Retirement Benefits Take Center Stage at Hill Hearings

By Bill Leonard Sep 24, 2014
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Retirement benefits have become a hot topic on Capitol Hill as committees in both houses of Congress met Sept. 16 and 17, 2014, to discuss ways to boost employer-sponsored savings plans and to strengthen corporate pensions.

The Senate Finance Committee held the first hearing on retirement savings and focused largely on ways to increase employee participation in defined contribution plans such as 401(k)s.

“Take a look at the state of retirement savings in the U.S., and it’s clear that something is out of whack,” said Committee Chairman Ron Wyden, D-Ore. “American taxpayers deliver $140 billion each year subsidizing retirement accounts, but millions of Americans are nearing retirement with little or nothing saved. The incentives for savings in the tax code are not getting to the people who need them.”

Wyden pointed to a troubling statistic reported by the Government Accountability Office: More than 9,000 individual retirement accounts (IRAs) in the U.S. had balances of $5 million or more. “At the same time, the Federal Reserve reports that an employee with middle-of-the-pack savings has approximately $59,000 set aside for retirement,” Wyden said. “So clearly, some very wealthy people are using their IRAs as a tax shelter, and that’s not what the accounts are intended for. We have to find new ways that encourage all workers to save for retirement.”

Wyden asked the panelists for recommendations on what steps Congress should take to improve the savings rates for middle- and lower-income families. According to the hearing’s panel of witnesses, the first step should be to simplify the rules and regulations governing retirement plans.

Different Sets of Rules

“My advice, make it easy,” said Brigitte Madrian, Aetna professor of public policy and corporate management at Harvard University. “Why is it that we now have employer-sponsored defined contribution plans such as 401(k)s and 403(b)s that are essentially the exact same thing, but operate under completely different sets of rules? It doesn’t make any sense. Just make it easy.”

The other witnesses at the hearing agreed with Madrian and emphasized the importance of increasing access to retirement savings plans for all employees.

“We don’t need to reinvent the wheel here and completely change the nation’s retirement savings systems,” said Andrew Biggs, resident scholar at the American Enterprise Institute. “Super simple pension and retirement savings plans would be one step to take. Right now, most pension offerings in the U.S. are very complex; we need to simplify. Universal pension schemes like they have in the U.K. and Canada are worth examining. It is proven that plans like these have lowered the poverty rate for older citizens as they hit retirement age.”

The committee’s ranking minority member, Orrin Hatch, R-Utah, warned against political posturing and urged the committee to pursue bipartisan measures that work.

“On this issue, members from both parties have resisted partisan impulses and, as a result, we’ve been able to craft good policy,” Hatch said. “Lately, however, I’ve become concerned that there is a political strategy by some in Congress to turn pension policy into just another partisan battleground.”

Wyden pledged to Hatch that his goal was to continue the strong bipartisan tradition and said that he looked forward to working with him to craft legislation that would implement many of the recommendations made during the hearing. With the November 2014 congressional elections rapidly approaching, movement on substantive retirement savings reform is not likely until the newly elected Congress convenes in January 2015.

Pensions Under Pressure

One day after the Senate hearing, the House Subcommittee on Select Revenue Measures met to discuss the state of employer-sponsored pension plans. In their opening statements, the subcommittee leaders expressed concerns that the number of employers who offer defined benefit retirement plans is dwindling rapidly, and that employees and retirees are facing nearly insurmountable challenges as a pillar of retirement security crumbles.

“I know what it means for a family to lose the pension they were relying on,” said Subcommittee Chairman Patrick Tiberi, R-Ohio. “When I was in high school, my dad lost his job, he lost his pension, and we lost our health care. It was a volatile and uncertain time. I want to help families avoid that situation.”

To help provide pension protections for some older retirees, Tiberi and the subcommittee’s ranking member, Richard Neal, D-Mass., co-sponsored legislation to amend the pension nondiscrimination rules under the Internal Revenue Code (H.R. 5381). Witnesses at the hearing expressed support for the bipartisan legislation but added that more needed to be done.

“Given the low level of readiness for retirement among American workers, strengthening the Social Security safety net, expanding access to low-cost, high quality retirement plans such as the Administration’s recently-announced ‘myRA’ proposal, and other proposals designed to expand workplace retirement coverage both at state and federal levels are important policy considerations,” said Diane Oakley, executive director at the National Institute on Retirement Security.

Another suggestion for helping to improve the health of defined benefit plans called for changing the rules that penalize plan sponsors for overfunding pension plans during times of economic booms.

“It’s the ‘saving for a rainy day’ principle,” said Scott Henderson, vice president of pension investment and strategy at The Kroger Co. “We should incentivize overfunding of defined benefits plans when companies can afford to do it. This will only strengthen pension plans and put employers in a better position to weather economic downturns.”

Henderson also warned that multiemployer pension plans could become a thing of the past if Congress did not act soon and change the law.

“The sad reality is that many multiemployer funds will become insolvent unless Congress acts to avoid this crisis,” he said. “These deeply troubled plans have exhausted the remedies available under current law, and without additional options will become insolvent in the near future.”

Henderson told the committee members that there was no quick fix to the problem and that a complete overhaul of the laws governing multiemployer plans was needed. He referred to a series of recommendations made by the National Coordinating Committee for MultiEmployer Plans called Solutions Not Bailouts.

“With every passing day the risk increases that benefits will be cut. More importantly, failure to act will mean that some large plans cannot be saved, even if Congress later allows plans to cut benefits,” he said. “Action now is essential to protect the pensions of hundreds of thousands of hardworking Americans.”

Bill Leonard is a senior writer for SHRM.
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