While a 50-50 “balance” between increasing revenue and changing Social Security benefits may lie in the future, if a policy group’s findings has its way, the members agree that one factor that must be improved to boost retirement security in the United States is to increase workers’ access to retirement plans.

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A report by the Washington-based Bipartisan Policy Center’s Commission on Retirement Security and Personal Savings has come up with 16 proposals to do just that, since — in the words of the report— “[w]orkers have found themselves part of a great experiment” as employers have shifted from defined benefit plans to defined contribution plans. This has pushed workers into having to bear “far more … responsibility for financing their own retirement, and simultaneously exposed them to greater risk.”

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The 19 members of the commission range in background from businesses and plan sponsors to members of state and federal government agencies; elected officials; worker advocates; researchers on savings and retirement policies; and advisors to large companies on retirement plans.

Their discussions on the subject of retirement, from the place that Social Security occupies in retirees’ lives to how workers can better prepare for retirement in an atmosphere of “stagnating wages and weak economic growth,” were constrained by the restriction of “a roughly 50-50 balance between increased revenues and changes to benefits in future years.” While “[n]ot all commissioners agree[d] with this restraint,” it was the starting point for discussions that ranged from “proposals with more revenues” to “greater changes to current benefits compared to current policy.”

The commission’s efforts identified what it termed “six key challenges” in facilitating savings and a secure retirement:

1. Many Americans’ inability to access workplace retirement savings plans.

2. Insufficient personal savings for short-term needs, which too often leads individuals to raid their retirement savings.

3. The risk of outliving retirement savings.

4. Failure to build and use home equity to support retirement security.

5. Lack of basic knowledge about personal finance.

6. Problems with Social Security, including unsustainable finances, an outdated program structure, and failure to provide adequate benefits for some retirees.

While the report dealt with many other pieces of the retirement puzzle, here are the 16 proposals it advanced to improve workers’ access to retirement plans: 

Workers in small businesses are less likely to have access to a retirement plan. (Photo: Getty)

1. Create Retirement Security Plans for businesses with fewer than 500 employees.

Small businesses are often a sticking point in getting employees to save for retirement, since “existing options often do not meet [employers’] needs.” Thus, their employees are shut out of retirement savings at work.

The commission recommended the creation of Retirement Security Plans, which it said would be a better option than existing multiple employer plans. Retirement Security Plans “would enable employers to band together and utilize economies of scale to offer their workers low-cost, well-designed options” while not being subject to the “commonality requirements” of multiple employer plans. These plans would be covered by Employee Retirement Income Security Act.

2. Establish an enhanced, more-flexible, automatic-enrollment contribution safe harbor that would improve access to well-designed workplace retirement savings plans.

Under this proposal, small businesses would be exempt from offering an employer contribution, while still allowed to offer one (and at higher, rather than lower, limits) and instead satisfy other conditions for auto-enrollment within a specified contribution range; automatically escalate contributions annually; and continue auto escalation up to a certain contribution level.

Not just new hires but existing employees would be required to undergo auto enrollment, the latter once every three years; the latter could either choose a different contribution rate or opt out altogether. 

3. Enhance the existing myRA retirement savings program to provide a base of coverage for workers who are least likely to have access to a workplace retirement savings plan.

To avoid the “prohibitive” administrative costs to employers of providing retirement savings plan for workers who “have low earnings, who work limited hours or seasonally, or who change jobs frequently,” the commission suggested an enhancement to the statutory framework of myRAs.

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The addition of auto-enrollment, permission for employer contributions, and an automated rollover process for myRA accounts that exceed the $15,000 account cap, together with other changes including easing the process for employers to offer myRAs, are the suggestions of the commission. 

4. Introduce a nationwide minimum coverage standard to preempt a disjointed patchwork of state-by-state regulation.

The commission recommended “a nationwide minimum-coverage standard that would expand access to workplace retirement savings in a manner that would be less burdensome for employers.”

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Such a standard would avoid the potential for actions by individual states, several of whom have already taken or are considering actions to create retirement savings plans, to “frustrate efforts to implement national retirement employee-benefit policy that provides workers with strong consumer protections while offering uniform regulation to employers, many of which conduct business in multiple states.” 

Creating policies to encourage plan sponsors to help participants diviersify is another recommendation. (Photo: Getty)

5. Craft policy to encourage plan sponsors to help participants diversify and appropriately allocate their investments.

Because workers often enter a retirement plan only to leave initial investment options alone for years, regardless of changing personal circumstances, the commission recommended a safe harbor for plans that do auto-reallocation into a qualified default investment alternative.

That way, workers approaching retirement would find themselves in more conservative investment options even if they had taken no action on their own to reduce their risk.

Participants would be notified of the impending change, so they could opt out.

6. Clarify plan sponsors’ ability to establish different default tax treatments to benefit both lower- and higher-earning employees.

Lower-income workers may not derive much or any tax benefit from contributing to a retirement account, and might be better off with Roth 401(k)s.

But since Roth auto-enrollments are uncommon, and existing regulations aren’t clear on whether employers must use the same default tax treatments for all employees, the commission recommended that regulations and safe harbor rules be changed so that employers may establish tax-deferred accounts as a default for some employees and Roth accounts as a default for others.

The new safe harbor, the report said, “would limit legal risk for an employer that automatically enrolls lower earners into Roth savings plans and higher earners into tax-deferred savings plans, as long as participants retain the option to switch.” 

7. Create Lifetime Income Plans as a new, more-sustainable retirement-plan design that would be available for multiemployer DB plans to voluntarily adopt.

