While a 50-50 “balance” between increasing revenue and changingSocial Security benefits may lie inthe future, if a policy group’s findings has its way, the membersagree that one factor that must be improved to boost retirementsecurity in the United States is to increase workers’ access toretirement plans.

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Related: Does new EBRI data bolster argument for statemandates?

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A report by the Washington-based Bipartisan Policy Center’s Commission on RetirementSecurity and Personal Savings has come up with 16 proposals todo just that, since — in the words of the report— “[w]orkers havefound themselves part of a great experiment” as employers haveshifted from defined benefit plans to defined contribution plans.This has pushed workers into having to bear “far more …responsibility for financing their own retirement, andsimultaneously exposed them to greater risk.”

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Related: National retirement savings planproposed

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The 19 members of the commission range in background frombusinesses and plan sponsors to members of state and federalgovernment agencies; elected officials; worker advocates;researchers on savings and retirement policies; and advisors tolarge companies on retirement plans.

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Their discussions on the subject of retirement, from the placethat Social Security occupies in retirees’ lives to how workers canbetter prepare for retirement in an atmosphere of “stagnating wagesand weak economic growth,” were constrained by the restriction of“a roughly 50-50 balance between increased revenues and changes tobenefits in future years.” While “[n]ot all commissioners agree[d]with this restraint,” it was the starting point for discussionsthat ranged from “proposals with more revenues” to “greater changesto current benefits compared to current policy.”

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The commission’s efforts identified what it termed “six keychallenges” in facilitating savings and a secure retirement:

  1. Many Americans’ inability to access workplace retirement savingsplans.

  2. Insufficient personal savings for short-term needs, which toooften leads individuals to raid their retirement savings.

  3. The risk of outliving retirement savings.

  4. Failure to build and use home equity to support retirementsecurity.

  5. Lack of basic knowledge about personal finance.

  6. Problems with Social Security, including unsustainable finances,an outdated program structure, and failure to provide adequatebenefits for some retirees.

While the report dealt with many other pieces of the retirementpuzzle, here are the 16 proposals it advanced to improve workers’access to retirement plans:

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Photo: Getty

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Workers in small businesses are less likely to have accessto a retirement plan. (Photo: Getty)

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1. Create Retirement Security Plans for businesses withfewer than 500 employees.

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Small businesses are often a sticking point in getting employeesto save for retirement, since “existing options often do not meet[employers’] needs.” Thus, their employees are shut out ofretirement savings at work.

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The commission recommended the creation of Retirement SecurityPlans, which it said would be a better option than existingmultiple employer plans. RetirementSecurity Plans “would enable employers to band together and utilizeeconomies of scale to offer their workers low-cost, well-designedoptions” while not being subject to the “commonality requirements”of multiple employer plans. These plans would be covered byEmployee Retirement Income Security Act.

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2. Establish an enhanced, more-flexible,automatic-enrollment contribution safe harbor that would improveaccess to well-designed workplace retirement savingsplans.

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Under this proposal, small businesses would be exempt fromoffering an employer contribution, while still allowed to offer one(and at higher, rather than lower, limits) and instead satisfyother conditions for auto-enrollment within a specifiedcontribution range; automatically escalate contributions annually;and continue auto escalation up to a certain contributionlevel.

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Not just new hires but existing employees would be required toundergo auto enrollment, the latter once every three years; thelatter could either choose a different contribution rate or opt outaltogether.

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3. Enhance the existing myRA retirement savings programto provide a base of coverage for workers who are least likely tohave access to a workplace retirement savings plan.

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To avoid the “prohibitive” administrative costs to employers ofproviding retirement savings plan for workers who “have lowearnings, who work limited hours or seasonally, or who change jobsfrequently,” the commission suggested an enhancement to thestatutory framework of myRAs.

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Related: MyRA as a 19% guaranteed tax-free collegefund

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The addition of auto-enrollment, permission for employercontributions, and an automated rollover process for myRA accountsthat exceed the $15,000 account cap, together with other changesincluding easing the process for employers to offer myRAs, are thesuggestions of the commission.

