IRI Issues Retirement Security Blueprint

The Insured Retirement Institute (IRI) has issued a Retirement Security Blueprint, meant to guide the group’s dialogue with Congress and the Administration about improving Americans’ retirement outlook.

“The Blueprint was constructed on the pillars of expanding opportunities to save, increasing access to lifetime income in retirement, helping savers make decisions about their finances for their retirement and protecting older investors from financial exploitation,” says IRI Senior Vice President and General Counsel Lee Covington. “We look forward to presenting and discussing these proposals with members of Congress, the Administration and state regulators.”

The first proposal is to maintain and enhance the current tax treatment for retirement savings. IRI also notes that at one point, the Tax Cuts and Jobs Act would have potentially consolidated 401(k), 403(b) and 457 plans. The final legislation did not do that, IRI says, adding that it believes each of these different types of plans are appropriate for the groups they serve.

IRI notes that distributions from guaranteed lifetime income products, including annuities, are taxed as ordinary income. IRI is asking Congress to either lower that tax rate or eliminate it altogether.

Secondly, IRI wants the government to expand opportunities for Americans to save for retirement. The Institute notes that only 40% of full-time workers at small and medium-sized businesses are offered a 401(k) plan. Thus, IRI is asking Congress to pass legislation, such as the Automatic Retirement Plan Act of 2017, which would require all but the very smallest companies to maintain a 401(k) plan and automatically enroll workers into it.

IRI also notes that there are several bills, including the aforementioned one, that would remove the restrictions on employers joining together in a multiple employer plan (MEP).

Furthermore, IRI would like Congress to pass a bill, such as the Retirement Security Act of 2017, which would increase the automatic deferral rate to 6% and permit automatic escalation up to 15%.

Under current law, small employers with up to 100 employees can receive an annual tax credit equal to 50% of the costs of starting a retirement plan, up to a maximum of $500 for three years. IRI would like the credit to be available for five years and for the maximum credit to be $5,000.

Lifetime income

Thirdly, IRI would like either the Department of Labor (DOL) or Congress to clarify employer fiduciary responsibility for choosing lifetime income products, in order to increase Americans’ access to lifetime income products.

Currently, if an employer that offers a lifetime income product changes recordkeepers, the annuity holders would lose the guarantees associated with those products, due to a technicality in the tax code. IRI would like Congress to amend the code to treat a recordkeeping change as a distibutable event.

The Internal Revenue Service (IRS) tax code currently only allows for a defined contribution (DC) participant to purchase an annuity or other guaranteed lifetime income product at age 59-1/2 or older. IRI would like that to be reduce to age 50 and older. Also, the tax code currently requires an annuity owner to take a required minimum distribution (RMD) at age 70-1/2. Because of longer lifespans, IRI would like that to be raised to age 75.

Additionally, the regulations currently limit the premiums an individual can pay for a qualifying longevity annuity contract (QLAC) to the lesser of $125,000 or 25% of an individual’s account balance in a DC plan or individual retirement account (IRA). IRI would like Congress to ease the administrative challenges associated with rolling over funds into a QLAC and to increase the size of the amount exempted from the RMD rules. IRI would also like Congress to permit capital appreciation and/or capital preservation products to qualify as qualified default investment alternatives (QDIAs).

The fiduciary rule

Fourthly, IRI would like the government to help savers make decisions about their finances. IRI supports the DOL’s fiduciary rule, which is now under review. “IRI and its members have long supported the principle that financial professionals should be required to act in their clients’ best interest when providing personalized recommendations,” IRI says. “To avoid the creation of duplicative or conflicting rules, IRI urges all regulatory bodies—including the Securities and Exchange Commission (SEC), the National Association of Insurance Commissioners (NAIC), the DOL, the Financial Industry Regulatory Authority (FINRA) and the North American Securities Administrators Association (NASAA)—to work constructively and collaboratively to develop a clear, consistent and workable best interest standard.”

IRI would also like lifetime income estimates to be required to be included on workers’ benefits statements, and for the government to adopt a variable annuity summary prospectus. IRI would also like electronic delivery of statements and prospectuses to be the default option for providing required disclosures to participants, with an option to switch to paper if desired.

Lastly, IRI would like the government to help financial advisers protect their older clients from financial exploitation and to increase federal appropriates to state adult protective agencies.