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House Ed and Labor HELP Subcomm. Retirement Security Hearing

House Education and Labor Subcommittee on Health, Education, Labor, and Pensions

Improving Retirement Security and Access to Mental Health Benefits

Tuesday, March 1, 2022

Topline

  • The hearing focused on the DOL’s proposed ESG rule, spousal consent provisions in Rep. Lucy McBath’s (D-Ga.) discussion draft legislation on retirement savings, and pension plans.
  • Tim Walberg (R-Mich.) had a notable line of questioning expressing concern over a potential revised DOL Fiduciary rule.

Witnesses

  • Amy Matsui, Director of Income Security and Senior Counsel, National Women’s Law Center, Washington, DC
  • Karen Handorf, Senior Counsel, Berger Montague, Alexandria, VA
  • Andrew Biggs, Resident Scholar, American Enterprise Institute, Washington, DC
  • Aron Szapiro, Head of Retirement Studies and Public Policy, Morningstar, Inc. and Morningstar Investment Management LLC, Chicago, IL

Opening Statements
Chairman Mark DeSaulnier (D-Calif.)

In his opening statement, DeSaulnier stated that the RISE Act would improve retirement benefits and touted legislative efforts to improve 401k plans, boost employee ownership programs, encourage emergency savings, and increase spousal protections in 401k plans. Namely, he described provisions in Rep. Lucy McBath’s (D-Ga.) discussion draft legislation.

Ranking Member Rick Allen (R-Ga.)

In his opening statement, Allen touted the health of the U.S. retirement system and legislation to expand access to a secure retirement, including the RISE Act. He then criticized President Biden’s efforts to support multi-employer pension plans in the American Rescue Plan and the Department of Labor’s (DOL) rule on considering environmental, social, and governance (ESG) factors in retirement plans.

Testimony
Ms. Amy Matsui, Director of Income Security and Senior Counsel, National Women’s Law Center, Washington, DC

In her testimony, Matsui discussed women’s economic security issues, including disparities in retirement income and savings and loopholes in spousal protections under ERISA. She recommended that policymakers strengthen spousal rights to defined contribution plans under ERISA and expressed support for the Women’s Retirement Protection Act of 2021.

Ms. Karen Handorf, Senior Counsel, Berger Montague, Alexandria, VA

In her testimony, Handorf applauded Congress for its recent legislation strengthening ERISA’s protections by giving DOL additional tools to enforce The Paul Wellstone and Pete Domenici

Mental Health Parity and Addiction Equity Act of 2008 (P.L. 110-343) (MHPAEA), as well as requiring disclosure of health plan broker and consultant compensation, prohibiting gag clauses and enacting the No Surprises Act. She also applauded DOL’s work and substantial expenditure of resources to bring health plans into MHPAEA compliance. She recommended that Congress give the Employee Benefits Security Administration (EBSA) tools to leverage its limited resources and pass legislation based on the 2022 MHPAEA Report’s recommendations, including giving EBSA authority to assess civil monetary penalties for parity violations, amending ERISA to give DOL the authority to directly pursue

parity violations by issuers and issuers serving as Third Party Administrators (TPA), amending ERISA to clarify that participants and beneficiaries of ERISA-covered plans are entitled to be made whole when their claims are denied and additionally give the Secretary of Labor authority to seek such relief on

their behalf, and altering the existing standards of MHPAEA. She also recommended that Congress strengthen private enforcement of ERISA’s protections for participants and beneficiaries in health

plans as well as pension plans, amend ERISA to provide for a uniform statute of limitations for denial of benefits claims that also defines when a claim accrues, and amend ERISA disclosure of documents,

Mr. Andrew Biggs, Resident Scholar, American Enterprise Institute, Washington, DC

In his testimony, Biggs discussed how consideration of ESG factors might affect the U.S. retirement saving system and expressed 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 upon plan fiduciaries. He also offered comments on several issues raised in Democrats’ discussion draft of retirement-related legislative provisions, including sections 5, 6, and 7.

