U.S. retirement system needs changing, experts tell House subcommittee

As his House subcommittee heard testimony on changes needed to the U.S. retirement system, House Health, Employment, Pensions and Labor Subcommittee Chairman Mark DeSaulnier, D-Calif., said Tuesday that Democrats intend to introduce legislation that will combine several suggestions on how best to tackle the problem.

“This draft bill makes a number of improvements to the nation’s retirement system and includes important legislation that has been or will be filed by our committee colleagues,” DeSaulnier said. He said that subcommittee member Rep. Lucy McBath, D-Ga. will introduce legislation intended to:

• Help 401(k) participants better understand the fees they pay on investments.
• Increase lifetime options in workers’ f01(k) plans.
• Expand workers’ ability to be part of their employer’s retirement plan.
• Boost employee ownership programs through the Labor Department.
• Encourage emergency savings.
• Increase spousal protections in 401(k) plans.

He did not discuss details of those plans.

Spousal protection

Increased spousal protection in defined contribution plans is essential, Amy Matsui, director of income security at the National Women’s Law Center, told the subcommittee, in testimony..

“Because women face workplace inequities and shoulder the burden of family caregiving, they experience disparities in retirement income and retirement savings,” she said. “As a result, married women rely on their spouses’ retirement income and savings more than men do”

She said that while has Congress established safeguards for traditional defined benefit plans, the same is not true for defined contribution plans.

“The limited spousal protections in DC plans means that there is a significant risk that retirement funds upon which the spouse will be relying for a secure retirement will be placed outside the spouse’s control – and the spouse bears the full measure of that risk, with no recourse,” she told the subcommittee.

ESG in retirement plans

Witnesses testifying Tuesday gave divergent views on the role that environmental, social and governance (ESG) issues should play in retirement plans.

“ESG risk analysis can be part of any prudent investment analysis—and should not be called out for special, unique scrutiny, Aron Szapiro, head of retirement studies and public policy at Morningstar said in his testimony.

He said that ESG issues are increasingly seen as potentially material to the performance of an investment, adding that as ESG data and analytics have become available, asset managers have been able to obtain greater insight into those issues.

In addition, Szapiro said, many participants want investment options that align with their personal values, particularly many sustainability-related issues. “Offering appealing investment options may encourage people to save; Congress should enable plans to offer such options,” he said.

Szapiro said, however, that some plans sponsors have shied away from considering ESG analysis because of regulatory uncertainty surrounding the issue.

Plan sponsors appear to have shied away from considering ESG information and analysis, in part because of regulatory uncertainty, he added.

Andrew Biggs, senior fellow at the conservative American Enterprise Institute, told the subcommittee that increased emphasis on ESG issues is dangerous.

“I fear that current proposals to give ESG factors greater emphasis in retirement planning could undermine Americans’ retirement savings as a means to pursue public policy goals that are distinct from the retirement system and the legal obligations currently placed on fiduciaries,” he said