2018 RETIREMENT SECURITY BLUEPRINT - Insured Retirement Institute (IRI)

2018 RETIREMENT SECURITY BLUEPRINT

2018 Retirement Security Blueprint
Americans face many challenges and obstacles in             which make individuals responsible for ensuring
saving for retirement. In the past, many Americans          their own financial security during retirement.
relied on employer-based pension plans for                  IRI’s 2018 Retirement Security Blueprint includes
retirement savings. Today, most Americans rely              common sense, bipartisan policies to help
on other types of retirement savings plans such             Americans achieve their retirement goals.
as 401(k) or Individual Retirement Accounts,

IRI’S 2018 BLUEPRINT WILL:                                  WHO IS IRI?
1. M
    aintain and enhance current tax treatment for          The Insured Retirement Institute (IRI) is the leading
   retirement savings;                                      association for the retirement income industry. IRI
2. E
    xpand opportunities to save for retirement by          proudly leads a national consumer coalition of 40
   enhancing access and features of workplace               organizations and is the only association that represents
   retirement plans;                                        the entire supply chain of insured retirement strategies.
                                                            IRI members are the major insurers, broker-dealers,
3. Increase access to lifetime income products in
                                                            distributors, asset managers, and 150,000 financial
   workplace retirement plans;
                                                            professionals. As a not-for-profit organization, IRI
4. P
    reserve and improve access to professional
                                                            provides an objective forum for communication and
   financial guidance, education and information; and
                                                            education and advocates for the sustainable retirement
5. P
    rovide more resources to protect older                 strategies Americans need to help achieve a secure and
   Americans from financial exploitation.                   dignified retirement.

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2018 ADVOCACY BLUEPRINT
      Maintain And Enhance Current Tax Treatment For Retirement Savings
1.   MAINTAIN TAX-DEFERRED TREATMENT FOR RETIREMENT SAVINGS

The “Tax Cuts and Jobs Act” recognized the vital role tax          conducted by IRI shows Americans would save less if
deferred retirement savings plays in spurring America’s            tax deferral is reduced or eliminated. Congress should
economic growth and prosperity. By maintaining the                 continue to promote the use of tax deferral for retirement
tax-deferred treatment of retirement savings, Congress             savings to encourage more Americans to prepare and
preserved the tools necessary to help Americans save               save for a secure retirement.
for their retirement during their working years. Research

2.   PROTECT THE CURRENT STRUCTURE AND DIVERSITY OF WORKPLACE RETIREMENT PLANS

There are several types of workplace defined                       inclusion in the “Tax Cuts and Jobs Act” for purposes
contribution retirement plans which consider the                   of simplification and consolidation. The final legislation
differences among workers in various employment                    maintained the distinct types and structures of retirement
sectors, such as the private, governmental, church,                plans which were created to address the needs of
educational, and nonprofit sectors. The most prominent             distinct types of workers. Congress should continue to
are 401(k), 403(b) and 457(b) plans. Proposals to                  protect and maintain the current structure and diversity
consolidate these types of plans were considered for               of workplace retirement plans.

3.   PROVIDE FAVORABLE TAX TREATMENT FOR GUARANTEED LIFETIME INCOME IN RETIREMENT

Distributions and withdrawals from guaranteed lifetime             Social Security and similar programs. Congress should
income products – like annuities – are currently taxed as          therefore create tax incentives – such as a lower tax rate or
ordinary income. However, these products provide significant       an exclusion from taxation – to encourage greater use of
social and economic benefits. By helping older Americans           guaranteed lifetime income products.
avoid outliving their assets, annuities reduce pressure on

      Expand Opportunities To Save For Retirement
1.   REQUIRE EMPLOYERS TO OFFER RETIREMENT PLANS FOR WORKERS

Most Americans are not saving enough for retirement                This bill would generally require all but the smallest
because they do not have access to employment-based                employers to maintain a 401(k) plan and employees
retirement savings plans. In fact, recent research has             would be automatically enrolled (with the ability to
shown only 40 percent of full-time workers at small and            opt out). It would also remove cumbersome legal and
medium-sized businesses have access to employment                  regulatory barriers which discourage employers from
based 401(k) plans. To expand access for more Americans            offering this benefit to their employees while preserving
to have an opportunity to increase their savings for               employer choice and maintaining protections for
retirement, Congress should enact legislation such as              employers and their employees.
the “Automatic Retirement Plan Act of 2017.”