Mr. Aron Szapiro, Head of Retirement Studies and Public Policy, Morningstar, Inc. and Morningstar Investment Management LLC, Chicago, IL

In his testimony, Szapiro discussed how plan sponsors should use ESG information when selecting investments for their retirement plans, fee disclosures, and provisions to expand access to lifetime income products in employer-based plans. He recommended that Congress consider reviewing publicly available fee disclosures on Form 5500 and enable plans to offer options that support ESG values.

Question & Answer

ESG

Reps. Andy Levin (D-Mich.), Bobby Scott (D-Va.), and DeSaulnier asked about ESG fund performance. Biggs said ESG investments are associated with lower returns for state and local pensions, but Szapiro said more than half of those funds finish in the top half of their Morningstar category by return, clarifying that ESG funds do not underperform other funds. Szapiro also said that the proposed DOL ESG rule is needed. Rep. Virginia Foxx (R-Va.) asked if the DOL ESG rule complies with Supreme Court precedent. Biggs said the obligation of fiduciaries is solely to the participant’s pecuniary benefits and that ESG factors can only matter to the degree that they do not detract from the financial benefit of participants. Allen asked why it is important for plans to only focus on financial return factors. Biggs said 401ks are superior to non-ERSA covered plans, that we want to have people invested in ERISA plans, and that plans considering ESG factors risk do not perform as well for their clients. He added that fiduciaries may be forced to overcompensate for ESG under the DOL’s ESG rule.

Pensions

Foxx asked if bailed out pensions should continue to make new promises and benefits. Biggs said bailed out multi-employer pension plans were able to continue offering benefits and make promises that they will not be able to fulfill and that that is improper. Rep. Donald Norcross (D-N.J.) asked, with the decline of defined benefit pensions, if there is a chance people will outlive their plans and if we should increase lifetime income for 401ks. Szapiro responded that Americans would benefit from an increase in guaranteed income.

Spousal Consent

Foxx asked if the discussion draft’s spousal consent provision accounts for emergency situations. Biggs said this issue needs additional study and there is not a perfect cookie cutter solution. Rep. Scott Fitzgerald (R-Wisc.) asked how frequently retirement assets are used by one spouse for non-retirement expenses without the knowledge of the other spouse. Biggs said we do not really know, that we need better data, and that it is a complicated issue. McBath asked about the importance of closing the spousal consent loophole. Matsui explained that there is nothing preventing one spouse from depleting retirement assets and currently no recourse for the harmed spouse.

Reg BI/DOL Fiduciary Rules

Rep. Tim Walberg (R-Mich.) expressed concern for a potential revised DOL Fiduciary rule and asked how low-to-middle income savers would be impacted by a revised rule. Biggs explained that the likely impact would be a rise in the cost of financial advice for low-to-middle income savers because, currently, part of that advice is paid through fees, which would then be charged up front. He described a similar UK regulation that raised the upfront cost of advice for savers to a point that low-income savers were not willing to pay, causing a guidance gap between low-income savors and higher-income savers who could still afford the advice. He added that, in theory, the Fiduciary rule sounds great but that we do not want to cut people off from financial advice. Walberg then asked how DOL will be able to revive the rule even though it was blocked by the Fifth Circuit. Biggs stated that the court’s ruling established that the DOL had gone beyond their legal rights, so the rule’s goal would likely have to be accomplished through legislation, not regulation. Walberg also asked if it makes sense to pursue a new Fiduciary rule before seeing the results of related regulations. Biggs said we need to see how things go, study the current rule, and then to improve it in the future.

Fee Transparency

Rep. Susan Wild (D-Pa.) asked if plan recipients understand plan fees and if they require further education. Szapiro recommended better fee transparency and for Congress to consider directing DOL to review publicly available fee disclosures.

Arbitration

DeSaulnier asked how binding arbitration agreements and class action waivers undermine access to federal courts. Handorf said those agreements do not give access to federal courts and make it impossible to correct fiduciary misconduct.

For more information on this hearing, please click here.

For an archive of past SIFMA hearing coverage, please click here.