Action Items for Increasing Financial Security
[A version of this appeared in Morning Consult]
Late last year, who could have predicted the financial upheaval we now face?
The uncertainties created by the COVID-19 economy have exposed a growing societal need for financial protection and security. Addressing these needs will be vitally important as our nation moves forward.
A series of prescient actions by federal and state policymakers in late 2019 and early this year make substantial progress in addressing financial uncertainties and important protections for one group of Americans: retirement savers. Now, thought leaders in Congress are looking at building on this work to help more people prepare for financial certainty in the years ahead.
The actions began in December, when Congress passed the SECURE Act. The law makes it easier for employers to include annuity options in 401(k) or similar plans, among other things.
It’s public policy that’s good for individuals and families. In a world where financial certainties are elusive, and the retirement savings gap is well documented, the annuity offers a guarantee –a guarantee of a steady stream of income, regardless of market turmoil, for as long as a person lives. In many ways, annuities allow those with 401(k) and/or IRA savings to mimic the traditional pension plan our parents may have earned. An annuity can also include payments for a survivor.
As insurance products, annuities are primarily regulated by state insurance departments. They are responsible for protecting consumers in the sales and marketing of annuities.
Earlier this year, insurance regulators took steps to bolster these protections. Working through the National Association of Insurance Commissioners (NAIC), a standard-setting body, state regulators adopted a model regulation that offers annuity purchasers assurance that they will receive professional guidance that is in their best interest. In May, Iowa became the first state to adopt the new model, setting the pace for others to do the same.
The NAIC model also closely aligns with the Security and Exchange Commission’s Regulation Best Interest, which goes into effect on June 30. Together, the federal and state actions promote a harmonized standard at all levels of government, protecting consumers wherever they live.
While annuities can play a key role in long-term financial security, the COVID-19 pandemic has highlighted the importance of emergency savings, something many Americans lack.
Again, Congress has taken important action. In March, lawmakers passed the CARES Act and made it possible for those facing COVID-19-related hardship to tap some retirement savings without penalty.
Even so, adverse market conditions have made it costly to draw down savings now and challenging for those without annuities to maintain the income they need through retirement.
What’s needed are additional innovations like the SECURE Act that help people save for the long-term. A relatively easy fix would be to amend current laws that require workers to begin withdrawing from their retirement plans when they turn 72. With retirement accounts taking a hit in this down market, it only makes sense to allow workers even more time to recoup losses in their retirement plans.
The Retirement Security and Savings Act, introduced by Sens. Rob Portman (R-Ohio) and Ben Cardin (D-Md.), would increase the required distribution age to 75. In addition, it would help people with student loans save by letting employers make retirement plan contributions equal to what an employee pays on their loans. And, it would create additional opportunities for workers and retirees to establish a source of lifetime income.
Furthermore, it would let employers automatically increase workers’ retirement plan contributions, while giving workers the ability to decline the auto-increase at any time.
The Portman-Cardin initiative has broad support in Congress. Their leadership offers a blueprint for other savings solutions to help more Americans. These proposals ought to be a priority for passage this year.
It doesn’t take a crystal ball to see why.
Practical, bipartisan solutions to advance financial protection and security are within immediate reach.