What’s Missing from the Retirement Debate

CapitolThe paternalistic employers of days past are long gone — and will probably never return. That seemed to be the general consensus at the Employee Benefits Research Institute‘s biannual policy conference, held yesterday at the Shriners Auditorium Ballroom on a blustery cold day in Washington.

The big question, of course, is what will replace them — and do they even need to be replaced? EBRI, which is celebrating its 35th anniversary, convened an eclectic group of experts to debate what the future holds for employee benefits in the wake of the Affordable Care Act, the prevalence of defined-contribution retirement plans and the apparent unwillingness — or inability — of baby boomers to retire from the workforce. (The latest research from EBRI suggests DC plan participants are likely to, in some cases, end up better off than traditional defined-benefit plan participants.)

“When the [Employee Retirement Income Security Act] was passed in 1974, the question was whether it would be good or bad for employee benefits,” said Howard Fluhr, chairman of New York-based Segal Group, during a panel on the changing role of employers in employee benefits that was moderated by Business Insurance editor-at-large Jerry Geisel. “Well, for a while it was good, then it became bad, and then it became stifling. Now we’ve shifted to self-reliance as the end-all, be-all because of pressure from public policies. What it really means is, we’ve essentially shifted responsibility for managing volatility onto the backs of employees.”

Federal legislation and tax policy has been beset by the law of unintended consequences, said Fluhr, with the result that laws and regulations which were originally intended to strengthen employee benefits have, over the years, become so complex that employers were practically forced to dispense with the more-paternalistic benefits of years past. This has been accompanied by an embrace of “short-term thinking” among businesses and lawmakers, he said.

“We as a society have lost some control because we’ve lost sight of public policy, and employers have no control over that,” said Fluhr.

Larry Zimpleman, chairman and CEO of Des Moines, Iowa-based Principal Financial Group, urged attendees to not view the past with rose-tinted glasses.

“The good old days were not necessarily as good as we remember them,” he said. “We’ve moved the employee-benefits platform to be more voluntary. Why? Because employees like choice, employers like having control over costs, and defined-contribution plans and voluntary benefits lets them have that.”

He concurred with Fluhr, however, on the short-sightedness that is prevalent in policymaking these days.

“There haven’t been strong voices on both sides of the aisle in Congress on employee benefits for a long time,” said Zimpleman. “Remember when Sen. Ben Cardin, a Democrat, and Sen. Bob Portman, a Republican, worked together on the Pension Protection Act of 2006? Intitiatives like that have been drowned out by ideology-driven debates. And now there’s this mind-set that retirement benefits cost the U.S. government money — that’s destructive thinking.”

Indeed, for every $1 the government forgoes for tax-advantaged retirement plans, he said, it reaps $4 in tax revenue later on as retirees are able to continue spending. “The government more than gets its revenue back; it just has to wait a little longer for it,” said Zimpleman.

“The idea that, one way or another, we have to take care of one another has been lost in Congress,” said Fluhr.

When asked which is better — traditional defined-benefit plans or DC plans — Zimpleman took issue with the question. “The ideal is, both,” he said. “Hybrid plans … are a healthy approach.”

There’s more to come from this EBRI conference, so tune in this Monday …