Investment executives and retirement plan officials will band together over the next several months to propose some radical enhancements to the nation’s 401(k) system, said Robert Reynolds, president and CEO of Boston-based Putnam Investments.
In a recent interview, he said that he is spearheading an industry attempt to persuade members of Congress to adopt substantial retirement reforms that would solidify the defined-contribution system before the end of 2009.
“Our fundamental retirement system is sound, but we’ve seen over the last six months that it still has a number of holes,” stated Reynolds, noting that several trillion dollars of retirement assets have been “destroyed” by the market meltdown.
“As an industry, we’re responsible for developing ways to fill those holes,” he said. “And we'll make sure that we have a stronger system in six months.”
Reynolds was in Washington last week to garner support from plan sponsors and retirement plan service providers for an agenda that encapsulates several major modifications to the 401(k) system suggested by politicians and academics in recent months.
He specifically wants the retirement industry to call on lawmakers to create a new federal entity that would backstop guaranteed income products offered by insurance companies—much like the protection the Federal Deposit Insurance Corp. provides to bank deposits.
“If we want to restore confidence in the system and increase sources of guaranteed income, we need to take some of the risks to participants off of the table,” Reynolds noted.
His proposals will include mandatory automatic enrollment in employer-sponsored retirement plans, increased fee disclosures, and the requirement of a lifetime income option on every retirement plan’s investment platform.
Reynolds said he wants the industry to encourage employers to provide more investment advice to plan participants, as well as to find ways to reduce volatility in target-date funds—perhaps by embedding guaranteed income strategies within these funds—to protect investors who are either retired or approaching retirement.
At the same time, he would also include new tax advantages for employers who match workers’ contributions to defined-contribution plans, and give tax incentives to workers who invest in lifetime income products.
“It will have to be a combined effort between plan sponsors, service providers and Congress to make this work,” Reynolds said.
“But our retirement system has been consistently improved over the years, and this is our next step.”
Filed by Mark Bruno of Investment News, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.
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