2009-09-17
Hewitt's Alison Borland shares ideas to improve the defined contribution retirement system with the ERISA Advisory Council.

On September 17, 2009, Alison Borland, Hewitt's Retirement Strategy Leader, testified before the ERISA Advisory Council to the Department of Labor about specific ideas to improve the effectiveness of the current U.S. defined contribution system.

The focus of Hewitt's testimony was to offer specific ideas to curb leakage, or taking funds out of retirement savings prematurely, and offer up solutions to make it easier for Americans to be more financially secure when it comes to retire. Alison presented Hewitt's point of view, stating:

"Action is needed to improve the chances that participants who rely on defined contribution plans achieve an adequate, financially secure retirement. Reducing unnecessary leakage needs to be a critical part of that effort. In addition to curbing leakage, legislators, regulators, and plan sponsors have an opportunity to make changes that will eliminate existing barriers to improving plan utilization, and add opportunities for increased savings."

Hewitt's testimony summarizes four main leakage threats under the current defined contribution system, highlights recent participant behavior illustrating the magnitude of the problem, and offers tangible recommendations to curb leakage. These are:

• Loans being taken out and not repaid in full;
• Hardship withdrawals being taken during active employment;
• Retirement savings being cashed out upon a job termination or change; or
• Participant balances being eroded by higher than necessary fees.

Alison also offered additional recommendations to enable defined contribution plans to effectively serve as primary retirement savings vehicles. Hewitt's recommendations include:

• Allowing conversions from traditional Roth 401(k) accounts into Roth 401(k) accounts.
• Allowing rollovers from Roth IRAs into Roth 401(k) accounts.
• Encouraging voluntary reporting of behaviors by race and ethnicity.
• Creating "family 401(k)" plans.
• Clarifying that QDIAs include in-plan annuity options.
• Providing tax incentives for spreading payments.
• Offering fiduciary protections for annuity options and other retirement income vehicles.

Read Alison's full testimony by clicking the PDF link to the right.

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