Lifetime Income Plans, said the report, “would blend the strengths of (defined benefit) and (defined conribution) retirement plans” and provide benefits “only … in the form of a monthly payment for life.”

They would have high funding standards and the ability to adjust benefits. Lump-sum distributions, loans, and hardship withdrawals would not be permitted.

8. Create a private-sector Retirement Security Clearinghouse to help individuals consolidate retirement assets.

To avoid the patchwork of retirement accounts becoming ever more common in a workforce compelled to change jobs frequently, often leaving behind retirement accounts as they seek work, the commission suggested the creation of an entity to help people hang on to funds that may be scattered across multiple accounts.

The report said that “a private-sector Clearinghouse … would streamline transfers and rollovers among (Employee Retirement Income Security Act defined contribution) plans and IRAs.” Such an entity “could also perform additional functions, such as distributing the proposed Starter Saver’s Match … directly to participant accounts and retaining information about a participant’s most recent contribution rate. The latter might enable more-sophisticated automatic-enrollment systems when participants change employers.” 

The commission recommends a tax break for employers who add auto features to plans. (Photo: Getty)

9. Establish new limits on company stock in defined contribution plans to help protect employees from potentially catastrophic investment risk.

Because holding company stock in retirement accounts has proven to be risky business, the commission suggested that the limits on such stock be reduced.

In addition, it recommended that “participants who are invested in company stock should be notified of the risks posed by this investment option and should be required to make an annual affirmative election to continue contributions to company stock funds.” 

10. Change congressional budget-estimation rules to use a more-accurate, long-term approach for evaluating retirement tax expenditures.

The report said that official budget estimates of legislation involving retirement plans and IRAs consider the impact on tax revenues over only a 10-year period—but that’s not helpful, since it overstates the cost of tax deferral and understates the budgetary cost of Roth contributions. In both cases the true effects extend beyond the 10-year window.

So the commission has recommended that a long-term approach based on the discounted net present value of the projected revenue changes be used instead. 

11. Promote well-designed workplace retirement savings plans by increasing the new-plan-startup tax credit for employers and offering a new tax credit for employers that add auto-enrollment.

Since auto-enrollment has been shown to “dramatically” increase participation rates, the commission recommended boosting the tax benefits for employers starting up a new retirement plan that uses auto-enrollment.

But the commission went further, recommending a tax break not just for employers who add new plans, but for those who add auto features to existing plans: “a new $1,500 tax credit for existing small plan sponsors that adopt an automatic-enrollment safe harbor for the first time.” 

12. Change the present Saver’s Credit into a refundable Starter Saver’s Match to provide better incentives for younger savers.

The Retirement Savings Contribution Credit, a.k.a. “Saver’s Credit,” while providing a sizeable benefit to lower-income savers, is nonrefundable: in other words, if low earners don’t earn enough to have to pay taxes, they don’t get any benefit from the credit.

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As a result, the commission suggested that it be replaced, for workers aged 18–35, with a fully refundable Starter Saver’s Match that would go directly into a saver’s retirement account and match contributions to an IRA or defined contribution plan on a dollar-for-dollar basis up to a maximum of $500 per year ($1,000 for joint filers).

The match would phase out between $25,000 and $30,000 of adjusted gross income for single filers and between $50,000 and $60,000 of adjusted gross income for joint filers. 

Ending the IRA estate-planning loophole is another recommendation. (Photo: Getty)

13. Establish an overall limit on the total assets an individual can hold in tax-advantaged savings accounts to reduce taxpayer subsidies to wealthy Americans.

The accumulation of millions of dollars in tax-advantaged accounts for just a few people (Government Accountability Office estimates of fewer than 10,000 taxpayers holding upwards of $5 million in IRAs), the committee said, “is an inefficient use of taxpayer resources and goes well beyond the policy’s original intention of promoting retirement security.”

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It recommended “applying a new limit to individuals who accumulate aggregate retirement savings, including all (defined contribution) plans and IRAs, in excess of $10 million.” While the threshold should be indexed, people who exceed $10 million would not be allowed to make additional contributions. 

14. End the “stretch” IRA estate-planning loophole.

To avoid the “Dynasty” effect of IRAs being treated as estate-planning vehicles and heirs keeping inherited IRA assets in tax-advantaged accounts for decades, the committee recommended that nonspousal beneficiaries, except for beneficiaries with disabilities, be required to distribute inherited IRA and defined contribution-plan assets over no more than five years. 

15. Exempt small defined contribution-plan and IRA balances from required minimum distribution  rules, thereby simplifying requirements for many individuals.

Required minimum distributions prevent individuals who have low lifetime earnings and who use Social Security and other recurring benefits to pay their regular retirement expenses from keeping aside defined contribution and IRA assets as emergency funds or as a reserve to pay for long-term care.

The committee recommended that individuals with fewer than $100,000 in aggregate defined contribution plans and IRA balances be exempt from required minimum distribution rules. 

16. Exclude modest retirement-account balances from asset tests to remove disincentives to saving for lower-income Americans.

Lower-income workers can be discouraged by means testing from saving for retirement, so that they won’t be disqualified from receiving other important benefits, such as Medicaid; Supplemental Security Income (SSI), which provides a modest cash benefit (no more than $733 per month for an individual or $1,100 for a couple) to older Americans and people with disabilities who have very low incomes and few assets; and the Supplemental Nutritional Assistance Program, also known as food stamps.

The committee recommended excluding the first $25,000 of savings in retirement accounts (IRAs and defined contribution plans) from asset tests for all public programs.

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