The retirement industry currently faces challenges—but there is opportunity and good news as well, Brian Graff pointed out in the Oct. 17 Washington Update session at the 2021 ASPPA Annual conference.
Work to Do
There is plenty of work to do, Graff suggested. The ASPPA Executive Director/ARA CEO noted that retirement readiness was the top financial concerns of 59% of Americans in a 2020 Gallup survey, and that “an alarming number” say it “it will be a miracle for me to retire comfortably.” He also observed that 20% of working Americans don’t even have a bank account.
Graff warned that there is still a systemic part of the population that “has no savings at all,” observing that there is a racial disparity, with minority families even more likely to not have retirement savings. He emphasized that the situation must be addressed, and warned that if the private sector does not do something in the next 10 years, government could intervene in a way that would feature a public-sector solution rather than the private systems currently in place.
Proliferation of Proposals
The state of retirement saving has captured Washington’s attention, Graff indicated. “It’s kind of extraordinary how much more focus there is on retirement policy now than there was ever before,” he remarked. It’s “great and exciting,” Graff said—but also scary, given the nature of some of the proposals—how much more engaged senators are and how many proposals there are.
There are “countless numbers” of proposals, he said, including new 401(k) safe harbors, new efforts to promote saving, SECURE 2.0, and more. These probably won’t be enacted this year, he said, but they could be next year.
Graff highlighted the Automatic Retirement Plan Act, a bill introduced by House Ways and Means Committee Chairman Rep. Richie Neal (D-MA) that Graff said has a “decent chance” of being included as part of a budget reconciliation bill if there is one. The bill would require all employers with at least six employees to maintain an automatic IRA, 401(k), 403(b) or SIMPLE IRA and to auto enroll employees at 6% of compensation, with auto-escalation up to 10%; the only safe harbor would be for new 401(k) deferrals. It also calls for IRA limits, including catch-up. It is accompanied by proposals for changes to the Saver’s Credit that would apply to auto-enroll plans.
“The scary part” of this legislation, said Graff, is that it provides for an effective date of Jan. 1, 2023. “That is not a lot of time. It’s a lot to imagine onboarding that many companies in that amount of time,” he said, expressing the view that it would be better to have that effective date pushed forward another year.
Graff also highlighted the proposal for a new Saver’s Match, which would replace the current Saver’s Credit with a 50% government match on contributions of up to $1,000 per year, made directly to the plan. It would be available to couples with income up to $50,000, with the match phased out over the next $20,000 of income. The match would be claimed on the participant’s income tax form and would be deposited directly into a 401(k) or IRA.
An especially controversial proposal, Graff said, is for new restrictions on IRA investments. He observed that there is a proposal that prohibition of IRA investments be conditioned on account holder status, as well as a prohibition of IRA investments in entities in which the owner has a substantial interest.
Seeing Red
But it’s the debt limit, said Graff, that is “keeping me up at night more than anything else.”
Graff noted that as it often does, the Senate had come to an agreement about a short-term extension of the debt limit that would likely be sufficient until mid-December, but expressed the view that “this time it’s different.” He likened it to running up charges on a credit card and not making the minimum payment, and suggested that the debt limit and the machinations concerning it have broader effects. “The impact on retirement plans is real,” Graff said.
Hope and Opportunity
Even amid the challenges facing the industry and savers, Graff indicated that there is much room for optimism.
For one thing, the Saver’s Match proposal could have far-reaching effects, Graff indicated. More than 82 million American workers would be eligible, and he noted that research shows that it could result in $7 trillion in additional incremental retirement savings over 10 years. “This is a big number,” he observed, adding that it also could result in more than 62 million new retirement savers. And, he indicated, this proposal would also help address savings rates among those who are not high earners—he noted that research suggests that 98% of those new savers would be making less than $100,000 per year, and that tens of millions of them would be members of minority groups.
Auto-enrollment is another ray of sunshine in addressing not only savings rates, but also racial disparities in retirement preparation. “The very good news,” Graff told attendees, is that there are no such disparities with auto-enrollment. “You all save the same when you have access,” he remarked.
Graff also lauded the current system, noting that “the 401(k) works great.” He added that the employer-based system serves employees well and that employees who earn $30,000-$50,000 per year are 12 times more likely to save on their own when they have access to an employer-provided plan. “It works in a fantastic way,” he said.
Not only will some proposals portend better saving, Graff suggested, they also can spell opportunity for the retirement industry. For instance, the Savers Match alone could result in 625,000 new plan sponsors. “If a pie increases that much,” he said, “that represents opportunity for everyone in this industry.”
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