Grassley Speaks at the NAIFA Congressional Conference on the Retirement Enhancement and Savings Act of 2019
Prepared Remarks by U.S. Senator Chuck Grassley of Iowa
NAIFA Congressional Conference
On the Retirement Enhancement and Savings Act of 2019
Wednesday, May 14, 2019
Thanks for the opportunity to update you on some of the work before the Senate Finance Committee.
The committee has a full agenda for the 116th Congress. We are focused on a number of critical issues, including retirement policy, prescription drug pricing, implementation of the new tax law, international trade negotiations, oversight on other tax and health care issues. This afternoon I’m going to cover one of our key priorities: retirement policy.
Your visit couldn’t come at a better time. Just this morning, the committee held a hearing on challenges faced by workers and companies under our current retirement system. The testimony covered a number of issues, including access to retirement savings plans and areas where the system could use improvements. We learned a great deal.
The hearing was a continuation of the Committee’s long-standing efforts to strengthen retirement security and the– which typically goes by the nickname of RESA – that I reintroduced earlier this year.
The centerpiece of the bill is a concept called “Open Multiple Employer Plans” or “Open MEPs.” The bill would expand the existing “multiple employer plan” to create Open MEP plans, which will allow unrelated employers to join together to sponsor a group retirement plan for their workers.
The Open MEPs improvements will remove regulatory barriers that have blocked the use of these plans in too many cases. For example, under current law, only businesses that have a significant common interest are allowed to set up a multiple employer plan.
RESA eliminates this “common bond” requirement to permit – within limits – more companies to band together and work with a third-party plan administrator to offer retirement saving opportunities to their workers through Open MEPs.
As part of these reforms, the third-party administrator would have to accept the fiduciary responsibility for operating the group plan. This will continue to protect the workers participating in the plan. But it will also allow small businesses that join an Open MEP to share part of their fiduciary responsibilities with the plan administrator, which will help reduce the cost and encourage participation.
RESA also eliminates the so-called “One Bad Apple” rule. Under this rule, if one employer within a multiple employer plan fails to meet any one of the rules covering these plans, then the entire MEP can be disqualified. This is true even if the other employers are fully compliant.
It’s easy to see why this sort of provision can discourage businesses from adopting these kinds of retirement plans and why this rule needs to be changed.
These commonsense changes would make it far more feasible for businesses of all sizes to offer retirement plans by harnessing economies of scale and reducing unnecessary administrative burdens on employers.
More importantly, open MEPs would open the door for millions of Americans to save for retirement, especially in growing sectors like the Gig Economy. It will go a long way toward strengthening retirement security if an online platform company can offer a retirement plan that all of its independent workers can join and put money away for their individual retirement.
RESA also will help retirees better manage their income in retirement by allowing them to transfer certain types of savings, including annuity products, without violating distribution rules. This will make annuities and other similar lifetime-income options more popular.
Retirement security is an important topic that is already getting a great deal of attention this year in Washington. The House Ways and Means Committee considered a retirement-savings bill earlier this month that is based on RESA. I look forward to working with House Ways and Means Committee Chairman Neal to reconcile our bills and get a final package to the President’s desk.
Looking beyond RESA, it’s clear that we need to improve our retirement system. The system has not kept pace with changes in the economy, changes in workforce conditions, or with changes in the retirement environment.
Recent studies have shown that a substantial percentage of workers do not have access to a retirement savings program. These studies show that the gap in access is frequently the result of the relatively small number of retirement programs offered by smaller businesses. For example, a recent study by the Pew Charitable Trust found that 40 percent of workers in smaller business do not have access to a retirement savings program. The Federal Reserve Board’s most recent survey of consumer finances found a similar gap in access to savings plans.
The reasons for these findings are simple. Small employers face challenges in helping their workers save for retirement. These barriers include complex rules and high costs. Offering a retirement plan can be a time consuming and difficult process, not only in terms of establishing the plan, but maintaining it on an annual basis.
As a result, many smaller companies shy away from setting up plans altogether. And the resulting lack of access to a retirement plan makes it tough for workers in these smaller companies to save enough for retirement.
At the hearing earlier today, witnesses shared with us more about the challenges within the retirement system, and made it clear that we need to build on the strength of the current system to bring businesses and workers the benefits of saving for retirement.
This is why I am looking forward to the next round of pension reform. As the economy grows and evolves, our retirement system needs to keep pace with greater access for employees and independent workers and efforts to make sure retirees enjoy a financially sound retirement.
We have some good ideas for next steps, but we need your help. Your companies manage these plans, you know the market, and you know what works and what doesn’t. So please let me know about your ideas. Let’s work together to make sure we have the best, most efficient retirement system possible.
Thank you. I have a few minutes for some questions.
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