Every American worker should have financial security in retirement. Employer-sponsored benefits are a key component to accomplishing this goal. Ninety percent of employers surveyed in the 2015 SHRM Benefits Survey offered a defined contribution plan, such as a 401(k), to their employees, while 25 percent offered a defined benefit pension plan. Despite the programs offered by employers, retirement security is an ongoing challenge for many Americans. A 2014 Bankrate survey found that 36 percent of Americans were not saving for retirement, and an Employee Benefit Research Institute Study found that six in 10 workers and their spouses have saved less than $25,000 for retirement.
According to the Census Bureau, more than 175 million Americans have health, retirement and other valuable benefits provided by employers. These benefits are established by the Employee Retirement Income Security Act, which creates a national, uniform framework for employers to maintain benefit plans. Together with Social Security and individual savings, employer-sponsored retirement plans play a central role in the retirement security for America's working families.
Employer-sponsored retirement plans are the main conduit for employees to save for a financially sustainable retirement. According to the Employee Benefit Research Institute, private retirement plans in the United States paid out more than $5.24 trillion in benefits from 2005 through 2014, and U.S. public sector plans paid out $3.66 trillion during the same period, both playing an essential role in providing retirement income for millions of Americans. In 2011, there were approximately 685,000 private sector defined contribution plans covering 89.9 million participants, according to U.S. Department of Labor (DOL) figures. Additionally, the Pension Benefit Guaranty Corporation (PBGC) reported that it insured more than 41 million defined benefit plan participants in 2014.
Outlook: Because of employer-sponsored benefits' tax-deferred status, it is anticipated that public policy efforts could involve a close examination of such benefits, including retirement and health care plans. . Other efforts will focus on improvements to the retirement system, including:
Defined benefit plans have been on the decline for the past three decades. Existing plans face numerous challenges, including meeting funding and solvency obligations, PBGC premium increases and conflicts with nondiscrimination testing due to solvency obligations.
Outlook: Congress has made numerous attempts over the last several years to address challenges facing defined benefit plans. These include reforms enacted in 2014 that allow plan sponsors to modify benefits for their participants to ensure plan solvency. Congress has also worked to temporarily ease the increased mandatory contribution requirements to certain defined pension plans as a result of lower earned interest rates of retirement funds. Known as “pension smoothing,” this easing process decreases the funding minimum businesses must make to their plan by allowing the plans to assume a higher future interest rate. While Congress has taken many steps to support the defined benefit system, serious concerns still remain, including impending failure of the multi-employer pension system as a whole. The 115th Congress will likely work to address deficiencies related to multi-employer defined benefit pension plans including Pension Benefit Guaranty Corporation premium increases on single-employer pension plans and challenges related to nondiscrimination testing.
In 2015, the DOL’s released a final rule that provided a new definition of “fiduciary” that would, among other things, expand the types of retirement investment advice covered by fiduciary protections. DOL had hoped that this new regulatory guidance would strengthen consumer protections by defining fiduciary relationships, regulating those relationships and specifying what constitutes investment advice.
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