The election is now only days away and will occur within the context of a financial markets meltdown. The effect on retirement security has been significant. Public policy considerations must be addressed asap.
DB plan asset values have tanked and funding requirements for 2009 and thereafter will undoubtedly increase substantially. (Partial offsetting relief is experienced because of higher corporate bond rates.) Without some form of pension funding relief, more plan freezes can be expected. We could see some as early as 11/15/08 204(h) notices for 1/1/09 freezes. Several organizations have proposed various relief measures. An alternative simple proposal would be a measure that limited mandatory 2009 contributions to the amount of 2008 contributions with an accompanying rule that 2008 could be ignored for at risk plan status, etc. Hopefully, Congress could address this quickly during the upcoming lameduck session.
More long term, we need to evaluate how we can make 401(k) plans better vehicles for providing retirement security. Several suggestions (some of which have been conceptually addressed by others, e.g. Teresa Ghilarducci, in other conceptual frameworks) include:
1. Improve the market and regulatory rules regarding annuities- deferred annuities purchased throughout one's career, terminal annuities acquired at retirement, and longevity annuities that would commence in at some advanced age (e.g. 80). The first would allow for cost averaging of annuity purchases, the second (a market for which is slowly developing now) may need to be mandated for a portion of terminal account balance (if participant didn't acquire deferred annuities during active participation), and the third would guarantee a level of income for those that survive and allow the rest of one's account to be payable over a fixed period from date of retirement to longevity annuity starting date. Lump sum distributions would be limited to a specified percentage of account balance.
2. Require mandatory participation in some retirement vehicle. If an employee doesn't have a db plan, then they must participate in a 401(k) or similar vehicle. For those employers that don't want to sponsor, individuals should be able to participate in free-standing plans similar to 401(k) sponsored by current (and other) 401(k) vendors.
3. The investment responsibility should be moved from the participants to the sponsor or toher fiduciaries. Plans would only provide balanced, target date funds that employees participated in during their working lives and until distribution or annuitization. Protections for sponsors or vendors similar to 404(c) should apply as long as the manager of the target date funds was prudently selected and monitored.
4. A portion of 401(k) or other retirement plan distributions should be able to be used for retiree health costs on a pre-tax or other tax effective basis (e.g. very low tax rate).
5. For immediate assistance with current financial crisis and longer term thereafter, 10% excise tax on distributions for true financial hardships should be eliminated. It makes no sense to apply this tax to those suffering a financial emergency/hardship.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)