While President Barack Obama recognized the changed retirement landscape in America with his remark, “The only people who will work for 30 years with health care and retirement are sitting in this chamber,” most of his comments about retirement and health care were general.
There was no announcement of specific initiatives or proposals, such as the myRA program announced in his 2014 address or the tax proposals regarding retirement plans released after his 2015 address. There was also no mention of the controversial rule about conflicted investment advice to be proposed by the Department of Labor.
Obama did say American workers shouldn’t lose what they’ve worked so hard for, so he called for Congress to strengthen Social Security and Medicare. He also advocated for the portability of benefits, saying portability was one intent of the Affordable Care Act (ACA) and that when people move from job to job, their retirement benefits should go with them.
Some in the industry were concerned about what Obama didn’t discuss. The Alliance to Fight the 40, a broad-based coalition seeking to repeal the 40% excise tax on high-cost employee health benefits now set to go into effect in 2020, issued a statement following the president’s speech, saying “it is a shame he did not join over 300 bipartisan members of the House and Senate in calling for the repeal of the Cadillac tax on expensive health plans.”
Granted, retirement specialist advisers aren’t directly impacted by the so-called Cadillac Tax, but given that a couple retiring today can expect to spend upwards of $250,000 on health care, their plan sponsors clients clearly have health care on the mind. In addition, plan sponsors commonly suggest they are driven by their own bosses to think holistically about benefits spend—sometimes directing money or man-hours away from retirement benefits to meet other requirements, related to the health plan or otherwise.
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James A. Klein, president of American Benefits Council, a member of the Alliance to Fight the 40, said, "President Obama can still assert pride in his signature legislative achievement without defending every provision. The Affordable Care Act was advocated as building on employer-sponsored health coverage. Unless the Cadillac tax is repealed, it will erode the system that provides coverage to over 175 million Americans.”
Jason Hammersla, senior director of communications at the American Benefits Council, told PLANADVISER, “We thought the speech was more remarkable for what he didn't say. Namely, in a speech that was largely about unity and bipartisanship, he did not mention the repeal of the Cadillac Tax. Measures to repeal the tax have substantial support in both chambers of Congress—nearly 300 total cosponsors in the House, and 90 Senators voted for a repeal amendment at the end of last year—and the tax has already been delayed for two years.”
However, the Council sees the president’s call for retirement savings portability as positive. “The strategic plan document that we issued in September 2014 specifically calls for policymakers to ‘support voluntary, simple, portable model plans for retirement income or retiree health coverage,’ " Hammersla says. “The challenge is that there is some disagreement on the best way to provide that portability.”
Hammersla notes that the kinds of measures the president has supported in the past, such as state- or locally-managed retirement plans or the MyRA program, are somewhat detached from the employer-sponsored system, but account-based plans offered by employers lend themselves well to portability. “We believe that retirement plan portability is not incompatible with the employer-sponsored system that has been so strong and successful. The administration can help by giving employers the flexibility to design their retirement programs in such a way as to provide portability and transparency to employees while not creating additional compliance and administrative burdens or adding unnecessary liability exposure that makes it difficult for employers to sponsor plans,” he concludes.
NEXT: Industry response is cool
Joe Ready, head of Wells Fargo Institutional Retirement and Trust, told PLANADVISER, “While Retirement did not take center stage in last night’s State of the Union address, the President did clearly acknowledge some of the challenges we face as a country where saving for retirement is concerned, which underscores this issue as one that is not going away anytime soon.”
Ready says Wells Fargo sees the challenges faced by participants who are nearing retirement, as they seek to continue to grow their nest egg in anticipation of a long life in retirement, while also seeking to dampen volatility and minimize their exposure. “We’re talking more and more with plan sponsors that want to help people in this phase of their retirement journey—and there are things that can be done to make it easier for plan sponsors to help near-retirees with these concerns,” he says.
For example, Ready suggests safe harbors around in-plan annuity options could pave the way for more plan sponsors to feel comfortable offering these options to their participants who are looking for a guaranteed stream of income in retirement that is not going to be as vulnerable to market volatility.
Wells Fargo also recognizes the reality of today’s world where people don’t necessarily stay at the same job forever. “We’re also talking more to plan sponsors about options for allowing participants who are no longer with the company to keep their assets in-plan, if they choose not to roll over to an IRA or new employer 401(k),” he says. “This is beginning to make sense to a lot more plan sponsors as an option, and allows participants who change companies to continue to benefit from plans with institutionally-priced investments, and access to tools associated with these types of plans.”