Michael P. Barry

Retirement Savings Policy (eBook, PDF)

Past, Present, and Future

• Format: PDF

Produktbeschreibung

Mike brings to this work his comprehensive experience and consummate technical talent in a beautifully readable book. A treasure.

--Frank Cummings, Former Adjunct Lecturer in Law at UVA Law School, Columbia Law School, NYU Law School, and ALI-ABA

Retirement Savings Policy reviews the basic policies that govern retirement savings plans, and their real world application, focusing on the key issues of finance, taxation, fiduciary conduct, and employee choice. The discussion is framed around the three fundamental challenges confronting employers and employees today - the pension legacy, the 401(k) revolution, and the pressure, from policymakers, regulators, opinion leaders, and individuals, for changes that will put retirement security within reach of all Americans.

With more than 40 years' experience in the field, Michael P. Barry provides both a wealth of practical detail - best practices and concrete solutions - and a broad framework for understanding the issues surrounding retirement plans and strategies. The result is a comprehensive introduction to the forces that drive sponsor, participant, and policymaker decision-making.

This is the perfect book for benefits and financial professionals who want a better understanding of the basic rules that govern retirement plan administration but also serves those interested in truly understanding the nuances and issues surrounding retirement plans and policies. The approach is practical, focusing on how US retirement plans actually work, how they are taxed (and not taxed), how they are regulated.

But it is also conceptual, devoting considerable attention to an understanding of why these plans work the way they do. Why regulators and policymakers are so focused on a handful of issues - expanding coverage, reducing fees, fairness. And, at the highest level, what are the problems that we are trying to solve. As such, much of what we discuss will be of interest to a more general reader, who wants a realistic understanding of what is really at stake in current retirement policy debates.

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Produktdetails

• Verlag: Walter de Gruyter
• Seitenzahl: 273
• Erscheinungstermin: 10. September 2018
• Englisch
• ISBN-13: 9781547400294
• Artikelnr.: 53958124

Autorenporträt

Michael P. Barry is President of O3 Plan Advisory Services LLC, which provides retirement plan regulatory analysis targeted at plan sponsors and those who provide services to them. Before founding Plan Advisory Services in 1998, Mike was Managing Director at Bankers Trust and, before that, practiced law in Washington D.C. and New York. Mike writes a regular column for PLANSPONSOR Online ¿ "Barry¿s Pickings."

