The Retirement Report, Summer 2018
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Summer 2018
VOL 1 | NO 2 |
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Pension Practice Council Event Looks at U.S. Retirement System
The forum, “Modernizing the U.S. Retirement System—Aligning Policy With Reality,” included discussion on bridging the gap between Americans’ lifetime retirement income needs and a retirement system that hasn’t kept up with demographic and economic trends, personal savings rates, and other developments in recent decades. The event was streamed live on the Academy’s Facebook page, where nearly 400 individuals watched the forum during the event. The video recording of the forum and the slide presentation are also both available via the Academy’s homepage. “Traditional retirement policy needs to be revisited and updated with an eye toward addressing longer lives, an aging society, employer concerns over fiduciary and financial risks, increased individual responsibility for managing retirement income, and other challenges facing current and future retirees,” said Academy Vice President, Pension Josh Shapiro, who greeted forum attendees. “The Academy stands ready to contribute its expertise in an effort dedicated to helping realign public policy with today’s retirement realities.” The forum presenters were Steve Goss, chief actuary of the Social Security Administration; J. Mark Iwry of The Brookings Institution and visiting scholar with the Wharton School, University of Pennsylvania; Steve Vernon of the Stanford Center on Longevity; Ted Goldman, the Academy’s senior pension fellow; and Lori Lucas, CEO of the Employee Benefit Research Institute. Attendees from congressional offices, government agencies, nonprofit organizations, and academia were able to have an open dialogue about the current U.S. retirement system—what’s working, what isn’t, and legislative and regulatory options to update and improve the system.
Goss set the stage for the forum with opening remarks framing how the current and future benefits provided by Social Security fit in the bigger retirement income picture, and describing the program’s financial condition. According to Goss, it’s important to educate the public to understand that, while changes are needed, the program continues to be strong and will likely play an integral role in delivering retirement benefits. He outlined some solutions to bring balance to the program. Lucas detailed key trends that have led to gaps between retirement policy and secure retirement income, and moderated the panel discussion and Q&A sessions. Iwry, with his years of front-line experience as senior adviser to the secretary of the Treasury as well as serving as deputy assistant secretary, lead a discussion of employer-sponsored retirement programs. He made observations on what has worked—e.g., automatic enrollment, Qualified Default Investment Alternatives (QDIAs)—and the challenges of getting policy passed through Congress. Iwry framed the discussion from the past to the future as he identified a number of ideas that have been discussed or are under discussion, but have not yet been implemented. Some of the ideas he shared included optimizing the use of Qualifying Longevity Annuity Contracts (QLACs), adding more flexibility in choices to convert savings into lifetime income, minimizing leakage from the retirement system prior to retirement, and reassessing the required minimum distribution rules. Goldman focused on the preparation phase of retirement—addressing access to retirement plans, saving appropriately, minimizing leakage of savings prior to retirement, investing wisely, and covered ways to optimize the effectiveness of defined contribution plans, as well as incorporating behavioral science concepts into retirement programs. An example is advancing on the success of auto-enrollment and auto-escalation features according to a personalized plan. Each participant could be auto-enrolled at his or her specific savings rate that reflects their current age, income, savings, and retirement goals. This calculation could then be refreshed throughout an individual’s working lifetime to assure they are always on a path to a secure retirement. Personalized auto-features could also be applied to create an appropriate drawdown strategy as well. Goldman also emphasized the importance of utilizing pooling features in retirement plans. Similar to other insured risks, few individuals can readily assume all of the risks related to retirement. He presented ideas to pool longevity and investments inside employer-sponsored retirement plans through hybrid-type designs. Finally, Goldman introduced a twist on the open multiple employer plan (MEP) concept. The open MEP that is included in several proposed bills before Congress, would allow unrelated employers to band together in a common defined contribution plan. In such an approach, a plan would cater exclusively to retirees, creating an unbiased retirement service provider to assist retirees with a broad scope of financial services. In the program’s final segment, Vernon addressed the issues faced during retirement. He proposed a menu-driven approach that could facilitate retirement income portfolios. Employers, with the protection of a safe harbor, could offer well-constructed menus that a retiree could select upon retirement. This approach simplifies the choices at retirement and helps direct retirees in a positive direction. An example could be a default QDIA that includes a drawdown strategy. He also emphasized the importance of educating workers about the value of working longer (for those with a choice) as an important strategy to entering retirement confidently. Finally, he reinforced the importance of behavioral science. Simply renaming some of the terminology used in the Social Security program could help individuals make better decisions, he said. Lucas summed up the day and moderated a lively Q&A period that included both those present in the room and online. She reiterated that aligning retirement policy to allow adoption of the ideas, concepts, and features that were presented could significantly move the needle with respect to retirement security. Shapiro brought the forum to a conclusion. “Making policymakers aware of the options to bring the retirement system up to date, with careful consideration of the potential implications for retirees, taxpayers, and other stakeholders, is a priority for the Academy and could help our society better meet lifetime income needs going forward,” he said in closing. The Academy has started a hashtag on Twitter—#ModernizingRetirement—as one way to continue the important dialogue that was started at the meeting. Other plans are underway to leverage the material presented and keep retirement security as a clear priority for the Academy. Academy Testifies Before ERISA Advisory Council The Academy testified Aug. 15 before the U.S. Department of Labor’s (DOL) Advisory Council on Employee Welfare and Pension Benefits (the ERISA Advisory Council, or EAC) on “Lifetime Income Solutions as a Qualified Default Investment Alternative (QDIA)—Focus on Decumulation and Rollovers.” Senior Pension Fellow Ted Goldman, accompanied for Q&A by Tonya Manning, co-chairperson of the Academy’s Lifetime Income Risk Joint Task Force, presented to the council and responded to questions. The written testimony and presentation are posted on the Academy’s website.
