Monday, December 15, 2014

Hatch's remarks on Pension Reform - Financial Services Roundtable:

Really interesting read on where the thinking in this area is, the whole speech can be found in this article -->

Here are the parts on private Pension Reform:

"....The good news is that the private employer-based retirement savings system in the United States – particularly 401(k) plans and Individual Retirement Accounts, or IRAs – has become the greatest wealth creator for the middle class in history and represents truly shared prosperity.

The bad news is that the retirement of the baby boom generation is putting enormous pressure on public programs like Social Security and Medicare.

And, as part of the unending effort on Capitol Hill to find more revenue to pay for increased spending, some have proposed reducing the allowed contributions to 401(k) plans and IRAs.

That, in my view, would be both short-sighted and foolish. - GREAT LINE!!!

Some in Congress seem to have forgotten that this is well-covered territory.  Indeed, Congress has already examined this issue and made the policy call decidedly against contribution reductions.
In 2001, Congress increased the limits for contributions to 401(k) plans and IRAs.
Congress also added a catch-up contribution feature that allows workers to contribute several thousand dollars more per year beginning in their 50s, an age when many workers finally get serious about saving.

One thing we have learned over the years is that the key to successful retirement savings is participation by employees in a plan at work, and the key to convincing employers to sponsor a plan at work is a healthy contribution limit.

Since 2000, the year before Congress raised the contribution limits, retirement assets in defined contribution plans have grown from around $3 trillion to nearly $6 trillion, despite the market downturn in 2008.  Assets in IRAs have grown from $2.6 trillion to $6.5 trillion.

In fact, increased contribution limits worked so well that, in 2006, Congress made those provisions permanent, and the vote to make them permanent was overwhelming:  in the Senate, the vote was 93 to 5.

We have spent a lot of time in recent years defending the gains we have achieved in the 401(k) system.  But in 2015 we can, and in my opinion should, go on offense. Toward that end, we must encourage employers who don’t sponsor plans to set them up.  That’s why last year I introduced legislation to create the Starter 401(k), a plan designed for small or start-up businesses that are not in a position to contribute to a plan but still want to help their employees save.

A Starter 401(k) is a new kind of plan that does not come with all the administrative burdens or expenses of a traditional 401(k) plan.  The plan allows employees to contribute between $8,000 and $10,000 per year, which is a little bit less than what would be allowed under a traditional 401(k), but much more than an IRA.

I believe the Starter 401(k) plan in my legislation could help to revolutionize retirement savings for employees of small businesses throughout the country.  My bill also allows unrelated small employers to pool their assets in a single 401(k) plan to achieve better investment outcomes, lower costs, and easier administration.  This idea, which is called an “Open MEP” is one that many on both sides of the aisle in Congress support.  It’s an idea whose time has come.

Of course, we cannot talk about retirement savings without discussing the importance of lifetime income.  We have fought for years to enact policies that will encourage greater savings and investment.  But, I don’t think our efforts will provide much to comfort those whose retirement assets run out before the end of their lives.

That’s why the legislation I introduced last year encourages the purchase of fixed annuity contracts for retirement.  In fact, the bill is called the Secure Annuities for Employee Retirement Act, or the SAFE Retirement Act.
Why life insurance annuity contracts?  Well, lifetime income is a form of life insurance.  Most people tend to think of life insurance as insurance against the risk of living an unexpectedly short life.  And that is certainly true.  But life insurance also includes insurance for the possibility that someone might live an unexpectedly long life.

We call that form of life insurance a life annuity and it only makes sense to encourage the use of annuities to provide retirement security.

My legislation encourages the use of annuities in 401(k) plans.  First, we remove obstacles to adding annuity-purchase options to 401(k) plans and, second, we provide employers a liability safe-harbor.  That way, employers are encouraged to add annuity options to their plans and employees are encouraged to use them......"

Senator Hatch goes on a bit about public pension reform as well, but key takeaways from this.  There's a strong advocate for the proliferation of the 401(k) and future versions of it in Congress now, who's thinking smartly and creatively about ways to expand coverage, reduce barriers to usage and protect participants.  That's leadership that I can get behind.  Let's hope that these measures make it through and become law.

- Jason Grantz

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