BPC Event on Rethinking Retirement Plans
Bipartisan Policy Center
“Rethinking Retirement Plans”
Wednesday, October 21, 2015
Key Topics & Takeaways
- Retirement Initiative: Former Sen. Conrad stated that the BPC’s Commission on Retirement Security and Personal Savings hopes to issue and publish a retirement initiative during the first part of 2016, adding that with half of workers without access to retirement plans, “we can do better.”
- Auto Enrollment: Betterment’s Ouellette and ForUsAll’s Ramirez stressed the importance of auto enrollment, with HelloWallet’s Smith adding that it has been a “game changer” resulting in higher default levels and increased financial awareness.
- Updating the Retirement System: Treasury’s Iwry stated that the current retirement system has done well with coverage but “doesn’t do enough,” adding the need to build upon and expand the current system, rather than replace or undermine it.
- State Plans: When asked about the Washington State “marketplace” proposal that connects employers with IRA and 401(k) providers, as well as the option of utilizing the myRA program, DOL’s Borzi stated that it is a “hybrid” that embraces ERISA due to offering it on a voluntary basis and that “the more choices employers have is a good idea.”
- Conflict of Interest Rule: Borzi noted that it is “obvious” the BICE “needed to be simplified and streamlined” when the DOL proposed it, and they have received numerous suggestions as to how this can happen. She added that the DOL plans to have the rule finalized in the next few months to first half of next year.
Speakers
- Former Sen. Kent Conrad (D-N.D.), Co-Chair, Bipartisan Policy Center Commission on Retirement Security and Personal Savings
- Amy Ouellette, Senior Retirement Plan Manager, Betterment
- David Ramirez, Co-Founder, Chief Investment Officer, ForUsAll
- James Smith, Head of Workplace Strategy for North America, Morningstar and HelloWallet
- Phyllis Borzi, Assistant Secretary of Labor, Employee Benefits Security Administration, Department of Labor
- J. Mark Iwry, Senior Advisor to the Secretary and Deputy Assistant Secretary (Retirement and Health Policy), Department of the Treasury
- James B. Lockhart, III, Co-Chair, Bipartisan Policy Center Commission on Retirement Security and Personal Savings
Opening Remarks
Former Sen. Kent Conrad (D-N.D.), Co-Chair, Bipartisan Policy Center Commission on Retirement Security and Personal Savings
Former Sen. Kent Conrad opened the event by stating the Bipartisan Policy Center’s (BPC) Commission on Retirement Security and Personal Savings hopes to issue and publish a retirement initiative during the first part of 2016, adding that with half of workers without access to retirement plans, “we can do better.” He noted his concern with survey results that found 44 percent of Americans would be unable, or find it difficult, to come up with $2,000 in 30 days in the case of an emergency.
Panel 1
Amy Ouellette, Senior Retirement Plan Manager, Betterment
Amy Ouellette stated that Betterment will be launching a 401(k) line January 1, 2016 that will determine savings rates based on the customer’s age and will offer the best investments available at the lowest cost. She noted that their line will be “half the cost of most 401(k)s” and will offer every employee a managed account with no minimums, even on the retail side.
David Ramirez, Co-Founder, Chief Investment Officer, ForUsAll
David Ramirez explained that ForUsAll uses the same principles as Facebook and Twitter: it is easy to use and shows “empathy” through an intelligent, simple design. He continued that their 401(k) plans are synced with payroll and are as easy to manage as booking a flight online, adding that the plan will offer a six percent deferral rate with one percent auto escalation. Ramirez stated that the service offers virtual advisors that can speak all languages and work on every mobile device, and that there is currently a 90 percent participation rate with an average savings of 10 percent.
James Smith, Head of Workplace Strategy for North America, Morningstar and HelloWallet
James Smith stated that HelloWallet focuses on the asset and liability side and includes technology that helps with day-to-day spending. He explained that the technology first helps customers live within their budget, then moves on to encourage building an emergency savings fund and debt prioritization, as well as savings for retirement. Smith noted that it is an ongoing process, not a one-time event, and allows for customization based on customer needs, to include using technology as a method of contact for users.
Discussion
Public Policy Efforts
When asked if changes to public policy could help the panelists’ efforts, Ouellette stated that the Receiving Electronic Statements To Improve Retiree Earnings (RETIRE) Act that Rep. Jared Polis (D-Colo.) proposed is helpful because information can be given “in a better way” through electronic delivery. She continued that she would like to see 401(k) plans without fixed employer costs that make it easy and efficient for their employees to save for retirement without restrictions on the employer’s side.
