Retirement Plan Policy Adviser Aims to Bolster Savings

By Gregg D. Killoren, J.D., CCH State Banking Law Reporter, Bank Digestand Individual Retirement Plans Guide, May 14, 2009.

In a signal that retirement issues have become a higher priority at the Treasury Department, J. Mark Iwry was named on April 27, 2009, to the newly created position of senior adviser to Treasury Secretary Timothy Geithner and deputy assistant secretary for retirement and health-care policy. Iwry was a non-resident senior fellow at the Brookings Institution before taking on his new role at the Treasury. He also worked for the Treasury during the Clinton administration as benefits tax counsel.

In his new role, Iwry will be focusing more on policy than day-to-day development of specific regulations implementing policy. Policy issues Iwry will be working on include a possible overhaul of rules for private defined contribution plans, funding relief for defined benefit plans, a direct-deposit IRA program for employers that don’t offer retirement plans, and expansion of the saver’s tax credit. Iwry has been instrumental in promoting the latter two policies in the Obama administration’s recent fiscal year 2010 budget proposal.

The fiscal year 2010 budget, submitted by the President to Congress in March, would establish automatic IRAs at the workplace and would expand the saver’s credit for lower- and middle-income taxpayers.

Automatic IRAs

Under the proposal, employers who do not currently offer a retirement plan will be required to enroll their employees in a direct-deposit IRA that is compatible with existing direct-deposit payroll systems. Employees would be able to opt out of this arrangement.

The American Society of Pension Professionals and Actuaries issued a statement of support for this proposal. "ASPPA supports the president's proposal to require automatic IRAs for employees not otherwise covered by a plan," said Brian Graff, ASPPA executive director and chief executive officer. "Automatic IRAs will dramatically increase workplace savings and encourage employers to become involved in the qualified retirement plan system."

Saver’s Credit

The budget proposal would also modify the existing saver’s credit to provide a 50-percent match on the first $1,000 of retirement savings for families that earn less than $65,000. The credit would be fully refundable.

Iwry was a principal architect of the existing saver’s credit, which matches 401(k) or IRA savings by families earning up to $55,000 at a rate ranging from 10 to 50 percent, based on the level of family income. Instead of providing a refund, however, the current program only reduces the saver’s tax liability.

Retirement Plans

In a recent speech to the American Bar Association Section of Taxation May Meeting in Washington, D.C., Iwry noted that the Treasury Department is exploring ways to make 401(k) plans and similar defined contribution plans more secure for retirees who may outlive their savings. He stressed, however, that the government’s discussions are in the very earliest of stages.

Flexibility and Security

Unlike traditional pension plans that pay a fixed benefit, individuals with 401(k) plans and similar arrangements must manage their assets. Without careful planning, individuals may spend their savings too quickly or outlive their savings.

“Individuals are divided between wanting flexibility [with their retirement savings] and the desire for income security,” Iwry said. One approach that could satisfy both needs would be a partial annuitization of 401(k) plans, he explained.

Annuities

An annuity would reduce the risks of individuals depleting their retirement savings. However, some individuals have resisted the idea of partial annuitization of 401(k) plans because annuities are expensive, practitioners noted.

Iwry explained that he had examined the same issue while at a Washington, D.C. think-tank last year. At that time, Iwry and other employee benefit professionals described a system that would provide for partial annuitization of 401(k) assets with an opt-out feature.