AARP CEO Bill Novelli said the following today about H.R.4:
AARP is pleased that many elements of the pension bill pending in the Senate will both protect retirement benefits for workers and enhance incentives for retirement savings. While this bill has shortcomings, a number of its provisions will improve retirement security.
H.R.4 will make significant improvements to the pension system:
- It clarifies the legal status of cash balance and other hybrid plans, and prohibits “wearaway” — the practice of freezing benefits after a conversion to a cash balance pension plan — which hits older workers especially hard.
- It will generally improve pension funding in defined benefit (DB) plans by requiring greater employer contributions.
- It permanently extends (and indexes for inflation) the Savers’ Tax Credit, a victory for many modest income families who work hard but also find it hard to save.
- It encourages automatic enrollment in 401(k) plans. Removing legal barriers will encourage employers to establish automatic enrollment, thus boosting the number of people who save for retirement.
- It provides needed protections for those — such as former Enron employees — whose plan investments have been heavily concentrated in employer stock.
Unfortunately H.R.4 also falls short of resolving many challenges facing Americans approaching retirement and younger workers who need to plan for the future:
- It does not provide additional transition assistance for workers hurt by conversions to cash balance pension plans and weakens age discrimination protection for older workers.
- The ongoing decline in DB plans is not addressed, and employers continue to shift greater risk and responsibility to the half of the workforce fortunate to have an employer plan.
- While employees may get more help with their investment decisions, they also may be at greater risk of receiving conflict-tainted investment advice from financial service firms.
This bill can help make retirement more secure for many, but it leaves much work to be done to insure retirement security for all. Congress immediately needs to turn its attention to improving pension coverage and increasing retirement savings for all Americans.