Compliance March 7, 2017

Joint Congressional Resolution Targets Public DC Plans for Private Sector

GOP lawmakers in the House and Senate suggests it is a federal government overreach for DOL to encourage or require states to offer workplace retirement savings programs for private sector workers. 
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Senator Orrin Hatch, R-Utah, well known for his work on pension and retirement issues, introduced a joint resolution in the Senate aimed at dialing back Department of Labor (DOL) rules adopted under former President Barack Obama, which encourage states to set up defined contribution (DC) payroll deduction retirement plans for private sector workers.

It was only last August that the “old” Department of Labor (DOL) released its final ruling on state-run individual retirement accounts (IRA)s. The new rule was designed to assist states that are planning to or have already enacted laws requiring employers that do not offer workplace savings arrangements to automatically enroll their employees in payroll deduction IRAs administered by the states. It also applies to states that have enacted laws creating a marketplace of retirement savings options geared at employers that do not offer workplace plans.

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Important to note, the entirety of the joint resolution could fit in two tweets and simply states that “Congress disapproves the rule submitted by the Department of Labor relating to Savings Arrangements Established by Qualified State Political Subdivisions for Non-Governmental Employees, and such rule shall have no force or effect.” The resolution language does not speak whatsoever to any effort to actually get the rulemaking off the books. 

As such, it seems the Congress is more interested in dialing back the federal government’s active encouragement of states to create retirement plans to aide private sector workers whose employers do not offer savings opportunities—rather than somehow actually prohibiting individual states from creating their own retirement savings marketplaces, should they so desire. In this way the resolution may not end up having such a dramatic effect, but like a lot of other regulatory activity in Washington, this will take some time to fully play out.

The resolution probably is not surprising to readers: When the Obama-era DOL first put out the rulemaking there was some significant criticism, but many retirement industry professionals and observers viewed the rules at least somewhat positively, based on the fact that there is clear evidence that simply permitting an individual to save via payroll deductions can be a major boon to their retirement outlook. Still, the Republicans in Congress remain eager to overturn and reverse whatever Obama-driven regulations they possibly can.

Similar language has already been introduced in the House: In early February Representative Tim Walberg, R-Michigan, chairman of the U.S. House Subcommittee on Health, Employment, Labor, and Pensions, and Representative Francis Rooney, R-Florida, introduced two resolutions of disapproval to block the same regulations. 

Client Service March 7, 2017

Vanguard Recommends Plans Accommodate Retiring Workers

Allowing for partial withdrawals is among five tips the investment firm gives.
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Vanguard believes that retirement plan sponsors should not just help their current workers but those who have retired, and to accomplish this, the investment firm has five recommendations centered around allowing retirees to keep their money in the plan and create income streams.

As many plans force people to cash out when they reach a certain age, such as 65 or 70.5, Vanguard is asking plans to consider lifting such requirements. Vanguard further invites plans to permit retirees to take partial, ad hoc distributions. Currently, only 13% of plans permit this, Vanguard says.

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Just as plans permit new employees to roll over assets from previous plans to consolidate their assets and better manage them, Vanguard believes that plans should open the gates to permit retirees to include outside assets.

Next, Vanguard reminds sponsors that even retirees need to grow their assets. In order to do this, the firm believes plans should offer investment options for retirees. And finally, Vanguard says education and advice should be available to a plan’s retirees.

“Today, about 80% of DC participants decide to leave their plan within five years of retirement, either by rolling over to an IRA or cashing out,” says Martha King, managing director of Vanguard Institutional Investor Group. “At Vanguard, we believe many of these participants can be well served by staying in their plans, where they can benefit from employers’ fiduciary oversight and low-cost investments. Creating a DC plan that serves as a destination for employees beyond their retirement milestone is not a simple decision, but it’s certainly an important one.”

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