Ramirez explained that it should be made easier for providers to utilize “open” multiple employer plans (MEPs), as it will allow for greater fiduciary oversight and employers can learn from each other. He also noted that some small employers are concerned about meeting discrimination testing and recommended a safe harbor with an “aggressive opt out strategy” of six percent automatic enrollment and automatic escalation.
Smith echoed Ramirez’s thoughts on open MEPs, noting that the “one bad apple” rule should be eliminated. He added the importance of making plan portability “easy.”
Technology and the Human Touch
Ouellette noted that Betterment has humans working on the phones to help customers and a behavioral finance staff to “help people from themselves,” such as when a customer wants to pull out money from their account during an economic downturn. Ramirez noted that ForUsAll has investment advisors on staff that are available to customers via phone or video chat. Smith stated that HelloWallet has a call center for customers and explained that they are available through text and email for those who prefer to contact on-the-go.
Decumulation
Ouellette explained that while there are tools available to investors who are actively saving, there is also a “switch” for customers when they have officially retired with steps on how to draw down their savings. Ramirez noted the importance of speaking with customers as they approaching retirement so the “human staff” can understand their individual situation. Smith stated that the advice on decumulation at HelloWallet is tied to the retirement plan, so they can only advise on the products offered within each plan. He noted that some 401(k) plans have an in-plan annuity, which would be available for customers when appropriate, adding that HelloWallet helps educate their customers on when to “pull” Social Security benefits.
Small Business Accounts
When asked how the panelists engage with small businesses to set up plans, Ouellette explained that Betterment is primarily referral-based, working through registered investment advisors (RIAs). Ramirez echoed Ouellette and stated the majority of ForUsAll’s business is from word of mouth. Smith noted that HelloWallet works directly with plan sponsors through defined contribution (DC) plan advisors and that record keepers also “bring them to the table.”
AutoEnrollment
Ouellette and Ramirez stressed the importance of auto enrollment, with Smith adding that it has been a “game changer” resulting in higher default levels and increased financial awareness.
Panel Discussion 2
The Retirement System Today
Phyllis Borzi, Assistant Secretary at the Department of Labor (DOL), noted the shift between defined benefit (DB) and DC plans, adding that there are many tools that allow investors to participate in plans and highlighted the my retirement account (myRA) starter savings plan as a “great idea.” She stated the importance of financial literacy as “we have a long way to go.” Borzi explained that the DOL is creating guidance to help states with their own retirement plan initiatives.
Mark Iwry, Assistant Secretary at the Department of the Treasury, stated that when it comes to retirement plans, “new ideas aren’t good and good ideas aren’t new.” He continued that the current retirement system has done well with coverage but “doesn’t do enough,” adding the need to build upon and expand the current system, rather than replace or undermine it.
myRA
Iwry discussed Treasury’s myRA that creates an auto enrollment into a tax-favored account for those without access to an employer plan, adding that it is a “dramatic breakthrough” in the coverage system in America. He continued that some states have proposals to create auto enrollment individual retirement accounts (IRAs) for employees without access to employer-sponsored plans, with other states trying to develop similar plans.
Iwry explained that the myRA account “has no down side,” as it does not earn a high rate of interest and the amount cannot decline. He noted the pilot program being conducted, stating that is “looks like it’s working.” Iwry added that the account will rollover to the private sector when it reaches $15,000 but that account holders can rollover earlier. He continued that while the accounts are not diversified, investors can diversify “anytime they wish” through the existing IRA system.
State Retirement Plans
When asked if there is a fear of Employee Retirement Income Security Act (ERISA) preemption at the state level, Borzi stated that it is an issue that “causes some concern, and in some ways it should,” as it is “unchartered territory.” She continued that early adopters of state plans moved to a state auto IRA approach, with some states looking at a safe harbor.
Borzi explained that the retirement laws in California, Oregon and Illinois are not equal and that multi-state employers and plans would have to compete with multiple state laws, something Congress intended to protect against when ERISA was originally enacted. She noted that while one group of states is considering a payroll deduction safe harbor to avoid ERISA, another group will “embrace” ERISA, as it provides “significant” consumer and spousal protections. Borzi stressed the need to provide states with the maximum number of tools available, as it is “such an important problem…we need to help them move forward.”
