The U.S. Chamber of Commerce published on Monday a white paper, “Private Retirement Benefits in the 21st Century: A Path Forward,” that provides guidelines for creating and maintaining retirement plans and increasing workers’ savings.
The paper notes that “it is more important than ever to ensure that there are no statutory, practical or political barriers to innovation that would discourage participation in the private retirement system.
Some legislators have been discussing changes to the tax treatment of retirement savings as part of a broader effort to overhaul the tax code.
“The success of private retirement plans is at risk of being undone by short-term political wrangling,” the Chamber's paper states. “Eliminating or diminishing the current tax treatment of employer-provided retirement plans would jeopardize the retirement security of tens of millions of American workers, impact the role of retirement assets in the capital markets, and create challenges in maintaining the quality of life for future generations of retirees.”
Among the Chamber’s recommendations are to:
- Encourage employers to create and maintain retirement plans by growing plan sponsorship among small businesses; streamlining notice requirements and allowing for greater use of electronic disclosures; reforming multi-employer defined-benefit funding rules to prevent bankruptcy among small employers; reforming single-employer defined-benefit funding rules to allow for greater predictability; and clarifying hybrid plan rules and regulations.
- Encourage greater individual savings by pushing for the use of automatic plan features, promoting financial education for retirement, and helping preserve retirement assets.
- Implement strategies to make retirement assets last by encouraging additional distribution options; addressing required minimum distribution rules; encouraging employers to offer voluntary products; and eliminating barriers to phased retirement.
“The Chamber is determined to protect the retirement security of America’s workforce and preserve the ability of employers to provide flexible and comprehensive compensation to employees,” Randel Johnson, senior vice president of the labor, immigration and employee benefits division of the Chamber, wrote in the paper.
In 1975, 19% of retiree income was from defined-benefit and defined-contribution plans. In 2009, that increased to 26%, according to a July 2011 paper from the Investment Company Institute (ICI). Furthermore, the share of retirees who receive retirement income from employment-based plans has grown from 20% in 1975 to 31% in 2009.
One of the great successes of the private retirement plan system, the paper claims, is employers’ ability to implement new plan features as the needs of their participants change. For example, as workplace demographics changed and defined-benefit plans lost favor among employers, hybrid plans that combined the benefits of DC and DB plans became more popular.
“No single plan design is perfect for every company or every worker,” the paper says. “Therefore, the private retirement system has encouraged innovation in plan design, and many employers have more than one type of plan as part of their retirement program.” Flexibility and choice are key to plan success, and the Chamber predicts that in the future a mix of benefit plans will be available to choose from, including defined-benefit, defined-contribution, multiemployer and hybrid plans.
The paper refers to data from the Department of Labor that show the number of participants in defined-contribution plans has increased from 47 million in 1995 to 87 million in 2009.
ICI found that 60% of workers who will retire following a full career of 401(k) saving and investing will be able to replace half their salaries, according to the paper. Furthermore, even though the market decline reduced the average 401(k) account balance by more than 27% between 2007 and 2008, the accounts gained almost 32% between 2008 and 2009.
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