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2018 ADVOCACY BLUEPRINT
2.    NABLE ALL SMALL BUSINESSES TO USE MULTIPLE EMPLOYER PLANS FOR THE BENEFIT
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     OF THEIR WORKERS

Small businesses face financial and administrative                   caused by the acts or omissions of other employers (the
challenges, as well as legal risks, when offering a retirement       “one bad apple rule”). Congress should enact legislation
plan to employees. As a result, many do not offer a                  to expand access to MEPs, such as the provisions which
retirement savings plan for their employees. Allowing                have been included in the “Retirement Enhancement and
small businesses to band together to achieve economies               Savings Act of 2016”, the “Automatic Retirement Plan
of scale and to delegate to a professional plan fiduciary            Act of 2017”, the “Retirement Security Act of 2017”,
responsibility for sponsoring the plan would facilitate their        “Retirement Security for American Workers Act “and the
offering a retirement plan and would expand access to a              “Small Businesses Add Value for Employees Act (SAVE)
workplace plan for more workers. This can be achieved                of 2017”. In addition, given that lifetime income strategies
by removing the restrictions on the types of employers               greatly reduce the risk of outliving retirement savings, these
that can band together in a Multiple Employer Plan (open             plans should be required to make a lifetime income option
MEPs), and by protecting employers who participate in a              available to participating employees.
MEP and their employees from any negative consequences

3.   I NCREASE THE AUTO-ENROLLMENT AND AUTO-ESCALATION DEFAULT RATES

Studies have shown that automatic enrollment is                      Workers across all income brackets are statistically more
extremely successful in getting more people to save for              likely to participate when their employers have auto-
retirement with participation rates at least 10 percentage           enrollment but will need higher savings thresholds to
points higher in plans with automatic enrollment (77%)               reach their retirement savings goals. Congress should
than those without it (67%). Under current law, employers            increase the default deferral rate to 6 percent at the time
can automatically enroll employees in 401(k) plans and               of automatic enrollment and permit automatic escalation
most private-sector employers set the default rate at                up to 15 percent. This proposal is part of several bills,
3 percent of pay. This is too low for adequate retirement            including the “Retirement Security Act of 2017,”
savings. Research by EBRI has found that a 6 percent                 the “Small Businesses Add Value for Employees Act
default savings rate would lead to significantly better              (SAVE) of 2017,” the “Automatic Retirement Plan Act
retirement outcomes for workers without causing a                    of 2017” and the “Retirement Plan Simplification and
marked increase in workers opting out of the plan.                   Enhancement Act of 2017.”

4.   ENHANCE THE START-UP CREDIT FOR SMALL EMPLOYERS’ RETIREMENT PLANS

Under current law, small employers with up to 100                    plan. Congress should therefore enact the “Retirement
employees can receive an annual tax credit equal to                  Enhancement and Savings Act of 2016,” the “Small
50% of the costs of starting a retirement plan, up to a              Businesses Add Value for Employees Act (SAVE) of
maximum of $500 for three years. Unfortunately, this                 2017,” the “Automatic Retirement Plan Act of 2017,”
incentive is not having the desired impact. According                or similar legislation to make the start-up retirement
to the Bureau of Labor Statistics, less than half of all             credit available for the first five years and to increase the
workers at companies with fewer than 50 employees                    maximum credit to $5,000.
have access to an employer-sponsored retirement

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2018 ADVOCACY BLUEPRINT
      Increase Access To Lifetime Income Products
1.   CLARIFY EMPLOYER FIDUCIARY RESPONSIBILITY FOR CHOOSING LIFETIME INCOME PRODUCTS
Current regulations do not provide sufficient clarity about        by state insurance regulators, such as capital and
the steps employers must take to satisfy their fiduciary           reserving standards. This can be achieved either through
responsibilities if they want to make lifetime income              a Department of Labor rulemaking or Congressional
products available to their employees. Employers                   enactment of legislation such as the “Increasing Access
should be permitted to give their employees access                 to a Secure Retirement Act,” the “Small Businesses
to lifetime income products provided by insurers that              Add Value for Employees Act (SAVE) of 2017” and the
meet certain existing regulatory requirements enforced             “Retirement Enhancement and Savings Act of 2016.”

