I have long maintained that retirement plan issues receive considerable attention whenever politicians enter the fray. Certainly that is the case with the U.S. debate about fiduciary standard rules among lawmakers, industry and regulators. Now it seems that de-risking is the next topic du jour for Congress.
According to "2 senators call for derisking rules" by Hazel Bradford (Pensions & Investments, October 23, 2014), U.S. Senate Finance Committee Chairman Ron Wyden (a Democrat from Oregon) and the Chairman of the Health, Education, Labor and Pensions Committee, Tom Harkin (a Democrat from Iowa) have asked government officials at various agencies to "consider developing guidance on procedures and the fiduciary duties of plan sponsors." The article describes their letter to the U.S. Department of Labor, the U.S. Department of Treasury, the Pension Benefit Guaranty Corporation ("PBGC") and the Consumer Financial Protection Bureau as emphasizing the involvement of insurance companies for lump-sum and risk transfer transactions.
Nick Thornton wrote in "Lawmakers urge clearer rules for de-risking" (Benefits Pro, October 23, 2014) that said letter cited concerns such as the following:
- Loss of PBGC protection in the event of a plan takeover;
- Risk of persons "self-directing their retirement savings over the course of their retirement";
- Possible reduced rights for spouses when a lump sum settlement is involved; and/or
- Loss of ERISA's protection.
There is nothing wrong with clarifying legal and economic rights but one worries that past may be prologue when it comes to imposing mandates. Too many times, overly simplistic regulation induces a perverse outcome. (Read "Unintended Consequences" by Rob Norton (Library of Economics and Liberty) for a discussion of this concept.) Given the often complex array of facts and circumstances for every ERISA plan and its sponsor, a "one size fits all" is ill-advised.
A silver lining is that national conversations can (hopefully) generate changes that encourage further saving for retirement. In "Combating a Flood of Early 401(k) Withdrawals" (New York Times, October 24, 2014), Ron Lieber paints a bleak picture. He points out that a recent announcement by the Internal Revenue Service that allows more money to be set aside as an official contribution will be of little consequence to non-savers. He describes a large number of workers who "pulled out $60 billion" of the $294 billion in employee contributions and employer matches that went into the accounts." Statistics show that about forty percent of persons in flux "took out part or all of the money in their workplace retirement plans when leaving a job in 2013."
Speaking of planning ahead, visit the Art of Saving website to learn more about an effort to make November 5 a U.S. National Savings Day. The Consumer Federation of America is promoting thrift as part of its America Saves National Savings Forum on May 20, 2015 in Washington, DC.
Get out the balloons for satisfied piggybanks.