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4. Introduce a nationwide minimum coverage standard topreempt a disjointed patchwork of state-by-stateregulation.

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The commission recommended “a nationwide minimum-coveragestandard that would expand access to workplace retirement savingsin a manner that would be less burdensome for employers.”

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Related: If state plans can't close the retirement gap, is anational IRA needed?

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Such a standard would avoid the potential for actions byindividual states, several of whom have already taken or areconsidering actions to create retirement savings plans, to“frustrate efforts to implement national retirementemployee-benefit policy that provides workers with strong consumerprotections while offering uniform regulation to employers, many ofwhich conduct business in multiple states.”

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Photo: Getty

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Creating policies to encourage plan sponsors to helpparticipants diviersify is another recommendation. (Photo:Getty)

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5. Craft policy to encourage plan sponsors to helpparticipants diversify and appropriately allocate theirinvestments.

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Because workers often enter a retirement plan only to leaveinitial investment options alone for years, regardless of changingpersonal circumstances, the commission recommended a safe harborfor plans that do auto-reallocation into a qualified default investmentalternative.

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That way, workers approaching retirement would find themselvesin more conservative investment options even if they had taken noaction on their own to reduce their risk.

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Participants would be notified of the impending change, so theycould opt out.

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6. Clarify plan sponsors’ ability to establish differentdefault tax treatments to benefit both lower- and higher-earningemployees.

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Lower-income workers may not derive much or any tax benefit fromcontributing to a retirement account, and might be better off withRoth 401(k)s.

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But since Roth auto-enrollments are uncommon, and existingregulations aren’t clear on whether employers must use the samedefault tax treatments for all employees, the commissionrecommended that regulations and safe harbor rules be changed sothat employers may establish tax-deferred accounts as a default forsome employees and Roth accounts as a default for others.

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The new safe harbor, the report said, “would limit legal riskfor an employer that automatically enrolls lower earners into Rothsavings plans and higher earners into tax-deferred savings plans,as long as participants retain the option to switch.”

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7. Create Lifetime Income Plans as a new,more-sustainable retirement-plan design that would be available formultiemployer DB plans to voluntarily adopt.

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Lifetime Income Plans, said the report, “would blend thestrengths of (defined benefit) and (defined conribution) retirementplans” and provide benefits “only … in the form of a monthlypayment for life.”

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They would have high funding standards and the ability to adjustbenefits. Lump-sum distributions, loans, and hardship withdrawals wouldnot be permitted.

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8. Create a private-sector Retirement SecurityClearinghouse to help individuals consolidate retirementassets.

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To avoid the patchwork of retirementaccounts becoming ever more common in a workforcecompelled to change jobs frequently, often leaving behindretirement accounts as they seek work, the commission suggested thecreation of an entity to help people hang on to funds that may bescattered across multiple accounts.

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The report said that “a private-sector Clearinghouse … wouldstreamline transfers and rollovers among (Employee RetirementIncome Security Act defined contribution) plans and IRAs.”Such an entity “could also perform additional functions, such asdistributing the proposed Starter Saver’s Match … directly toparticipant accounts and retaining information about aparticipant’s most recent contribution rate. The latter mightenable more-sophisticated automatic-enrollment systems whenparticipants change employers.”

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Photo: Getty

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The commission recommends a tax break for employers who addauto features to plans. (Photo: Getty)

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9. Establish new limits on company stock in definedcontribution plans to help protect employees from potentiallycatastrophic investment risk.

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Because holding company stock in retirement accountshas proven to be risky business, the commission suggested that thelimits on such stock be reduced.

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In addition, it recommended that “participants who are investedin company stock should be notified of the risks posed by thisinvestment option and should be required to make an annualaffirmative election to continue contributions to company stockfunds.”

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10. Change congressional budget-estimation rules to usea more-accurate, long-term approach for evaluating retirement taxexpenditures.

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The report said that official budget estimates of legislationinvolving retirement plans and IRAs consider the impact ontax revenues over only a 10-yearperiod—but that’s not helpful, since it overstates the cost of taxdeferral and understates the budgetary cost of Roth contributions.In both cases the true effects extend beyond the 10-yearwindow.

