American Council of Life Insurers (ACLI) President and CEO
In a statement to the
“Policymakers should continue to seek ways to increase access to workplace retirement savings, strive for financial equality, and encourage essential financial protections offered by guaranteed retirement income products,” Neely said in her statement submitted to the committee for its hearing, “A Financially Secure Future: Building a Stronger Retirement System for All Americans.” “The focus should continue to be on ways to help more people achieve a financially secure retirement — increasing savings rates, workplace access and lifetime income security for all Americans, all key to financial security.”
Neely’s statement voices strong support for The Retirement Security and Savings Act of 2021 introduced by Sens.
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Statement for the Record Submitted to the
“A Financially Secure Future: Building a Stronger Retirement System for All Americans” on Behalf of
THE AMERICAN COUNCIL OF LIFE INSURERS
ACLI members represent 95 percent of industry assets in
Americans face significant financial security challenges, and the insurance industry plays a critical role in helping them plan, save and guarantee a secure retirement./1 In 2020, American families received
THE RETIREMENT SYSTEM IN AMERICA
The retirement system for private-sector workers in America builds upon contributions to
CHALLENGES FACING RETIREMENT SAVERS
While the current combination of
While workplace retirement plans with payroll-deducted contributions are very effective at helping people save, impediments still exist that prevent many Americans from maximizing this important savings tool. Certain segments of the population have greater barriers to savings. Despite 80 percent of full-time civilian workers having access to a retirement plan in the workplace, only 40 percent of part-time workers enjoy access to workplace savings, in particular, gig economy workers and people who work for small employers./5 Additionally,
BOLD SOLUTIONS TO ADDRESS RETIREMENT CHALLENGES
The passage of the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019, the most comprehensive retirement legislation passed since the Pension Protection Act in 2006, is expected to prove instrumental in increasing access to retirement plans. The provisions within the SECURE Act build upon the current successful private sector system, making important enhancements to improve American’s financial retirement security. For example, the SECURE Act includes provisions making it easier for employers to sponsor a retirement plan, encouraging employees to save, and helping them prepare for a secure retirement through lifetime income solutions, have real-world positive benefits. Increasing access for employees of small employers alone is anticipated to result in more than 700,000 new retirement savings accounts.
Still, other effective public policy proposals, in addition to action by plan sponsors and providers, can and should be implemented to help address lingering savings challenges and ensure more Americans can have a secure retirement. Policymakers should continue to seek ways to increase access to workplace retirement savings, strive for financial equality, and encourage essential financial protections offered by guaranteed retirement income products. The focus should continue to be on ways to help more people achieve a financially secure retirement — increasing savings rates, workplace access and lifetime income security for all Americans, all key to financial security.
ACLI supports the following policy proposals that seek to increase retirement security and savings, especially for older Americans at or near retirement:
1. Increased Access to and Participation in Retirement Plans
A sizable majority of full-time workers have access to a retirement plan in the workplace. Still, more could be done to expand access and coverage. While access is high for workers at larger employers, roughly 50 percent of all workers employed by small businesses – those with fewer than 50 workers – have access to a workplace retirement plan./7 Of those workers, only 39 percent take advantage of the plan in the workplace./8 While small businesses have access to a robust marketplace of product offerings, the uncertainty of revenue is the leading reason given by small businesses for not offering a plan, followed by cost, regulatory and administrative burdens and lack of employee demand.
