March 29, 2022
Senate HELP Committee holds retirement hearing
During the March 29 Senate Health, Education, Labor, and Pensions Committee hearing "Rise and Shine: Improving Retirement and Enhancing Savings," members and witnesses expressed support for policies reflected in the ‘SECURE 2.0’ legislation being considered in the House, including auto enrollment and helping participants recover lost pensions, plus ideas like emergency savings accounts, expanding multiple employer plans to nonprofits, and lifetime income options.
In an opening statement, Chairman Patty Murray (D-WA) highlighted the Retirement Savings Lost and Found Act (S. 1730) by Senators Steve Daines (R-MT) and Elizabeth Warren (D-MA) and expressed interest in acting to expand auto enrollment and spousal protections. She said there is a "lot of bipartisan interest in enhancing savings" and that she is putting together a package that builds on the SECURE Act and the bipartisan legislation the House has been developing. Chairman Murray closed the hearing by saying she is excited to roll out a bill with HELP Ranking Member Richard Burr (R-NC) soon.
Senator Burr highlighted the need for legislation to encourage Americans to save more. "We have also seen the success of automatic enrollment and employer matching to defined contribution plans," he said. "So, the challenge to this Congress is finding ways to help employees and employers take advantage of the savings programs that already work." Senator Burr noted that he is also a member of the Senate Finance Committee – which is also interested in contributing to an eventual retirement package – and said that in his remaining 9 months in the Senate he will remain aware of the need to help on this issue. Senator Rob Portman (R-OH), a pension luminary who sits on the Finance Committee, is also retiring, and bipartisan retirement legislation being approved this year could be a legacy issue.
Witnesses at the hearing were:
Koumantaros stressed the importance of financial emergency savings legislation to allow withdrawals in times of need and thereby limit retirement plan leakage, then allow participants to repay when their situation improves. He also said Congress should focus on retirement coverage and called for expanding opportunities for part-time workers to participate.
Rademacher said policymakers should work to close gaps for minorities, including by expanding coverage for part-time workers. She called for expanding the market for multiple employer plans, including for nonprofits, and encouraging auto reenrollment to expand on the success of the auto enrollment provisions of the SECURE Act. Rademacher further called for auto portability and a retirement ‘lost and found’ database. Like Koumantaros, she called on Congress to act to facilitate emergency savings by allowing providers to provide auto enrollment in workplace savings accounts, which she said would also help preserve retirement savings.
Hounsell encouraged Congress to act on emergency savings accounts, which the COVID economy highlighted the need for, and auto portability. She also discussed a 401(k) clearinghouse which automatically moves accounts when an employee changes jobs.
Chittenden advocated for lifetime income solutions including through annuities, including the Lifetime Income for Employees Act (H.R. 6746), which allows fiduciaries of pension plans to make default investment arrangements in annuity contracts. He said the bill would expand options available to employers for an appropriate default investment. Like other witnesses, Chittenden also encouraged further improvements to multiple employer plans, including an expansion to nonprofits.
During Q&A, Chairman Murray cited Federal Reserve findings that many Americans struggle to deal with emergencies, said Congress could help with such saving, and asked how that would help keep retirement accounts intact. Rademacher said it is important to have a specific 'bucket' for emergency savings, separate from retirement savings. She said post-pandemic, as the expanded Child Tax Credit with monthly payments has gone away, savings has become more important, and that research supports the benefit of automatic enrollment in emergency savings plans to facilitate liquid savings.
Chairman Murray also asked about a lost and found database and its importance to workers, and how a registry of the type established under the Daines/Warren bill would be beneficial. Koumantaros said a national registry would help participants locate missing accounts, and recommended pairing it with an employer safe harbor allowing them to automatically distribute the money into an IRA for participants. Currently, auto-IRA distributions are limited to accounts $5,000 and below. He said such a change should be paired with enhancing investments within automatic IRA rollover accounts, which are currently limited to a capital preservation investment option. A qualified default investment alternative for automatic IRA rollover accounts is recommended, he said.
Senator Burr asked Chittenden about multiple employer plans’ potential to close the access and savings gap. Chittenden said one of the primary impediments small employers face are the costs of starting and maintaining a plan, as well as managing it. The ability for employers to band together is a benefit and can increase participation, he said. Crittenden said the SECURE Act changes were important and should be expanded to nonprofits, he said.
Burr also asked about unrelated employers pooling together and ensuring that opportunity is available to 403(b) plans. Chittenden said rules should provide more flexible structures, moving away from the current requirement for a common nexus or organizing group like an association representing colleges. Liberalizing rules to allow the common nexus to be other entities like payroll providers would increase flexibility and access, he said.
Senator Bob Casey (D-PA) said retirement savings disparities remain, especially for women who spend time outside the paid workforce, as well as communities of color. He asked Hounsell which types of retirement policies would help improve these disparities. Hounsell said it is difficult for women as caregivers to have control over their hours and eligibility rules keep them out of coverage. She said many part-time workers get sent home from retail jobs and don’t get the sufficient hours and suggested there should be an auto-IRA available to everyone.
Senator Jacky Rosen (D-NV) said she is working on a proposal to allow employers to add auto enrollment and auto escalation and have fees come from plan assets. She asked why only a fraction of small employers offer these features, relative to large employers. Koumantaros said there are challenges employers face in terms of administrative costs and complexity, plus issues engaging with consultants with respect to consulting services to provide for such features. Under current law, that can’t be treated as a plan expense and that is what is needed to encourage such conversations and provide the features.
Senator John Hickenlooper (D-CO) said more innovation is needed in retirement savings options and asked about a low-cost plan with a federal match. Rademacher said Americans want the opportunity to save and need help to remove friction from the process including providing auto enrollment to all workers. She also said those in lower tax brackets get less of a per-dollar benefit from saving and financial security at the household level is a critical part of economic growth in this country.
Chairman Murray asked about the risks of lump-sum buyouts. Hounsell said counseling is necessary for people who are getting a lump sum and there are reports of many spending the money within just a few years. Counseling and education work best and there needs to be an examination of disclosures about benefits, she said. The Chairman asked Chittenden about the value of lifetime income solutions during the spenddown phase of their retirement and asked what can be done in addition to making enrollment into lifetime income products the default for employees. Chittenden said most Americans don’t realize when there is no option for a lifetime income in retirement and that making annuities a default option can increase projected retirement income.
Chairman Murray said she especially appreciated the hearing’s discussion of the need to add lifetime income into defined contribution plans so people can be sure their retirement assets last, and that she is looking to achieve the right balance in legislation.