How do you fix the fact that nearly half of America’s workers are employed by companies that do not offer a traditional pension or retirement savings plan?
Mandate that all but the smallest employers offer a plan, preferable with annuities as a default investment for a portion of workers’ savings, executives at the Insured Retirement Institute, the annuities industry trade group, said today at a press conference to map out their aggressive lobbying blueprint for 2023.
While some progress has been made in addressing the retirement plan gap though innovations like pooled employer plans and mandatory enrollment in all new employee retirement plans, more progress can be achieved through legislation to mandate workplace retirement plans, Paul Richman, IRI’s chief government and political affairs officer said at the press conference.
“One measure that IRI is supporting is the enactment of a law requiring all but the smallest of employers to maintain an automatic retirement savings plan into which employees would be automatically enrolled with the ability to opt out,” Richman said.
The institute also wants Congress to greenlight annuities as a default investment in almost all retirement plans, but small business plans in particular, executives said.
The group is pushing lawmakers to require employer retirement plans to offer participants who have a retirement account balance of at least $200,000 or more the choice to take a distribution of up to 50% of their vested balance in a protected guaranteed lifetime income product, Richman said.
A small business plan mandate with annuities as a default investment “will have significant impact. If made law it’s estimated that over the next 10 years $7 trillion in additional retirement savings will be generated while creating 62 million new retirement savers, 98% of whom would earn less than $100,000 per year. This would include 7 million new Black savers and 10.8 million new Latino savers,” Richman added.
IRI’s lobbying blueprint also includes a measure that can further increase participation by including an auto re-enrollment feature as part of the plan. It would allow for employees who have opted out of the plan to be automatically re-enrolled at least every three years.
“This new plan feature will prompt workers who have opted out to periodically re-evaluate whether to participate in the plan as their careers progress and their financial situations change,” Richman said.
The trade group also seeks to sweeten the pot for employers by convincing Congress to offer a new tax credit to employers who include this automatic re-enrollment feature as part of their plan, he added.
A provision to make annuities a default investment in plans was removed from SECURE 2.0 before Congress passed the legislation last December. Richman said that lawmakers seem even more amenable to bipartisan measures that promote retirement security this year.
The group is also lobbying the U.S. Department of Labor to permit employers to offer annuities as a default investment in retirement plans.
“Right now, DOL qualified default investment alternative [QDIA] regulations effectively prohibit using protected guaranteed lifetime income solutions with delayed liquidity features, although they offer higher returns.” Richman said.
IRI’s blueprint contains a measure that would direct DOL to change the QDIA regulations to permit plan sponsors to provide annuities as a default investment vehicle for a portion of contributions for investors who have not made an investment selection, he added.