* Retirement Savings Option for All Employees: Requiring a universal approach for employers without a retirement plan to provide workers with access to payroll-deducted savings through an IRA, 401(k), or other qualified retirement savings plan, is key to fundamentally expanding access to the power of workplace. Employers should have the flexibility to choose to use IRAs or set up a 401(k), or other qualified retirement savings plan. Employers should not be overly burdened by administrative costs in order to comply and workers must have the right to opt out of participation. Additionally, nearly 73 percent of employers now automatically enroll new participants into their plan./9 While employees have the option to opt out, most do not. In fact, with new employees, participation rates nearly double to 93 percent when automatically enrolled, compared with 47 percent under voluntary enrollment./10 ACLI strongly supports a universal approach in which all employers with more than 5 employees offer a plan in the workplace. This would provide an estimated 35 million workers gaining access to an employment-based retirement plan, with nearly 30 million of those workers participating in plans./11
* Increased Default Contribution Levels: Currently, employers typically automatically enroll employees into their retirement plans at three percent of their employees’ salary. While automatic enrollment is an excellent tool to help workers contribute to their retirement plan, increasing the contribution percentage each year, similar to a provision included in the Retirement Security and Savings Act (RSSA) of 2021, introduced in the 117th
* Automatic Enrollment Incentive for Small Businesses: Similar to automatic escalation tools, automatic enrollment has proven to be extremely effective in increasing participation rates, and ultimately, savings balances. Pending legislation would provide small businesses with a tax credit of
* Credit for Small Employers Providing Retirement Plans for Military Spouses: It is critical to address savings shortages prevalent among military spouses. Military spouses support their servicemembers and families through relocations and deployments, frequently sacrificing their own career aspirations – and often their ability to save for their own retirement./14
2. Incentivizing Savings for Vulnerable and At-Risk Populations
Special consideration should be given to individuals who face unique challenges when it comes to retirement savings. These groups, many times, can benefit greatly from focused public policy initiatives to make their path to saving for retirement easier. These include:
* Those Closest to or in Retirement: The way we live, and work has been impacted by the global pandemic. Those closest to retirement need even more flexibility regarding how they continue to accumulate assets, but also, when they are obligated to begin tacking distributions. More and more savers are opting to stay in the workforce and public policy should accommodate them by increasing the required minimum distribution (RMD) age from 72 to 75 and allowing those in their 60s to save even more by increasing catch up provisions to
* Ensuring Lifetime Income for Older Americans: Savers that are close to or in retirement may want to take steps to ensure they do not outlive their savings. Only one vehicle can guarantee this, an annuity. Removing barriers to annuities provides savers with the option to guarantee an income for life. Qualified longevity annuity contracts (QLAC) help retirees ensure retirement solvency. Public policy should modernize the QLAC rules, by repealing the 25-percent account balance limit, increasing the eligible QLAC amount to
* Institutionally Disadvantaged Savers: For too long, racial injustice and systemic inequity have excluded communities of color from traditional pathways to financial security and created fewer opportunities for financial peace of mind. Everyone, no matter their age, job, income level, gender or race, deserves the chance to build financial certainty and
* Low Income Earners: While the current Saver’s Credit allows low- and middle-income earners a tax credit, RSSA would significantly improve the incentive by expanding those eligible for the credit, making the credit refundable, and contributing it directly to a retirement plan or Roth IRA./17
3. Additional Plan Innovations
While the SECURE Act certainly made a large impact on the retirement savings landscape, small changes can further enhance and improve the current retirement system. These include:
* Expanding of the Open Multiple Employer Plans (Open MEPs) provision to include 403(b) plans sponsored by certain tax-exempt employers and public educational institutions.
* Clarifying rules applicable to stable financial planning tools that can meet savers’ financial needs. Currently, there is ambiguity surrounding fiduciary liability as it relates to general account funds. Insurance companies offer guaranteed principal and interest through these conservative, insured instruments. Backed by the insurer’s general assets, general account products often provide higher rates of return than other fixed return and stable value investment vehicles. Many employers include them among the investment options available to their retirement plan participants. Large sums of 401(k) assets are invested in these products. It is critical that
* Supporting legislative efforts, like the Lifetime Income for Employees Act, bipartisan legislation introduced in the 116th
* Facilitating emergency saving to ensure Americans have funds to cover unexpected financial challenges while protecting critical long-term retirement savings. Several proposals have been introduced in the
* Reinforcing of the value and benefits associated with modern, electronic delivery of retirement plan documents and notices, while ensuring an opt-out option for plan participants. COVID-19 has demonstrated that access to important documents electronically is a critical need of Americans.
Providing Americans, especially older Americans, with greater access to retirement savings tools will help them better prepare for retirement. Many retirees can expect to live more than 30 years or longer in retirement. Facilitating lifetime income solutions and increasing financial education empowers and educates Americans to make better decisions. By taking action now,
1/ ACLI analysis of preliminary 2020 NAIC Annual Statement data.
3/ ACLI analysis of the
8/ Id. 9
11/ ACLI estimates based on the
13/ S. 1770, The Retirement Security and Savings Act of 2021, introduced in the 117th
14/ S. 1770, The Retirement Security and Savings Act of 2021, introduced in the 117th
15/ S. 1770, The Retirement Security and Savings Act of 2021. H.R. 2954, The Securing a Strong Retirement Act of 2021.
16/ S. 1770, The Retirement Security and Savings Act of 2021. H.R. 2954, The Securing a Strong Retirement Act of 2021.
17/ S. 1770, The Retirement Security and Savings Act of 2021, introduced in the 117th
19/ H.R. 8990, The Lifetime Income for Employees Act, introduced in the 116th
20/ S. 1870, The Enhancing Emergency and Retirement Savings Act of 2021, introduced in the 117th