Iwry noted that the federal proposal and state versions are bipartisan proposals, but the federal proposal is a private sector program that uses IRA providers with “appropriate” safe guards that does not compete with 401(k) plans. He noted that there is increased interest in states for their own plans because Congress has not moved on the issue, adding that the variety of different state programs “isn’t as simple as a federal solution.”
When asked about the Washington State “marketplace” proposal that connects employers with IRA and 401(k) providers, as well as the option of utilizing the myRA program, Borzi stated that it is a “hybrid” that embraces ERISA due to offering it on a voluntary basis and that “the more choices employers have is a good idea.” Iwry explained that the Washington State marketplace is “carefully designed” to work together with the private sector and offers many options to encourage employers to start a retirement plan.
Lump Sum Buyouts
Iwry stated that Treasury and the Internal Revenue Service (IRS) issued guidance intended to “reflect restraint” on offering employees lump sum payments from DB plans, adding that they are proposing regulations that will make it clear offering lump sum payments to retirement is “problematic.” He stressed that lifetime income “is key” and that he is “pro-annuity,” adding that while the Treasury and IRS is looking to update mortality tables, it will not be hastily.
Conflict of Interest Rule
Borzi noted that the comment period the DOL’s proposed conflict of interest rule was the “longest comment period in the history of the Department,” spanning over six months. She noted the “extremely constructive” meetings the DOL had with groups and companies that offered public comments, but that the DOL has not finished reading through all of the comment letters.
Borzi explained that through meetings with those opposed to the rule, the DOL has learned “nuggets of information” that will help develop a better rule. The most important thing, she added, is to have a “legally enforceable” best interest standard, which is obtained through the Best Interest Contract Exemption (BICE). She noted that it is “obvious” the BICE “needed to be simplified and streamlined” when the DOL proposed it, and they have received numerous suggestions as to how this can happen. Borzi stated that the DOL plans to have the rule finalized in the next few months to first half of next year.
When asked what led the DOL to move from a “sole interest” to “best interest” standard, and if that standard should be perceived as less protective, Borzi explained that the definition of “best interest” they have in the proposed rule was a combination of the Securities and Exchange Commission’s (SEC) definition and the DOL’s “solely in the interest” standard. She continued that if the language is not clear, the DOL should clarify, and that it was not intended to be a lesser standard than the “sole interest” standard.
For more information on this event, please click here.
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Bipartisan Policy Center
“Rethinking Retirement Plans”
Wednesday, October 21, 2015
Key Topics & Takeaways
- Retirement Initiative: Former Sen. Conrad stated that the BPC’s Commission on Retirement Security and Personal Savings hopes to issue and publish a retirement initiative during the first part of 2016, adding that with half of workers without access to retirement plans, “we can do better.”
- Auto Enrollment: Betterment’s Ouellette and ForUsAll’s Ramirez stressed the importance of auto enrollment, with HelloWallet’s Smith adding that it has been a “game changer” resulting in higher default levels and increased financial awareness.
- Updating the Retirement System: Treasury’s Iwry stated that the current retirement system has done well with coverage but “doesn’t do enough,” adding the need to build upon and expand the current system, rather than replace or undermine it.
- State Plans: When asked about the Washington State “marketplace” proposal that connects employers with IRA and 401(k) providers, as well as the option of utilizing the myRA program, DOL’s Borzi stated that it is a “hybrid” that embraces ERISA due to offering it on a voluntary basis and that “the more choices employers have is a good idea.”
- Conflict of Interest Rule: Borzi noted that it is “obvious” the BICE “needed to be simplified and streamlined” when the DOL proposed it, and they have received numerous suggestions as to how this can happen. She added that the DOL plans to have the rule finalized in the next few months to first half of next year.
Speakers
- Former Sen. Kent Conrad (D-N.D.), Co-Chair, Bipartisan Policy Center Commission on Retirement Security and Personal Savings
- Amy Ouellette, Senior Retirement Plan Manager, Betterment
- David Ramirez, Co-Founder, Chief Investment Officer, ForUsAll
- James Smith, Head of Workplace Strategy for North America, Morningstar and HelloWallet
- Phyllis Borzi, Assistant Secretary of Labor, Employee Benefits Security Administration, Department of Labor
- J. Mark Iwry, Senior Advisor to the Secretary and Deputy Assistant Secretary (Retirement and Health Policy), Department of the Treasury
- James B. Lockhart, III, Co-Chair, Bipartisan Policy Center Commission on Retirement Security and Personal Savings
Opening Remarks
Former Sen. Kent Conrad (D-N.D.), Co-Chair, Bipartisan Policy Center Commission on Retirement Security and Personal Savings
Former Sen. Kent Conrad opened the event by stating the Bipartisan Policy Center’s (BPC) Commission on Retirement Security and Personal Savings hopes to issue and publish a retirement initiative during the first part of 2016, adding that with half of workers without access to retirement plans, “we can do better.” He noted his concern with survey results that found 44 percent of Americans would be unable, or find it difficult, to come up with $2,000 in 30 days in the case of an emergency.
