Retirement Income: A Congressional Briefing

I was honored to be a panelist at the January 25, 2011 Aspen Institute Initiative on Financial Security’s Congressional Briefing, MAKING IT LAST: WORKABLE SOLUTIONS FOR LIFELONG RETIREMENT POLICY. The Briefing was held in the Dirksen Senate Office Building and was attended by a diverse group of Hill staffers and others interested in the topic.

I started my presentation by pointing out that this conversation is made relevant by the success of the employer-sponsored defined contribution system. In 1994 there was approximately $2.5 trillion in employer-sponsored DC plans and IRAs. Today there is approximately $9 trillion. Because of employer-sponsored defined contribution plans, millions of average wage workers will have hundreds of thousands of dollars available to help them in retirement.

Employers care about their retirees and want to help. Typically a retiree has worked at the company for 15 years or more, helping the company be successful. However, employers are moving away from in-plan solutions. As retiring participants do not choose in-plan annuities when they are offered, employers increasingly see no benefit in taking on the additional administrative burden that comes with having an annuity as a plan-provided distribution option. Also, employers are uncomfortable choosing an annuity provider when conditions 20, 30, or even 40 years from now could be so different than today. They are also concerned that they will be held liable for any failure of a selected provider.

This is especially true for small employers who know what they don't know. Many small employers know they do not have the internal expertise to select and monitor an annuity provider. They would rather do nothing than make a mistake. On the other hand, large employers, that typically have greater resources and more benefits personnel, are looking for additional ways to assist their retirees. It is likely that there will be a repeat of the typical 401(k) development process, where very large companies pioneer solutions that smaller employers adopt them once the kinks have been worked out.

One area in which employers are increasingly interested is retirement-related education, and even advice, that will help retiring participants make good financial decisions. We need to make sure that any regulations from the Department of Labor make employers feel comfortable in doing so.

Panelists provided a wide range of views about how to help retiring defined contribution plan participants make good financial decisions. If you are interested a video of the briefing can be found at http://www.aspeninstitute.org/video/making-it-last-workable-solutions-lifelong-retirement-policy.