2.   E NABLE ANNUITY PORTABILITY

Due to a technicality in the tax code, employees                   “Retirement Plan Simplification and Enhancement
who invest in lifetime income options through an                   Act of 2017“ or the “Retirement Enhancement and
employment-based retirement plan would lose the                    Savings Act of 2016,” which include provisions to treat
guarantees associated with those investments if                    a recordkeeping change as a distributable event. This
their employer changes recordkeepers. To avoid this                simple amendment will ensure workers are not harmed if
result, many employers simply choose not to offer                  their employer decides to make such changes.
lifetime income options. Congress should enact the

3.   R EDUCE THE AGE REQUIREMENT FOR IN-SERVICE ROLLOVERS TO PURCHASE
      LIFETIME INCOME PRODUCTS

Under Internal Revenue Service (IRS) rules, participants are       for the purchase of deferred income annuities. Allowing
required to wait until age 59 1/2 to purchase an annuity           such purchases of deferred income annuities would help
or other guaranteed lifetime income products. Congress             to facilitate greater access to lifetime income products for
should amend the Code to allow plan participants aged              participants at an earlier age.
50 and older to initiate special in-service rollover rules

4.   UPDATE REQUIRED MINIMUM DISTRIBUTION (RMD) RULES TO REFLECT LONGER LIFESPANS

The Required Minimum Distribution (RMD) age was                    age 90, and 33 percent chance of at least one spouse
set in 1962 when life expectancies were considerably               living to 92. Congress should enact legislation such as
shorter than they are today. Workers today face an                 the “Retirement Plan Simplification and Enhancement
increased risk of outliving retirement assets because              Act of 2017” to increase the RMD age from 70 ½ to at
of longer lifespans. For a married couple age 66, there            least 75 and mortality tables should be updated to reflect
is a 66 percent chance of at least one spouse living to            longer life expectancies.

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2018 ADVOCACY BLUEPRINT
5.   REFORM THE RULES GOVERNING THE USE OF QLACS
Current Treasury Department regulations governing                the statutory authority to exempt more than 25% of any
qualifying longevity annuity contracts (QLACs) imposed           account. Congress should enact legislation, such as
certain limits on the exemption from the minimum                 that contained in Section 203 of the “Retirement Plan
distribution rules until payments commence which have            Simplification and Enhancement Act of 2017,” to
prevented QLACs from achieving their intended purpose            provide the statutory authority the Treasury Department
in providing longevity protection. The regulations limit         requires to enhance QLACs by easing the administrative
the premiums an individual can pay for a QLAC to the             challenges associated with rolling over funds to purchase
lesser of $125,000 or 25% of the individual’s account            a QLAC and increase the size of the exemption from the
balance under the plan or IRA. These limits were included        required minimum distribution (RMD) rules.
in the regulation because the Treasury Department lacked

6.   ALLOW BROADER USE OF LIFETIME INCOME PRODUCTS AS DEFAULT INVESTMENT OPTIONS
Under the “Pension Protection Act of 2006” (PPA), the            capital preservation lifetime income products, leaving
Department of Labor (DOL) was directed to adopt rules            workers without access to guaranteed lifetime income.
to allow capital appreciation and/or capital preservation        This is inconsistent with Congress’s intent. Congress
products to qualify as Qualified Default Investment              should enact legislation directing the DOL to revise the
Alternatives (QDIAs). However, the DOL regulations               QDIA regulations by removing the 90-day transferability
require that the product be transferable every 90 days.          requirement, so employers can include lifetime income
As a result, employers cannot provide their workers with         products for their workers.

      Help Savers Make Decisions About Their Finances
1.    DOPT A CLEAR, CONSISTENT AND WORKABLE BEST INTEREST STANDARD OF CARE
     A
     FOR FINANCIAL PROFESSIONALS

For nearly a decade, Congress and regulators at                  IRI and its members have long supported the principle
the federal and state levels have been working to                that financial professionals should be required to act in
formulate appropriate standards of conduct for                   their clients’ best interest when providing personalized
financial professionals who provide personalized                 recommendations. To avoid the creation of duplicative
advice about investments and/or insurance to retail              or conflicting rules, IRI urges all regulatory bodies –
consumers. The Department of Labor (DOL) fiduciary               including the SEC, the NAIC, the DOL, the Financial
rule, which took effect in part last year, is under review       Industry Regulatory Authority (FINRA) and the North
by order of the President, while the Securities Exchange         American Securities Administrators Association (NASAA)
Commission (SEC) and the National Association of                 – to work constructively and collaboratively to develop
Insurance Commissioners (NAIC) are developing their              a clear, consistent and workable best interest standard
own proposals to establish a best interest standard for          that will provide meaningful and effective consumer
financial professionals who provide investment advice.           protections without depriving Americans of access to
Moreover, Congress and several state legislatures and            valuable financial products and services.
regulators are considering or have introduced their
own proposals.

