If you think that the retirement industry suddenly fell off the radar with the end of the first round of fiscal cliff fixes, think again - substantial reform, courtesy of the second-term Obama administration, is likely on the way.
That's the belief of Marcia Wagner, a prominent ERISA attorney serving as keynote at this year's sixth annual Profit-Driven Strategies in the DCIO Market, organized by Financial Research Associates - held this week in Wagner's base of operations, Boston.
Wagner contends that the allure of taxes deferred by America's retirement plans continues to be too strong to politicians - some $70 billion a year, and as much as $361 million over a four-year period - meaning that tangible reform efforts are certainly a possibility.
And with Monday's news of the retirement of Sen. Tom Harkin, chairman of the Senate pensions and education committee, Wagner says she suspects a harder push on his part to gain support for his own proposal creating a nationalized retirement system, an Americanized rendition of plans found in Western European nations.
Wagner says that in an era where "the power of inertia" helps guide an otherwise shell-shocked and financially confused participant public, the most likely change will probably be an Obama-led move to mandatory, automatic IRAs for most American workers.
Under that slightly revolutionary plan, companies with at least 10 employees would be required to establish a deferral rate of 3 percent into IRA plans (a post-tax Roth IRA would be the default but pre-tax traditional IRAs would be available as a second choice). Workers as young as 18 would be included in the plan.
"People tend to associate this idea with a left-wing, Democratic policy, but it's actually a joint product from think tanks that goes back to John McCain's run for president," Wagner noted.
She also concedes that the changes would not only be burdensome and present a challenge to the private sector, but could also be deemed unconstitutional - as well as a further intrusion by government, in the eyes of many Americans.
In the meantime, as U.S. workers continue to look for ways to more simply and safely invest for their retirement, Wagner says that a recent spate of class-action suits have also opened up the floodgates for the possibility of partcipants litigating their way into other retirement world changes - requiring plan sponsors to be especially cautious when considering how to protect and grow their investments.
Plan sponsors, she admits, are caught between a rock and a hard place: they want to render useful advice to participants, but their advisors who receive variable fees also want to avoid being caught up in prohibited transactions. A move to computerized planning models, she suggests, could offer a slight level of fiduciary safety.
Wagner says the industry also needs to begin to deal with the growing requirements for decumulation planning, with changes including the use of deferred annuties, better methods of rollover to DB plans and even some relief of RMD rules as likely topics in the coming years.