So was the prediction of Jamie Kalamarides, head of DC, DB, Stable Value and Retirement Income businesses at Prudential Retirement, speaking today at a Prudential media event in New York.
According to Kalamarides, the outlook for participant retirement income adequacy is “quite good.” The Pension Protection Act provisions of automatic enrollment and deferral increases, along with the qualified default investment alternatives, continue to create good behavior and get participants savings-focused. However, Prudential has found that the best tool, Kalamarides said, is showing participants their gap between what they have saved and what they need.
But still, “the single best idea around adequacy,” he said, comes as a result of the tax breaks extended at the end of last year. Payroll taxes will be lowered by 2%, and Kalamarides said workers should increase their retirement plan investment by 2%. If they make this decision before they get their first paycheck, they’ll never see the money, he said.
Although Congress doesn’t have an appetite to do more for adequacy beyond the provisions of the Pension Protection Act, Kalamarides said, the one piece of legislation that might affect adequacy is the Lifetime Income Disclosure Act. First introduced in 2009, the bill would require defined contribution plan sponsors to inform plan participants of the projected monthly income they could expect at retirement based on their current account balance (see “Bill Would Require Disclosure of Participants’ Expected Retirement Income”)
An area where Kalamarides expects Congress will get involved is that of coverage. About 50% of workers still do not have access to retirement plan, he noted. In the last Congress, bills were introduced in both the House and Senate proposing an automatic IRA available to small employers that did not offer a retirement plan. These bills aim to reduce the cost and administrative burden of small business offering a plan, Kalamarides said, and legislation is required to enact such a program.
The automatic IRA bills (both voluntary and involuntary) are likely to be introduced in the new Congress, but whether they pass will depend on what the other issues are, he predicted.
However, instead of seeing this as a threat, “advisers should love the multiple small employer market,” he said. The fact that the legislation would create a multiple employer small plan market would be a great thing for intermediaries, Kalamarides told PLANADVISER. “Wouldn’t it be great to have a model plan for a broker/dealer or wirehouse,” he asked, that an adviser could easily sell.