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So the commission has recommended that a long-term approachbased on the discounted net present value of the projected revenuechanges be used instead.

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11. Promote well-designed workplace retirement savingsplans by increasing the new-plan-startup tax credit for employersand offering a new tax credit for employers that addauto-enrollment.

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Since auto-enrollment has been shown to“dramatically” increase participation rates, the commissionrecommended boosting the tax benefits for employers starting up anew retirement plan that uses auto-enrollment.

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But the commission went further, recommending a tax break notjust for employers who add new plans, but for those who add autofeatures to existing plans: “a new $1,500 tax credit for existingsmall plan sponsors that adopt an automatic-enrollment safe harborfor the first time.”

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12. Change the present Saver’s Credit into a refundableStarter Saver’s Match to provide better incentives for youngersavers.

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The Retirement Savings Contribution Credit, a.k.a. “Saver’sCredit,” while providing a sizeable benefit to lower-income savers,is nonrefundable: in other words, if low earners don’t earn enoughto have to pay taxes, they don’t get any benefit from thecredit.

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Related: IRS 2016 cost-of-living adjustments for retirementplan contributions

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As a result, the commission suggested that it be replaced, forworkers aged 18–35, with a fully refundable Starter Saver’s Matchthat would go directly into a saver’s retirement account and matchcontributions to an IRA or defined contribution plan on adollar-for-dollar basis up to a maximum of $500 per year ($1,000for joint filers).

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The match would phase out between $25,000 and $30,000 ofadjusted gross income for single filers and between $50,000 and$60,000 of adjusted gross income for joint filers.

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Photo: Getty

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Ending the IRA estate-planning loophole is anotherrecommendation. (Photo: Getty)

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13. Establish an overall limit on the total assets anindividual can hold in tax-advantaged savings accounts to reducetaxpayer subsidies to wealthy Americans.

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The accumulation of millions of dollars in tax-advantagedaccounts for just a few people (Government Accountability Officeestimates of fewer than 10,000 taxpayers holding upwards of $5million in IRAs), the committee said, “is an inefficient use oftaxpayer resources and goes well beyond the policy’s originalintention of promoting retirement security.”

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Related: 401(k) savings cap could affect millions ofparticipants

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It recommended “applying a new limit to individuals whoaccumulate aggregate retirement savings, including all (definedcontribution) plans and IRAs, in excess of $10 million.” While thethreshold should be indexed, people who exceed $10 million wouldnot be allowed to make additional contributions.

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14. End the “stretch” IRA estate-planningloophole.

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To avoid the “Dynasty” effect of IRAs being treated as estate-planningvehicles and heirs keeping inherited IRA assets in tax-advantagedaccounts for decades, the committee recommended that nonspousalbeneficiaries, except for beneficiaries with disabilities, berequired to distribute inherited IRA and defined contribution-planassets over no more than five years.

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15. Exempt small defined contribution-plan and IRAbalances from required minimum distribution rules, therebysimplifying requirements for many individuals.

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Required minimum distributions preventindividuals who have low lifetime earnings and who use SocialSecurity and other recurring benefits to pay their regularretirement expenses from keeping aside defined contribution and IRAassets as emergency funds or as a reserve to pay for long-termcare.

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The committee recommended that individuals with fewer than$100,000 in aggregate defined contribution plans and IRA balancesbe exempt from required minimum distribution rules.

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16. Exclude modest retirement-account balances fromasset tests to remove disincentives to saving for lower-incomeAmericans.

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Lower-income workers can be discouraged by means testing fromsaving for retirement, so that they won’t be disqualified fromreceiving other important benefits, such as Medicaid; SupplementalSecurity Income (SSI), which provides a modest cash benefit (nomore than $733 per month for an individual or $1,100 for a couple)to older Americans and people with disabilities who have very lowincomes and few assets; and the Supplemental Nutritional AssistanceProgram, also known as food stamps.

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The committee recommended excluding the first $25,000 of savingsin retirement accounts (IRAs and defined contribution plans) fromasset tests for all public programs.

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Related: Retirement plans in 2019: A sea-changecoming

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