The testimony highlighted the Academy’s lifetime income position statement, provided insights about Qualifying Longevity Annuity Contracts (QLACs), and described an Open Retiree Multiple Employer Plan (MEP) concept. In addition, attention was brought to the full body of issue briefs and related deliverables developed by the LITF, the Actuaries Longevity Illustrator, and the Academy’s online lifetime income quiz. The EAC’s stated objective on this issue is to focus on recommendations promoting lifetime income within defined contribution (DC) plans through providing further guidance on an annuity selection safe harbor and modifying the QDIA rule to focus on asset accumulation and decumulation issues in the context of lifetime income needs and solutions. Citing the lifetime income position statement, the Academy presentation noted support for policy and educational initiatives that increase the availability of retirement income options within employer-sponsored DC plans, stating that “such options, based upon actuarial principles such as longevity pooling and other risk mitigation strategies, can help retirees manage their financial security over their remaining lifetime.” The presentation noted several critical components required by this approach—education throughout the participant’s working career; income options that meet retiree needs; and new legislation and expanded guidance. In addition, employer-sponsored DC plans can provide additional benefits to the retiree, including, pricing efficiency, ease of transaction, provider and product due diligence, and guidance on retirement income planning and longevity risk management options. The Academy testimony also offered perspective on QLACs, noting several advantages—and reasons why they have not gained popularity—while outlining steps that could be taken to improve their utilization, including through regulation or legislation, allowing variable/index-based returns, eliminating unisex pricing and allowing aggregation among DC plans; modifying annuity selection safe harbors in order to remove fiduciary concerns; and greater consumer education, including efforts by the DOL. Pension ASOPs Exposure Draws Wide Response
The response to these exposure drafts was particularly robust; the Actuarial Standards Board (ASB) received about 100 comments in total for the three exposures. The ASB has always welcomed and relied upon comments received as a part of its rigorous standards-setting process when revising, approving, and adopting ASOPs. As always, comments received have been posted on the ASB website to encourage transparency for all stakeholders. Pension Practice Council Activity in Brief Treasury, Labor, and PBGC Meeting Notes Released The Multiemployer Plans Committee released notes from its February meeting with officials of the Treasury and Labor departments, and the Pension Benefit Guaranty Corporation, to discuss applications by multiemployer pension plans in critical and declining status to suspend benefits or partition liabilities. This meeting supplemented the first meeting between these parties on this topic, which was held in 2017. Social Security Issue Brief on Trustees Report The Social Security Committee released an issue brief on the 2018 Social Security Trustees Report that examines solvency concerns with the social insurance program. The issue brief—an annual analysis of the trustees’ report—provides context for issues confronting the program for policymakers and media, and notes that the combined Old-Age, Survivors, and Disability Insurance trust fund will be depleted in just 16 years unless the system’s financial challenges are addressed. The Academy also updated its Essential Elements on the program. Academy Submits Responses to Joint Committee The Academy submitted written responses to questions for the record to the Joint Select Committee on Solvency of Multiemployer Pension Plans. The questions were asked by committee members subsequent to a hearing on “The History and Structure of the Multiemployer Pension System,” at which Senior Pension Fellow Ted Goldman testified in April. Lifetime Income Risk Task Force Comments to Congress The Lifetime Income Risk Joint Task Force submitted a comment letter to Congress on the Lifetime Income Disclosure Act. The comments point to key ways of improving the current version of the bill with respect to lifetime income issues:
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Following is an update of key federal and state retirement- and pension-related legislation. Federal Legislative Activities Multiemployer pension plans continue to be a key issue for Congress. The Joint Select Committee on the Solvency of Multiemployer Pension Plans (the committee) has held a total of five hearings following its initial executive session meeting early this year. The committee is charged with publishing a report on its findings and proposed legislation by Nov. 30. The committee can only report legislation, as stipulated by statute, if a majority of members from both parties approve it. The committee is comprised of members of equal representation between the two parties and the two houses. That solution will be guaranteed an expedited vote in the Senate, with no amendments. State Pension Legislation A bill passed by the California Senate and now under consideration in the Assembly, would request the University of California to establish a Pension Divestment Review Program to assess divestment proposals and to prepare written analyses with relevant data regarding the effects of such proposals on employee pension funds and public policy. The Assembly Committee on Appropriations placed the bill in its suspense file in August, where it will be held for consideration until the state budget has been prepared. A bill was introduced in the New Jersey Assembly in June that would eliminate the income eligibility cap under which pension and retirement income may be excluded from taxable income. Under current New Jersey law, individuals ages 62 and older with annual incomes of $100,000 or less do not pay taxes on qualifying pension and retirement income. H.B. 708, introduced in the Ohio House in June, would prevent individuals who have retired from employment and covered by one of the state’s public retirement systems from receiving a pension during any period in which they resume work as a public employee. |
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Early Registration Deadline Is Sept. 7 for Annual Meeting and Public Policy Forum Discounted registration rates are available through Friday, Sept. 7 for the Academy’s 2018 Annual Meeting and Public Policy Forum, to be held Nov. 1–2 in Washington, D.C. Breakout sessions will cover the latest developments in today’s top public policy and professionalism news, including a look at government-backed P/C insurance programs, the experiences of companies that filed PBR actuarial reports for 2017, multiemployer pension reform, and long-term care insurance experience. Other agenda highlights include an interactive game show developed by the Academy’s Committee on Professional Responsibility, a keynote address by political analyst Charlie Cook of the Cook Political Report, and an optional-participation murder mystery to test your deduction skills during our Nov. 1 dinner. Join us in November, and register today. |
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