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2018 ADVOCACY BLUEPRINT
2.   REQUIRE LIFETIME INCOME ESTIMATES ON WORKERS’ BENEFIT STATEMENTS

To save appropriately for retirement, workers should              Congress should enact the “Lifetime Income Disclosure
understand how much monthly income their nest egg                 Act (LIDA),” which would direct the Department of Labor
could generate in retirement. Research by IRI found that          to adopt a rule requiring the inclusion of lifetime income
more than 90 percent of workers want retirement income            estimates on benefit statements. This provision was
estimates and would find them helpful. Additionally,              also included in the “Small Businesses Add Value for
more than 75 percent of workers said they would                   Employees Act (SAVE) of 2017” and the “Retirement
increase their savings level after seeing these estimates.        Enhancement and Savings Act of 2016.”

3.   ADOPT A VARIABLE ANNUITY SUMMARY PROSPECTUS

A variable annuity summary prospectus would improve               investors would prefer a summary prospectus and six
consumers’ understanding of their investment choices              out of 10 individuals said they would be more likely
and reduce regulatory burdens by streamlining                     to talk to their financial advisor about, and consider, a
disclosures to facilitate better decision making regarding        variable annuity if they had access to a variable annuity
lifetime income options. There is widespread support              summary prospectus. IRI urges the SEC to move forward
among investors for a shorter, more consumer-friendly             expeditiously to promulgate a summary prospectus for
prospectus. An IRI study found that 95 percent of                 variable annuities.

4.   ENCOURAGE ELECTRONIC DISCLOSURE FOR RETIREMENT PLANS

Encouraging the use of modern electronic communication            engagement consumers need to manage their retirement
would have a direct and beneficial impact on workers              portfolios appropriately. Congress should enact legislation,
and beneficiaries. Participants of all ages and incomes           such as the “Receiving Electronic Statements to Improve
increasingly prefer to access information online, allowing        Retiree Earnings (RETIRE) Act,” to permit electronic
them to more easily act on that information. According            delivery to be the default option for providing required
to the Progressive Policy Institute, the volume of printed        disclosures to plan participants, with an option to receive
disclosure is intimidating to workers and the static nature       paper if desired.
of printed documents does not invite the interactive

5.   IMPLEMENT THE NATIONAL INSURANCE LICENSING CLEARINGHOUSE

With the passage of the National Association of Registered        regulatory burden of dealing with multiple state insurance
Agents and Brokers Reform Act (NARAB II) in 2015, focus           licensing processes, while ensuring clients have access to
shifted towards implementation of the law. NARAB II               a full suite of lifetime income options. The law maintains
establishes a one-stop federal licensing clearinghouse for        important consumer protections, retains states’ authority to
financial professionals holding state insurance licenses in       regulate the marketplace, and improves consumer choice.
multiple states. Financial professionals who have passed          To realize the benefits of this law, IRI urges the President to
background checks in their home state will be able to apply       appoint NARAB’s board and allow NARAB operations to
for NARAB membership, enabling them to sell guaranteed            begin as soon as possible.
lifetime income products in other states and reduce the

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2018 ADVOCACY BLUEPRINT
      Provide More Resources to Protect Older Americans
      from Financial Exploitation
1.   ENABLE FINANCIAL ADVISORS TO PROTECT THEIR CLIENTS FROM FINANCIAL ABUSE
With an aging population, it is critical to have rules in place        “Senior $afe Act of 2017,” which has also been included
to protect older Americans and other vulnerable adults                 in the “Financial CHOICE Act,” the “Economic Growth,
from financial exploitation. It is also critical to have laws in       Regulatory Relief, and Consumer Protection Act,” and
place to encourage the reporting of suspected abuse by                 the “HOME Act,” all of which will serve to protect millions
banks, credit unions, investment advisers, broker-dealers              of older Americans who suffer financial exploitation each
and insurance companies, as well as their employees.                   year, costing retirees at least $2.9 billion per year.
Congress should work expeditiously to enact the

2.   INCREASE FEDERAL APPROPRIATIONS TO STATE ADULT PROTECTIVE AGENCIES
State Adult Protective Services (APS) agencies serve                   and Neglect program, the Elder Rights Support
a critical role in the effort to protect older Americans               Activities program, and the State Grants to Enhance
against financial fraud and exploitation. Unfortunately,               Adult Protective Services program. Congress should
APS offices across the country are badly underfunded,                  enact legislation to increase the amounts appropriated
leaving them without sufficient staff or resources to fully            to support these and other similar federal programs to
investigate all reports of suspected financial abuse.                  ensure that state APS agencies have the resources they
While these agencies are primarily funded by their                     need to investigate and prosecute suspected abuse
individual states, funds can also be obtained through a                and exploitation of the growing population of older
variety of federal programs such as the Social Services                Americans.
Block Grant program, the Prevention of Elder Abuse

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