Retirement Security

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.

 Implications of Tax Reform on Employer-Sponsored Benefits

While the most recent tax reform law did not make changes to employer-provided defined contribution retirement plans, there are still concepts being considered by Congress that could adversely impact these plans by decreasing the limits or changing the tax treatment of these accounts.  

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:

 

  • Removing regulatory barriers and cost concerns that currently prevent many small and start-up businesses from offering retirement plans by facilitating the use of multiple employer plans (MEPs) and providing a new deferral-only safe harbor plan option such as the "Starter K";
  • Improving the ERISA safe harbor to provide greater certainty for plan sponsors when selecting guaranteed lifetime income products for their retirement plans;
  • Modernizing the rules for electronic delivery of plan notices and disclosures to participants;
  • Increasing the age at which required minimum distributions (RMDs) must begin to reflect increases in life expectancy; and
  • Making the Small Employer Pension Plan Start-up Credit more generous and include a bonus credit for automatic enrollment.

 Solvency of the Social Security Program

Solvency of the Social Security program is a shared responsibility between the government, employers and employees who contribute in the form of a payroll tax. While it is imperative that the government maintain the Social Security Trust Fund on a financially sound basis, current projections show that the fund will become insolvent by 2034. In the near future, Congress will need to take steps that reform the Social Security program to ensure its long-term solvency. 
Outlook: Proposals to gradually increase the age at which individuals become eligible to receive Social Security benefits, expand the range of wages that are subject to Social Security taxes and increase means testing are all under consideration. However, no legislation is currently pending in Congress. Speaker Paul Ryan has said that he hopes to make changes to entitlement programs in 2018, including social security. 

Defined Benefit Pension Policy

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. 

Department of Labor’s Fiduciary Rule

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. 

Outlook: The new rule was to be phased in April 10, 2017-January 1, 2018, but was delayed after President Donald Trump took office. Initially the rule was delayed 180 days while the new administration evaluated it, and then later the Department of Labor proposed an 18-month extension on several of the key provisions of the regulation through July 1, 2019.