The Subcommittee on Health, Employment, Labor, and Pensions of the House Committee on Education and the Workforce held a hearing May 16, 2018, on four bipartisan bills relating to expanding and improving retirement security for Americans.

Two of the bills — HR 4604, to create a safe harbor for retirement plans in the selection of an annuity option, and HR 854, which seeks to increase retirement plan coverage among employees of small businesses by clearing regulatory obstacles to the creation of Open Multiple Employer Plans (MEPs) — are included in the broader House and Senate Retirement Enhancement and Savings Act (RESA). The other two bills are HR 4158, which would increase and index the limit on 401(k) account balances that plans can require to be rolled out when employees leave, and HR 4610, which would make electronic delivery of required plan disclosures the default option.

Tim Walsh, Senior Managing Director of Institutional Investment Product Distribution for TIAA, noted that few plans offer an annuity distribution option, and called for "in-plan, institutionally-priced" annuity options to help participants achieve income security. Supporting the annuity selection safe harbor bill, Walsh said employers are reluctant to use the current safe harbors that have been created by the Department of Labor. Walsh expressed TIAA's support for the electronic disclosure bill and for the larger RESA package.

Krista D'Aloia, a vice president and assistant general counsel at Fidelity, was on hand to testify on behalf of the American Benefits Council. She spoke in support of the increase in the cash-out limit, electronic delivery of disclosures, and Open MEPs.

The witness invited by the Democratic members of the committee, J. Mark Iwry, former Treasury Deputy Assistant Secretary for Retirement and Health Policy, praised the committee for continuing the bipartisan tradition of retirement legislation. He praised the Open MEPs bill for solving the common nexus and "one bad apple" obstacles to small businesses joining together to provide retirement benefits to their employees. Iwry cautioned the committee on the electronic delivery issue, saying that the proposed legislation lacked the needed consumer protections. Similarly, he argued that the increase in the cash-out limit was a missed opportunity, and urged the committee to look at the portability issue more broadly, calling favorable attention to bipartisan legislation introduced by committee member Rep. Suzanne Bonamici (D-OR) and Rep. Luke Messer (R-IN).

The final witness, Paul Schott Stevens, is the President and CEO of the Investment Company Institute. Stevens echoed the support other witnesses had voiced for the Open MEPs and electronic delivery bills. Stevens expressed the view that the coverage gap is misunderstood and not as wide as some may think.

Questions from members

Rep. Virginia Foxx (R-NC), the chairwoman of the full committee, asked Stevens whether the Open MEPs bill provided safeguards to assure ERISA protections would apply. She asked D'Aloia to comment on the use of electronic disclosures, and asked Walsh whether the 2008 and 2015 Labor Department guidance on annuity selection had left uncertainty among plan sponsors.

Rep. Gregorio Sablan (D-Northern Marianas), the subcommittee ranking member, noted that his wife had accounts with Fidelity, and that he had been assured there was no conflict in his questioning the witness from Fidelity. He asked how funds were invested in safe harbor rollover IRAs in cases where the participant did not respond. Iwry, citing concerns about principal protection as a goal, said the investment of rollovers could be improved through the use of less conservative options like target date or life cycle funds, and urged the committee to approve the Bonamici-Messer-Neal bill.

Rep. Tim Walberg (R-MI), the subcommittee chairman and sponsor of the cash-out and annuity selection bills, asked about the value of in-plan lifetime income options in improving retirement security. Walsh responded that costs of out-of-plan annuities in the retail market could range as high as 2.3%. Walberg also asked questions about who would benefit from cost savings attributable to raising the cash-out level and the importance of removing the "one bad apple" rule with respect to Open MEPs.

Rep. Bobby Scott (D-VA), the full committee ranking Democrat, asked Iwry about retirement readiness. Iwry said 1/3 of workers have no plan at work ,and many more don't save enough, as he went on to advocate for the auto-IRA proposal that has been pending in Congress for years as a good approach for small businesses that aren't ready to sponsor a plan. Scott asked Iwry about the value of state-run plans for private sector workers as a means of expanding coverage, and bemoaned Congress's action through the Congressional Review Act in overturning the Obama-era regulations promoting such plans.

Rep. Rick Allen (R-GA) asked Stevens about the value of Open MEPs in easing the administrative burdens facing small businesses in starting a retirement plan. He also asked Walsh about the benefits of electronic delivery.

Rep. Lisa Blunt Rochester (D-DE), the lead Democrat on Walberg's annuity safe harbor selection bill, asked Walsh whether, given the DOL's efforts to create a safe harbor on annuity selection, legislation was still needed. She cited greater availability of lifetime income options as 'very heartening', and asked Walsh about the role annuities play in 403(b) plans.

Rep. Phil Roe (R-TN), the lead Republican on Rep. Jared Polis's (D-CO) electronic delivery bill, said 35% of Americans over age 55 have zero retirement savings. He talked about the fire pit at his home where he had burned the hardcopies he had received from retirement plans, and asked about the costs that could be saved by moving to electronic delivery. He also mentioned HR 1688, a bill he has introduced with Rep. Linda Sanchez (D-CA) that would create a simple aggregated Form 5500 for plans, and said he was working on a "Savings at Birth" proposal.

Rep. Joe Courtney (D-CT), having gentle fun with Rep. Roe's fire pit comments, observed that he would recycle the documents rather than burning them in order to avoid a visit from the fire marshall, and characterized Iwry's reservations about the Polis bill as raising a yellow flag, not a red flag. Courtney suggested that rather than making e-delivery the default, with an opt-out for individuals, maybe it would be better to offer the individual a choice, citing an AARP study that found 75% of participants preferred paper. Iwry responded belatedly to Walberg's earlier question about how cost savings from e-delivery might be allocated, saying it was not clear and that cost savings should not come at the cost of consumer choice.

Rep. Donald Norcross (D-NJ) asked how much should people save for retirement: $100 a week? $1000 a week? Walsh said the general rule of thumb was 12-15% of pay to get to 80% replacement, starting at age 25. D'Aloia, stepping back into her Fidelity role, said Fidelity offered tools to break down recommended savings levels. Stevens said people don't generally get serious about retirement savings until their 40s, but questioned whether America faces a retirement savings crisis, characterizing it more as a "challenge." Stevens said of "near retirement households," over 80% had some kind of retirement assets, and 94% are covered by Social Security, and that for folks in the bottom two quintiles, Social Security provides more or less a full pension.

Rep. Adriano Espaillat (D-NY) said the bills before the subcommittee should be marked up without delay. He further said half of working age families have nothing set aside in retirement accounts. Espaillat asked Iwry what would make the biggest difference in expanding retirement savings — Iwry said auto-IRAs, and said that state-run plans would be "subsumed" in a federal auto-IRA.

Rep. Bonamici cited the importance of Social Security. She cited DOL data that 40 million private sector workers have no access to an employer-provided plan. With respect to e-delivery, she said it was very important to get the consumer choice protections and private features right. She lauded Oregon's state-run plan for private sector workers, saying in a few months it had 834 employers, 35,000 employees covered, with $2.9 million invested. She mentioned her bill to promote state-run plans. She also mentioned her Retirement Savings Lost and Found Act, introduced with Rep. Messer, to move smaller accounts into target date funds and discourage pre-retirement cash-outs.

Opening statements and witness testimony are attached.

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ATTACHMENTS

Walberg Statement

D' Aloia Testimony

Iwry Testimony

Stevens Testimony

Walsh Testimony