Between Social Security and Medicare changes, long-term care insurance complications and lingering uncertainties regarding the Affordable Care Act, helping clients to prepare for retirement didn’t get any easier in 2013. Fortunately, potential legislation in this year may help retirees to better plan for prosperity in their golden years.
These changes won’t likely come in the form of tax breaks, budget cuts or benefits increases, however. “With the recent budget agreement and 2014 being an election year, it’s highly unlikely we’ll see massive tax reform,” according to Bob Kaplan, national training consultant at ING US Retirement. Instead, budget mandates, rules changes and fiduciary reform could help pre-retirees to make more accurate predictions as to how much they’ll need to save and invest to preserve their living standards for the long haul.
Automatic IRA Enrollment
The April 2014 Obama budget contained an automatic IRA enrollment provision for workers at companies with 10 or fewer employees, and Congressman Richard Neal (D-MA) recently put forth the same idea in standalone bill H.R. 2035. Congress has been considering the measure since 2009, and if it passes, it could greatly increase the coverage and availability of workplace retirement savings.
While automatic enrollment might not confer any additional funds unto participants—and while some advisers have criticized the proposal for the additional requirements it would place upon their firms—it could encourage workers to save far more and far earlier than they would otherwise. “Studies have shown people are 14 to 15 times as likely to save for retirement if they can save in the workplace,” said Kaplan.
Greater Retirement Readiness
To help retirees accurately predict their future incomes and current investment requirements, Congress is also considering H.R. 2171, the Lifetime Income Disclosure Act. A bipartisan proposal, the law would require employer-sponsored retirement plans to issue annual statements showing participants exactly how their current contributions will translate into long-term, inflation-adjusted income streams.
“This discussion is moving more towards defined contribution plans getting and helping participants to be more knowledgeable about the payment and distribution phase,” said Kaplan. “It also helps people make good decisions about Social Security—how early they should draw and how long they should keep working.”
Increased Fiduciary Responsibility
Outside of Congress, both the Department of Labor and Securities and Exchange Commission are considering changes to fiduciary requirements. According to Kaplan, the DOL’s proposed alterations would make advisers fiduciaries for all investment recommendations. “It’s also contemplated that the guidance would include a provision that covers recommendation to rollover distributions to an IRA as a fiduciary function,” he added. “Right now it is not unless the adviser is also a fiduciary to that exact plan, and even this is not absolute.”
According to the Financial Services Institute, the SEC’s rules changes would similarly create stricter requirements for the “suitability” of investment advice to specific investors. Like the DOL, the SEC would also make advisers fiduciaries to all plans they recommend, further ensuring that their clients’ investments make sense when all factors – including advisement fees – are taken into account.
“Increased oversight will help both people who are accumulating for retirement now and those who are already holding assets,” Kaplan concluded. “The additional layer of responsibility on the investment adviser can only help the retiree.”