Panel 1
Amy Ouellette, Senior Retirement Plan Manager, Betterment
Amy Ouellette stated that Betterment will be launching a 401(k) line January 1, 2016 that will determine savings rates based on the customer’s age and will offer the best investments available at the lowest cost. She noted that their line will be “half the cost of most 401(k)s” and will offer every employee a managed account with no minimums, even on the retail side.
David Ramirez, Co-Founder, Chief Investment Officer, ForUsAll
David Ramirez explained that ForUsAll uses the same principles as Facebook and Twitter: it is easy to use and shows “empathy” through an intelligent, simple design. He continued that their 401(k) plans are synced with payroll and are as easy to manage as booking a flight online, adding that the plan will offer a six percent deferral rate with one percent auto escalation. Ramirez stated that the service offers virtual advisors that can speak all languages and work on every mobile device, and that there is currently a 90 percent participation rate with an average savings of 10 percent.
James Smith, Head of Workplace Strategy for North America, Morningstar and HelloWallet
James Smith stated that HelloWallet focuses on the asset and liability side and includes technology that helps with day-to-day spending. He explained that the technology first helps customers live within their budget, then moves on to encourage building an emergency savings fund and debt prioritization, as well as savings for retirement. Smith noted that it is an ongoing process, not a one-time event, and allows for customization based on customer needs, to include using technology as a method of contact for users.
Discussion
Public Policy Efforts
When asked if changes to public policy could help the panelists’ efforts, Ouellette stated that the Receiving Electronic Statements To Improve Retiree Earnings (RETIRE) Act that Rep. Jared Polis (D-Colo.) proposed is helpful because information can be given “in a better way” through electronic delivery. She continued that she would like to see 401(k) plans without fixed employer costs that make it easy and efficient for their employees to save for retirement without restrictions on the employer’s side.
Ramirez explained that it should be made easier for providers to utilize “open” multiple employer plans (MEPs), as it will allow for greater fiduciary oversight and employers can learn from each other. He also noted that some small employers are concerned about meeting discrimination testing and recommended a safe harbor with an “aggressive opt out strategy” of six percent automatic enrollment and automatic escalation.
Smith echoed Ramirez’s thoughts on open MEPs, noting that the “one bad apple” rule should be eliminated. He added the importance of making plan portability “easy.”
Technology and the Human Touch
Ouellette noted that Betterment has humans working on the phones to help customers and a behavioral finance staff to “help people from themselves,” such as when a customer wants to pull out money from their account during an economic downturn. Ramirez noted that ForUsAll has investment advisors on staff that are available to customers via phone or video chat. Smith stated that HelloWallet has a call center for customers and explained that they are available through text and email for those who prefer to contact on-the-go.
Decumulation
Ouellette explained that while there are tools available to investors who are actively saving, there is also a “switch” for customers when they have officially retired with steps on how to draw down their savings. Ramirez noted the importance of speaking with customers as they approaching retirement so the “human staff” can understand their individual situation. Smith stated that the advice on decumulation at HelloWallet is tied to the retirement plan, so they can only advise on the products offered within each plan. He noted that some 401(k) plans have an in-plan annuity, which would be available for customers when appropriate, adding that HelloWallet helps educate their customers on when to “pull” Social Security benefits.
Small Business Accounts
When asked how the panelists engage with small businesses to set up plans, Ouellette explained that Betterment is primarily referral-based, working through registered investment advisors (RIAs). Ramirez echoed Ouellette and stated the majority of ForUsAll’s business is from word of mouth. Smith noted that HelloWallet works directly with plan sponsors through defined contribution (DC) plan advisors and that record keepers also “bring them to the table.”
AutoEnrollment
Ouellette and Ramirez stressed the importance of auto enrollment, with Smith adding that it has been a “game changer” resulting in higher default levels and increased financial awareness.
