Walter Russell Mead says the current benefit account framework is too rigid and too complicated. (Photo: Senate Banking)

Congress should develop a simpler, more flexible workplace savings framework, and it should put administration of the accounts in the hands of financial institutions, not employers.

Policy wonks Kent Conrad and Walter Russell Mead gave that advice Wednesday, during a hearing on U.S. retirement security. The economic policy subcommittee of the Senate Committee on Banking, Housing and Urban Affairs held the hearing in Washington and posted a video recording on its website.

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Conrad, a former Democratic senator from North Dakota who is now a senior fellow at the Bipartisan Policy Center, said the current framework works poorly for modern workers, who may change jobs many times over the course of a career.

The Bipartisan Policy Center found when it looked at retirement account data that employers and financial institutions are administering 25 million orphaned accounts.

“What sense does this make?” Conrad asked.

Mead, a distinguished fellow at the Hudson Institute, said the fact that Americans tend to have so many small, scattered accounts is one reason why the Department of Labor’s effort to impose a fiduciary standard on all retirement advisors is unrealistic.

Financial institutions might be able to afford to meet a fiduciary standard for all retirement accounts if the balances were bigger, Mead said.

Today, however, the typical retirement account balance is too small for the cost of complying with the fiduciary standard to make business sense, Mead testified.

Conrad said he is worried about the possibility that retirement advisors operating under any standard other than a fiduciary standard might fail to disclose potential conflicts of interest.

“I wouldn’t go to a company advising me on wealth management that didn’t have it,” Conrad said.

Conrad said, however, that regulators may have to make distinctions for retirement savers with low balances when they try to enforce a fiduciary standard.

The median U.S. saver ages 62 to 69 has just $30,000 in retirement savings, and one-quarter of the people in that age range have no retirement savings, Conrad said.

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Conrad called for creating pooled retirement savings programs for small employers, and for letting employers set up separate retirement savings accounts and short-term savings accounts for workers.

“By building up these rainy-day savings, individuals might be less likely to raid their retirement savings in the event of an unexpected emergency,” Conrad said.

Conrad also recommended encourage employers to build lifetime income features, or annuitization features, into any retirement plans they offer.

Mead recommended replacing most types of personal benefits accounts with an American Mobility Account, which would serve as a portable account.

The AMA could contain a Supplemental Retirement Account, and an employer could deposit part of the AMA holder’s income into the SRA, Mead said.

The AMA could also contain a Human Capital Account, and an AMA holder could use that to cover expenses such as college bills, job training and costs related to professional licensing, Mead said.

— Read I Moved My Retirement Money and Lived to Tell About It on ThinkAdvisor.