NEW ORLEANS – In response to the retirement crisis, "progressives" would like to create a government-sponsored DC plan, according to Preston Rutledge, benefits tax counsel for the U.S. Senate Finance Committee.
Ruteledge is a staff member of that committee, reporting to Sen. Orin Hatch, R–Utah, and made it clear that his views – presented Sunday at the NAPA 401(k) Summit during the first general session, titled "From the Hill to the Summit" – were entirely his own.
He postulated that such a plan would include mandatory retirement savings with an auto-elect feature. That alone might not be troubling for him but he would find it problematic if that plan incorporated a "refundable saver's credit" for low- and middle-class workers – an add-on he predicted would be "introduced in the next 60 days in the Senate, and that the government could actually provide the funds that went into a worker's retirement savings.
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"That's when you get the Trifecta," he said.
"A lot of people think is would be better if the government ran the retirement system," Rutledge told the audience of roughly 1000. "That is where I think they want to go."
"Refundable saver's credit doesn't do anything to help people get ready for retirement," he said, adding that the result could be that "MyRA might swarm the government with accounts. The error rate may be off that charts."
Rutledge also discussed the issue of under-funded pensions. He called the situation an "apex moment" and said the issue might end up in front of the U.S. Supreme Court. "That could be a game-changer."
He said that the actions in Detroit are monumental. The union leaders are saying, "State constitutions tampering with DB plans is illegal. Well, the judge says that the state can't impair a contract but the feds can. The rule has been appealed."
The staffer also suggested that attendees "keep your eyes on San Bernardino, where a judge just made the same ruling."
What can we do about it, he asked the crowd? He said there were two choices. The first was to "make the existing DB system work. Make promises you can keep. It would help a lot if states stopped letting folks not be pension plan trustees if they can't do it," adding that some are "well-meaning but unqualified."
The other major proposal, he suggested, was to move the U.S. entirely from DB plans to DC plans. "That gives tax payers cost certainty," he said. The downside to 401(k) plans is they don't provide guaranteed lifetime income, Rutledge stated. "I'm a fan of lifetime income."
He then drew audience attention to his boss's plan: the Hatch plan.
"We have two solutions, the Starter 401(k) and multiple employer plans," he said, noting that between 22 percent and 25 percent of all employers don't have 401(k) plans.
The Starter 401(k) plan would enable employers to get the retirement ball rolling by starting a plan that included features such as mandatory auto-enrollment between 3 percent and 15 percent. It would also allow an employer to be exempt from filing a Form 5500.
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