<nobr>Jul 1, 1996</nobr>

Getting The Job Done: A White Paper on Emerging Pension Issues

What is the Problem?
Providing for retirement requires a long-term strategy. Within 15 years, the largest cohort of individuals in history -- the so-called baby boom -- will begin to retire. At the same time that the U.S. must plan for this event, many industries face new and intense competitive pressures, many employees must adjust to new work arrangements and must reexamine their current consumption and savings habits, and the federal government must redress excessive spending patterns.
In the midst of these challenges, retirement plans, voluntarily established by employers, continue annually to provide hundreds of billions of dollars of retirement income to retirees while providing the most effective mechanism for workers to save for their own retirement. In the past decade alone, employer-sponsored plans added over $3 trillion to available investment capital, fueling national economic growth. In a nation known for its lack of savings, employer-sponsored plans stand out as a success story.

The federal government has supported that success through policies that have provided an effective framework for the spread of voluntary, market-based retirement plans and for the protection of participants in those plans. Since the 1920s , retirement plans have been encouraged under the Internal Revenue Code. In 1974, the federal government further demonstrated its commitment to these plans by enacting the Employee Retirement Income Security Act (ERISA). ERISA protects assets held in private sector retirement plans through its strong fiduciary standards, and it assures uniform, nationwide rules through federal preemption of state laws governing private-sector employee benefit plans.

In recent years, however, the adoption of narrowly focused statues and regulations has damaged the success of the employer-sponsored retirement plan system. The federal government has failed to provide cohesive long-term retirement policies, including a long-term policy for Social Security benefits. It has diverted billions of dollars from retirement savings to near-term federal spending. It has imposed rules that increase the costs of sponsoring plans, that restrict the benefits that can be provided from such plans, that hamper the ability of employers to develop flexible plans that address changing business circumstances, and that constrain the ability of employers to fund their plans for the long term. At the same time, the federal government has enacted short-term funding requirements for defined benefit pension plans that impose erratic demands on the employers cash.

As a consequence, plan expansion has been curtailed, and employers more frequently question the feasibility of providing retirement plans for employees as opposed to other forms of compensation. This is particularly true for defined benefit pension plans.

Major tax restructuring proposals recently have added additional fundamental questions to those already on the table.

The time for action is now. Failure to adjust current policies to meet the challenges of tomorrow will mean that many workers will see their retirement expectations wither and will be forced to rely more on government programs that are themselves financially overextended. Failure to redress the strains imposed by over-regulation on employer-sponsored plans will harm employees and their families and erode the ability of U.S. companies to compete effectively at home and in world markets. Failure to provide a long-term federal commitment to the establishment and maintenance of employer-sponsored retirement plans will cripple national investment.


PRINCIPLES FOR ACTION
ERIC believes that government policies must adhere to the following principles so that workers, companies, and the economy can meet the challenges they face. Specifically, government policies must:
Provide stable rules that encourage the voluntary creation and maintenance of soundly financed employer-sponsored plans;
Maintain efficient means for individuals to acquire adequate retirement income;
Support the dynamic needs of employers; and
Encourage capital formation.
ERIC believes that pension reform proposals that deviate from these principles will fail to improve retirement income security in the U.S. and will deprive the U.S. of a critical engine of economic growth.

STRATEGIES FOR ACTION
ERIC has developed the following strategies for action that will implement these policy principles.
Reinvigorate the government's commitment to voluntary, employment-based retirement programs by:

Encouraging the expansion of the current voluntary, market-based retirement system.
Preserving the basic fiduciary standards of ERISA.
Continuing to provide beneficial tax treatment for savings under employer-sponsored retirement plans.
Determining the future of Social Security.
Maintaining the ability of plans to coordinate pension benefits with Social Security benefits.
Adopting a low-inflation fiscal policy.
Eliminating revenue-driven pension legislation.
Revising the current restrictive, rigid, multi-layered, and volatile funding standards and deduction limits for defined benefit plans.
Avoiding politically appealing but ineffective proposals to expand coverage.
Providing a long-term policy focus.
Oppose restrictive government rules by:
Preserving federal preemption of conflicting state laws now provided by ERISA.
Avoiding unnecessary litigation by preserving the enforcement and remedy provisions now provided by ERISA.
Providing more opportunity to use modern technology in plan administration.
Eliminating plan disqualification as a sanction for minor infractions.
Repealing statutory provisions that impose administrative costs that exceed the benefits of the provision.
Increasing or eliminating restrictive dollar limits on contributions to and benefits from tax-qualified plans so that employers will have greater opportunity to advance-fund benefit obligations and employees will have greater ability to increase their retirement savings.
Encouraging innovation in plan design.
Reducing the premiums paid to the Pension Benefit Guaranty Corporation and curtailing reporting requirements to that agency.
Eliminating unnecessary filing, reporting, and disclosure requirements.
Adopting rules that fit the size of the employer.
Reducing restrictions on plan-to-plan transfers.
Providing a more flexible definition of the "employer."
Revising the current "separate lines of business rules."
Providing a more flexible definition of "retirement."
Educate the American worker by:
Increasing opportunities to use modern technology in disseminating information to employees about their plans and in providing employee education.
Continuing to remove disincentives for employers to provide financial education through clear guidelines that, if followed, would provide "safe harbors" from litigation.
Increasing education about how to preserve retirement savings.
Pursuing national informational campaigns.
Starting savings education campaigns early -- e.g., in schools.
Ensuring that education campaigns reach both beyond the workplace and into firms where plans are not currently offered.
These strategies will allow employers and employees to provide retirement security while addressing the challenges of shifting demographic patterns, increasing economic pressures, changing work arrangements, insufficient retirement savings, and constraints imposed on government spending.
ERIC recognizes that this document does not address every element of the retirement security debate. It focuses on issues relating to the retirement income of workers. In particular it focuses on income provided through voluntary employer-sponsored retirement plans; the changing work patterns reshaping the U.S. and the global economies; the effects of demographics on the efficacy of various methods of accumulating and maintaining income in retirement; the growing need for greater individual responsibility to provide for ones own retirement income; and the role in the U.S. economy of retirement programs and of the assets allocated to them.

This document does not focus on issues related to retirement income for individuals who have not participated substantially in the workforce or on issues related to retiree health benefits or long-term care. It also does not recommend a specific course of action regarding the financial imbalance facing Social Security. ERIC may elect to address these and other issues in a subsequent paper.

ERICs white paper "Getting the Job Done" represents the position of The ERISA Industry Committee. The policy position of individual ERIC member companies may differ from elements of this statement, and ERICs member companies reserve the right to explore alternative approaches.


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Getting the Job Done

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