Several weeks ago, the ERISA Industry Committee (ERIC) published a new proposal for retirement savings in the United States billed as a “New Benefit Platform for Life Security.”
As the first prong, the proposal suggests that there be three types of retirement savings: (1) a defined benefit plan, called a “Guaranteed Benefit Plan,” (2) a defined contribution plan, called a “Retirement Savings Plan” and (3) a short-term security account. These plans could be offered independently or in combination with one another to provide additional retirement resources beyond Social Security.
The Program focuses on providing sufficient incentives to maintain and expand employer participation and encourage individuals to contribute to their own retirement security. If implemented, the program would significantly simplify the current system, ideally make it more equitable to employers and employees and expand participation. The program contains several supplementary initiatives including educational financial planning services, a regulatory program to provide full disclosure of fees and expenses and pre-established limits on both before and after tax contributions for each of the three types of plans.
While the New Benefit Platform for Life Security has much to recommend it, very little has been written about it and few in the benefits practitioner community seem to have noticed it.
You can follow the links here to see a copy of the Core Structure for Life Security Plan (the “Summary”) and a longer version that spells out some of the details (see pages 13-17 of report, found in pages 23-27 of this document).
What do you think of this proposal? Might it be improved by requiring that employers of a certain size actually be required to offer all three types of plans in combination?
The ERIC Proposal is a beacon of light for a system losing its bearings in a storm of plan cutbacks, freezes and terminations. It represents the only new upside after years of downside inventions.
It takes very little imagination to devise schemes to spend less and provide less. That sort of thinking generated systems of medical benefit denials posing as “consumerism.” That sort of thinking gives us defined benefit plan freezes and terminations masquerading as mere modernization of retirement security.
At long last ERIC has propounded at least an invitation to some new thinking.
It doesn’t make sense, for example, to hang onto old-fashioned anti-discrimination rules designed for an era when qualified plans were the devices used to provide benefits for the hi-comp employees. Now hi-comps rely mainly on non-qualified plans, and the remaining qualified plans (mainly for the non-hi-comps) therefore become a nuisance.
And underlying it all are these changes, sapping the strength of the current system: (1) the collapse of industrial union bargaining strength; (2) lower marginal tax brackets with lower tax incentives for qualified benefits; (3) many working groups – professionals, technicians, highly skilled and educated workers of all sorts – who have more in common with their professional groups (that is, with each other) than they have with any particular employer; (4) skyrocketing benefit costs; and (5) employers now realizing that they “want out” of the whole system – they want to get back to their own businesses.
A “yawn”? But remember – this is a voluntary system, and it will remain so. Mandatory systems have their place, but those are called social security – and perhaps national health. The private system is voluntary, and it will remain so or else it is dead. And if employers really want this ERIC alternative instead –- and they evidently do (or at least they should)-- then the rest of the benefits community had better not yawn. Fiddling while something burns? What? The whole current collapsing system? Better not yawn.
Posted by: Frank Cummings | July 10, 2007 at 07:45 PM