Thank you so much to Aliya and the U.S. Chamber of Commerce for inviting me to speak today. I am delighted to be here on behalf of the Pension Rights Center to provide a consumer perspective on some of the critical retirement issues presented in the Chamber’s white paper, “Private Retirement Benefits in the 21st Century: A Path Forward.”
Aliya and I worked together to find common-ground solutions in the Conversation on Coverage, and I look forward to finding ways again to work together toward our shared goals of providing all American workers with a financially secure retirement.
Today my comments will focus on where we agree conceptually with the Chamber, where we would encourage the Chamber to consider more employee-oriented approaches, and how to find common ground in the future.
To start, we appreciate that the Chamber has written an in-depth white paper acknowledging the importance of retirement issues. While we differ with the Chamber on many of the details of their specific recommendations, we do agree with the Chamber on four fundamental points:
We can also agree that the current private pension system works well for millions of Americans. But many millions of others — particularly low- and moderate-wage earners — are left out of or are inadequately served by the system.
According to the Center for Retirement Research at Boston College, there is a $6.6 trillion Retirement Income Deficit, which is the gap between what people have saved as of today and what they already should have saved to meet a basic level of sufficiency in retirement.
We believe there must be a balance between the interests of employers and employees in addressing this Retirement Income Deficit. In this regard, we believe some of the Chamber’s recommendations are on the mark, particularly, its support for the new proposed guidance on annuities issued by the Treasury Department and exploring options for new multiple employer approaches.
However, we are concerned that many of the Chamber’s other specific recommendations could exacerbate the considerable inequities in the private retirement income system.
The Center is particularly concerned about proposals to eliminate or soften nondiscrimination testing, which we believe will lower participation levels and benefits for many workers, while doing little to expand plan sponsorship. Top-heavy rules and other nondiscrimination rules help ensure that pension plans and 401(k) plans not only provide benefits to the executives or owners of companies but also provide meaningful levels of retirement income to middle- and lower-income workers.
We believe that the substantial tax subsidy provided to retirement plans is justified only if the system helps all employees, not just the well-paid. If companies do not want to be subjected to complex nondiscrimination rules, there’s an easy answer: they can sponsor pension plans that provide all employees with an adequate benefit.
We are in favor of streamlining pension plan and 401(k) designs to make them simpler, but only if they also make the system fairer and more inclusive.
Like the Chamber, the Center is committed to financial literacy, but financial literacy is not just teaching people about compound interest and asset allocation. It is also about empowering employees and retirees by providing them with timely and plain-English information that helps them understand the terms of their plan the amount of benefits they have earned and how much they are paying in administrative and investment management fees.
Hence, we find it a bit of a contradiction that the Chamber recommends greater financial education, while at the same time advocating for the reduction or elimination of information — such as quarterly statements in 401(k) plans — that is necessary for people to be financially literate.
In addition, we believe that the Department of Labor’s regulations concerning electronic disclosure gets it generally right, by requiring that participants consent before they receive plan information electronically, unless the employee uses a computer at work.
We would encourage the Chamber to develop a pension literacy campaign aimed at employers to educate them about the importance of pensions, the importance of contributing on behalf of employees, and the importance of including a good retirement savings plan as part of the overall compensation package.
After all, when American workers retire with good pensions, it benefits the local and national economy by ensuring they can keep buying the goods and services that Chamber of Commerce members provide.
We also urge the Chamber to reconsider its position on proposals that enable state retirement systems to use their ample administrative efficiencies to expand coverage to private-sector workers. Generally, these proposed plans are aimed at small businesses in the private sector that do not sponsor pensions or savings plans. Most of these approaches anticipate contracting out the investment management and other services to the private sector, which will increase, not decrease, business for financial institutions. In fact, in a study by the National Conference on Public Employee Retirement Systems, a majority of the 500 small businesses were receptive to this kind of approach.
Finally, we agree with giving some flexibility in pension plan funding, but I don’t think it will come as a surprise to any of you that we still disagree with ever allowing reversions.
Despite our differences in some areas, we think that there is room for common ground going forward. The Center recently cosponsored a forum with Covington & Burling, a law firm representing some of the largest businesses globally, and the Urban Institute, to find a “third way,” as it were. We explored whether employers and individuals might be better off in plan designs that share the risks of retirement among individuals and their employers. Getting there will require thinking outside the box of traditional defined benefit plans and 401(k) individual accounts.
We hope the Chamber joins us in this initiative. Thanks for giving me time to speak and I welcome questions.