Inhaltsangabe

Part I: The Defined Benefit Plan Legacy 1

Chapter 1: An Overview of Existing Plans 3

Chapter 2: DB Plan Basics 7

A Formula Benefit 7

Where All the Risk Is Borne by the Sponsor 9

The Three Risks of Retirement Savings 9

Chapter 3: The DB Valuation Challenge 13

The Challenge 13

The "Time Value of Money" 14

Going Concern-The Portfolio Rate of Return Option 17

Chapter 4: The Regulatory Framework-Benefit Insurance, Minimum Funding

Rules and Accounting Standards Affecting DB Plan Finance 21

The Pension Benefit Guaranty Corporation 22

The Pension Protection Act of 2006 22

Plan A: Tighten the Minimum Funding Rules 23

Plan B: Relax Minimum Funding Standards and Increase PBGC Premiums 24

The Current Minimum Funding Regime 25

The Current PBGC Premium Regime 26

The Accounting Regime, Very Briefly 27

How DB Liabilities Are Valued for Financial Statement Purposes 28

Chapter 5: The Regulatory Framework-Minimum Standards for Retirement Plan

Design and Tax Code Nondiscrimination Rules 31

Minimum Standards 31

Spousal Rights-the Retirement Equity Act of 1984 33

Tax Code Nondiscrimination Rules 34

Tax Code Limits on Benefits, Contributions, and Compensation 34

Chapter 6: Problems with the DB Design 37

Issues with DB Design 37

The Inadequacy of Pre-Retirement Income as an Index of Post-Retirement

Needs 37

The Inadequacy of a Flat Retirement Income Target 39

DOI 10.1515/9781547400294-206



The Significance of Post-Retirement Risk 39

The Inadequacy of a Benefit Design Based on a Full Career 40

The DB Benefit Is Significantly Backloaded 40

Significance for Corporate Culture 41

Chapter 7: The Cash Balance Plan Conversion Crisis 43

What Is a Cash Balance Plan? 43

Why a Cash Balance Plan? 45

Why Did These Plans Have a Surplus? 45

Why Does a Funding Surplus Matter? 46

Why Cash Balance Plans Solved This Problem 46

Cash Balance Plan Conversion = A Decrease in Benefits for Older

Employees 48

Massive Employee Pushback 49

Chapter 8: The Secular Decline in Interest Rates and the Viability of DB

Plans 53

What About the Other Two Sponsor Risks-Investment and Mortality? 54

A Fundamental Lack of Transparency 55

Chapter 9: Getting Out, Slowly 57

The Increased Cost of Plan Termination 57

Getting Out Without Getting Out-The Plan Freeze 58

Taming Liabilities-Liability Driven Investments 58

The LDI Overlay 59

Chapter 10: Managing the DB Legacy-Reducing PBGC Premiums 63

Plan Funding, Briefly 63

PBGC Premiums, At Length 63

Pursuing a Contribution Policy That Reduces Variable-Rate Premiums 67

Variable-Rate Premium Fundamentals 67

Two Broad Strategies 68

Strategies for Maximizing the Value of the Headcount Cap 69

PBGC Premiums and Basic Retirement Policy 71

Chapter 11: The Cash Balance Alternative 73

The PPA Legitimizes the Cash Balance Design 73

Market Cash Balance Plans 74



Chapter 12: Intermezzo-Basic Policy Considerations Part I 75

Two Kinds of Office 75

What Are the Retirement Benefits? 76

The Status of Subsidized Benefits 77

A Legitimate Expectation That the Employer Would Continue the Plan 78

DB Plans, a Verdict 79

Who Pays for Retirement Benefits? 80

Retirement Savings Tax Policy-Two Views 81

Part II: Defined Contribution Plans and the 401(k)

