings plan to a third-party expert, while still maintaining strong employee protections. The commission also suggested enhancing the existing myRA program to provide a base of coverage for those workers, such as part-time, seasonal, and low-earning workers, who are least likely to be offered a retirement savings plan.

The report notes that other workers have access to retirement savings plans but do not contribute. It proposes an alternative to nondiscrimination testing along with new tax incentives to encourage employers to adopt automatic enrollment and escalate their employees’ contributions over time.

Once these reforms are in place, the commission recommends establishing a nationwide minimum-coverage standard to pre-empt the patchwork of state-by-state regulation that is already developing. Beginning in 2020, employers with 50 or more employees that do not already offer a retirement plan that meets certain minimal thresholds would be required to automatically enroll employees into a new Retirement Security Plan or myRA.

The report notes a variety of additional reforms that could support greater access to retirement savings plans and improve the experience of plan participants, such as encouraging lower-earning individuals to save for retirement by improving the existing Saver’s Credit for younger workers and by exempting some retirement savings from asset tests to qualify individuals for certain federal and state assistance programs.

The commission also recommends the creation of a Retirement Security Clearinghouse to help Americans consolidate their retirement savings, steps to limit over-exposure to company stock, and modest adjustments to retirement tax expenditures. In addition, it recommends the creation of Lifetime Income Plans—a new, more-sustainable retirement-plan design that could be adopted on a voluntary basis. This new plan design would blend the strengths of defined benefit and defined contribution plans by incorporating elements of both approaches.

To prevent leakage from retirement plans, the commission proposes to ease the process for transferring savings from plan to plan, because many pre-retirement withdrawals occur upon job separation. In addition, early-withdrawal rules and penalties for workplace plans and individual retirement accounts (IRAs) should be harmonized by raising IRA standards.

To reduce the risk of outliving savings, the commission recommends that plan sponsors integrate sophisticated but easy-to-use lifetime-income features within retirement savings plans. For example, the report says, it should be easy for plan participants to purchase a guaranteed lifetime-income product in automatic installments.

Plan sponsors could establish a default lifetime-income option or offer an active-choice framework, in which participants are asked to choose options from a customized menu. In-plan tools could also help participants make an informed decision about when to claim Social Security benefits and then to schedule withdrawals from their retirement plan to facilitate later claiming of Social Security benefits. The commission says it believes employers need safe harbors to limit their legal risk as they offer these features and attempt to educate workers about longevity risk and lifetime income.

Additionally, the commission recommends clearing barriers to offering a wider array of choices for lifetime income in both retirement savings and pension plans. In defined contribution plans, participants age 55 and older should be allowed to use their retirement savings to purchase annuities that begin payments later in life, the report says. Workers with defined benefit pensions should be able to receive part of their benefit as a lump sum and the rest as monthly income for life, rather than the all-or-nothing choice most have today. Also, to encourage participants to work longer and provide more consistent work incentives, the commission recommends allowing employer-sponsored retirement plans to align plan retirement ages with Social Security.

The report also offers proposals to facilitate the use of home equity for retirement consumption, improve financial capability among all Americans, and strengthen Social Security’s finances and modernize the program.

The report is here.