The witnesses were appearing during a HELP Committee hearing on how Americans can be encouraged and helped to save enough for their retirement years.
Several applauded the impacts of auto-plan features (particularly enrollment and escalation), but Lori Lucas, Executive Vice President, Callan Associates, who appeared on behalf of the Defined Contribution Institutional Investment Association, told the panel that sponsors need to be encouraged to be more aggressive in setting auto plan default savings and escalation rates. For example, Lucas suggested that auto enrollment deferral could start at 6% immediately, rather than beginning at 3% and moving gradually to 6%. More effective education will help to hold down opt-out rates, Lucas asserted.
“The good news is that much can be done from a plan sponsor, policymaker and provider perspective to facilitate positive outcomes within the context of the existing framework of automatic enrollment and automatic contribution escalation,” Lucas testified. “Thoughtful plan design and communication can materially alter the long-term savings levels of millions of Americans. In contrast, the alternative—plan design and communication that do not consider long-term income replacement ramifications—may have painful long-term social and economic consequences when it comes to American’s retirement security.
Julie Agnew, Associate Professor of Finance and Economics and Co-Director of the Center for Interdisciplinary Behavioral Finance Research (CIBFR) Mason School of Business, The College of William and Mary, also called for a strengthening of ongoing financial education efforts.
“I also believe that more needs to be done to better integrate financial education into the daily lives of Americans starting at an early age and at points where important financial decisions are being made,” Agnew said. “Financial experts should be used to make sure that the correct lessons are being taught and marketing experts should be involved so that people actually listen and are engaged in the message. We also must test to make sure these methods are effective, because we have too many examples today of programs that do not work.”
Finally, Jeffrey R. Brown, University of Illinois at Urbana-Champaign College of Business, proposed the notion of auto-annuitization, but admitted the concept still needed further study.
“To put it simply, in addition to thinking about the “glide path” for the allocation between stocks and bonds (and other asset classes), I would like to see products which also automate the “glide path” between annuitized and non-annuitized assets,” Brown testified, according to his remarks. “The gradual, and partial, annuitization of accounts would be a very natural and very welcome evolution of these plans. I am not suggesting that such an approach be mandated. Rather, I would like to see such an approach encouraged – or at least not discouraged – through the regulatory framework. Providing plan sponsors with clear fiduciary safe harbors for providing such products is one important consideration.”
More information on the hearing is at http://help.senate.gov/hearings/hearing/?id=c8c1c5c7-5056-9502-5dd5-8b9f87d76457.