Panel Discussion 2
The Retirement System Today
Phyllis Borzi, Assistant Secretary at the Department of Labor (DOL), noted the shift between defined benefit (DB) and DC plans, adding that there are many tools that allow investors to participate in plans and highlighted the my retirement account (myRA) starter savings plan as a “great idea.” She stated the importance of financial literacy as “we have a long way to go.” Borzi explained that the DOL is creating guidance to help states with their own retirement plan initiatives.
Mark Iwry, Assistant Secretary at the Department of the Treasury, stated that when it comes to retirement plans, “new ideas aren’t good and good ideas aren’t new.” He continued that the current retirement system has done well with coverage but “doesn’t do enough,” adding the need to build upon and expand the current system, rather than replace or undermine it.
myRA
Iwry discussed Treasury’s myRA that creates an auto enrollment into a tax-favored account for those without access to an employer plan, adding that it is a “dramatic breakthrough” in the coverage system in America. He continued that some states have proposals to create auto enrollment individual retirement accounts (IRAs) for employees without access to employer-sponsored plans, with other states trying to develop similar plans.
Iwry explained that the myRA account “has no down side,” as it does not earn a high rate of interest and the amount cannot decline. He noted the pilot program being conducted, stating that is “looks like it’s working.” Iwry added that the account will rollover to the private sector when it reaches $15,000 but that account holders can rollover earlier. He continued that while the accounts are not diversified, investors can diversify “anytime they wish” through the existing IRA system.
State Retirement Plans
When asked if there is a fear of Employee Retirement Income Security Act (ERISA) preemption at the state level, Borzi stated that it is an issue that “causes some concern, and in some ways it should,” as it is “unchartered territory.” She continued that early adopters of state plans moved to a state auto IRA approach, with some states looking at a safe harbor.
Borzi explained that the retirement laws in California, Oregon and Illinois are not equal and that multi-state employers and plans would have to compete with multiple state laws, something Congress intended to protect against when ERISA was originally enacted. She noted that while one group of states is considering a payroll deduction safe harbor to avoid ERISA, another group will “embrace” ERISA, as it provides “significant” consumer and spousal protections. Borzi stressed the need to provide states with the maximum number of tools available, as it is “such an important problem…we need to help them move forward.”
Iwry noted that the federal proposal and state versions are bipartisan proposals, but the federal proposal is a private sector program that uses IRA providers with “appropriate” safe guards that does not compete with 401(k) plans. He noted that there is increased interest in states for their own plans because Congress has not moved on the issue, adding that the variety of different state programs “isn’t as simple as a federal solution.”
When asked about the Washington State “marketplace” proposal that connects employers with IRA and 401(k) providers, as well as the option of utilizing the myRA program, Borzi stated that it is a “hybrid” that embraces ERISA due to offering it on a voluntary basis and that “the more choices employers have is a good idea.” Iwry explained that the Washington State marketplace is “carefully designed” to work together with the private sector and offers many options to encourage employers to start a retirement plan.
Lump Sum Buyouts
Iwry stated that Treasury and the Internal Revenue Service (IRS) issued guidance intended to “reflect restraint” on offering employees lump sum payments from DB plans, adding that they are proposing regulations that will make it clear offering lump sum payments to retirement is “problematic.” He stressed that lifetime income “is key” and that he is “pro-annuity,” adding that while the Treasury and IRS is looking to update mortality tables, it will not be hastily.
Conflict of Interest Rule
Borzi noted that the comment period the DOL’s proposed conflict of interest rule was the “longest comment period in the history of the Department,” spanning over six months. She noted the “extremely constructive” meetings the DOL had with groups and companies that offered public comments, but that the DOL has not finished reading through all of the comment letters.
Borzi explained that through meetings with those opposed to the rule, the DOL has learned “nuggets of information” that will help develop a better rule. The most important thing, she added, is to have a “legally enforceable” best interest standard, which is obtained through the Best Interest Contract Exemption (BICE). She noted that it is “obvious” the BICE “needed to be simplified and streamlined” when the DOL proposed it, and they have received numerous suggestions as to how this can happen. Borzi stated that the DOL plans to have the rule finalized in the next few months to first half of next year.
When asked what led the DOL to move from a “sole interest” to “best interest” standard, and if that standard should be perceived as less protective, Borzi explained that the definition of “best interest” they have in the proposed rule was a combination of the Securities and Exchange Commission’s (SEC) definition and the DOL’s “solely in the interest” standard. She continued that if the language is not clear, the DOL should clarify, and that it was not intended to be a lesser standard than the “sole interest” standard.
For more information on this event, please click here.