Revolution 83

Chapter 13: The Rise of the 401(k) 85

Chapter 14: DC/401(k) Plan Basics 89

How Contributions Are Determined 89

How Assets Are Invested 89

How Benefits Are Paid 90

A Retirement Savings Design that Functions Like Compensation 90

What Happened to the Three Risks? 90

The Structure and Administration of 401(k) Plans 92

Chapter 15: The DC Adequacy Challenge 95

What Is Adequacy? 95

A Subjective Answer to the Adequacy Question 96

Towards an "Adequate" Policy Framework 96

Ambiguities 96

Three Sorts of Answers to the Adequacy Question 97

Adequacy of Investment 101

Payout 104

Chapter 16: Adequate Savings and the Regulatory Framework-Retirement

Savings Tax Incentives 105

The Current System 105

Retirement Savings Tax Benefits 106

How Much Are These Tax Benefits Worth? 106

Methodology 107

"Roth" versus Regular Contributions 110

Retirement Savings Tax Incentives, Rothification, and the Budget 111

A Middle-Class Tax Benefit? 112

Does This System Work? 113

Chapter 17: 401(k) Tax Code Nondiscrimination Rules 115

The ADP Test 115

The Dollar Limit on 401(k) Contributions 116

Passing the ADP Test 117

Participant Education 117

Matching Contributions 117

Safe Harbors 118

Defaults 118

Chapter 18: Adequate Investment-The Asset Allocation Challenge 121

Participant Education 122

Default Investments 122

2007 QDIA Rules 123

DOL's QDIA Regulation 123

QDIA/Target Date Funds as the Preferred Asset Allocation 125

Chapter 19: ERISA Fiduciary Rules 127

Who Is a Fiduciary under ERISA? 128

What Are a Fiduciary's "Duties"? 128

ERISA Section 404(c) 129

Residual Obligations of Plan Fiduciaries Under 404(c) 129

General Fiduciary Standards 130

Prohibited Transactions 130

Prohibited Transaction Exemptions 131

Chapter 20: The Structure and Administration of 401(k) Plans, Revisited 133

Basic Organization 133

Fiduciary Selection and Monitoring of Plan Service Providers 133

The Structure of 401(k) Plan Fee Arrangements 134

Current Practice 137

Chapter 21: Why Fees? 139

First: Unlike in DB Plans, in 401(k) Plans Fiduciary and Participant Interests

Are Not Aligned 139

Second: Fees Have a Significant Effect on Retirement Outcomes 139

Third: Plan Fiduciaries Limit Participant Investment Choices and Negotiate

the Deal with Plan Service Providers 140

Academic Work on Fees 140



Chapter 22: 401(k) Plan Fees and Fiduciary Regulation 143

Fee Disclosure 144

Provider-to-Sponsor Disclosure Rules 145

Sponsor-to-Participant Disclosure Rules 146

The Fiduciary Rule, Round 1 146

Round 2 147

The Fiduciary Rule in Brief 148

A New Set of "Impartial Conduct" Standards 150

Regulation of Compensation Policy 150

Disclosures 151

Contract Requirement for Non-ERISA Plans and IRAs 151

Implementation, Criticism, Challenges 151

Fifth Circuit Vacates the Fiduciary Rule 152

Assessing Fee Regulation Efforts 152

Chapter 23: Fiduciary litigation 155

The Problem of Proof 155

"Generic Services"-Recordkeeping 156

Chapter 24: Fiduciary Best Practices and Managing Fiduciary Risk 161

Key Process Elements 161

A Broad Range of Alternatives 163

Chapter 25: An Adequate Payout 169

The 401(k) Payout Challenge 169

Individual Choice vs. the "Right Choice" 176

Chapter 26: Intermezzo-Plan B 183

Continued Work-the Good News 183

The Other Plan B: Moving In with the Kids 185

The Worst Case 186

For the Most Part, a First World Problem 188

Part III: The Future 189

Chapter 27: The Demographic Background 191

The Age-Old Problem of Old Age 191

The Wealth Transfer Paradigm 194

The Socialization of the Paradigm 195

Money versus Time 199

Turning Savings into Investment 199

Chapter 28: The Great Transition 201

The Ratio of Workers to Retirees Is Going to Go Down, Significantly 201

In the Transition from PAYGO to Funding, Someone Will Have to Pay

Twice 202

The Transition to the 401(k) System Caught Baby Boomers Mid-Career 204

Chapter 29: Covering the Uncovered 207

How Big Is This Problem? 207

What Sorts of Employers Don't Provide Plans? 208

What Is Preventing Smaller Employers from Implementing Workplace

Retirement Plans? 208

Reducing Administrative Burden and Cost 210

Increasing Incentives 213

And the Gig Economy 215

Chapter 30: The Implications of the Software Revolution for Retirement

Savings 219

The Current System 219

The Distributed Ledger Technology Revolution 221

Are There Situations in Which Friction Is a Feature, Not a Bug? 223

Are There Situations in Which Transparency Is a Bug, Not a Feature? 223

Chapter 31: The Role of the Employer 225

What Is in All This for the Employer? 227

Chapter 32: The Bureaucratization of Capital 231

Chapter 33: Coda 233

What is Retirement? 233

The Way Forward 234

Index 237

Rezensionen

Don't be intimidated by its ambitious title, Retirement Savings Policy: Past, Present and Future guides its readers deftly through a history of the U.S retirement system to answer the questions-how did we get here, and how do we move forward? Those who know Mike Barry from his Plansponsor column will recognize that he is a writer gifted in parsing out complex and thorny retirement policy issues, zeroing in on their implications, and offering unique perspectives on how to tackle them. He does not disappoint here, neatly intertwining the tough policy challenges facing the U.S. retirement system within a comprehensive and easy-to-digest primer on that same system. Anyone who wants to understand why 401(k) plans have evolved as they have, and what it might take to get the retirement system on track will want to read this book. The alarm bells that Barry raises about the possible future of not only the U.S. retirement system-but our economy as a whole-if care is not taken in shoring up the $11 trillion defined contribution system is in itself worth the price of admission, and an essential read for those seeking to figure out: what should we do to help future retirees?

-Lori Lucas, CFA, President and CEO, Employee Benefit Research Institute