July 22, 2024 • 45 mins
ERISA turns 50 on Labor Day. It’s older, wiser, and still looks great. What has been its most significant impact on the ability of America’s workers to save?
Preston Rutledge joins American Retirement Association CEO Brian Graff for a comprehensive look back and ahead. Rutledge, founder and principal of Rutledge Policy Group, knows the subject well. Prior to founding Rutledge Policy Group, Preston was the Assistant Secretary of Labor for the Employee Benefits Security Administration (EBSA led the US Delegation on private pension policy at the Organization for Economic Co-operation and Development (OECD) in Paris, France, and led oversight of the Federal Thrift Savings Plan, the world’s largest defined contribution plan.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
The criticisms, I think, are actually unfair in a
lot of ways.
They cherry pick theircriticisms.
They cherry pick their data on.
You know who's covered, who'snot.
What are the account balances?
Speaker 2 (00:13):
DC Pension Geeks brings you exclusive
conversations with topretirement policymakers and
regulators in and aroundWashington DC, hosted by Brian
Graff, an attorney, accountant,former Capitol Hill staffer and
CEO of the American RetirementAssociation.
If you're looking for aninsider's view of all the twists
and turns that Washington takeson the road to ensuring a
(00:33):
secure retirement for millionsof Americans, you're in the
right place.
Welcome to DC Pension Geeks.
Speaker 3 (00:39):
Well, good day everyone.
We're here with another episodeof DC Pension Geeks, continuing
kind of the roll up, if youwill, towards the ERISA 50th
anniversary celebration, whichwill be a festival, really, of
(01:00):
events, no doubt in DC,including one that we're helping
to organize on September 12th.
Very fortunate today to haveour guest, preston Rutledge.
The Honorable Preston Rutledge,the former Assistant Secretary
of Labor for the EmployeeBenefit Security Administration
(01:22):
within the Department of Labor,preston's got a long pension
geek resume, including stints onthe Hill and the IRS.
Preston, thank you for joiningus today and we'd like to kick
these off with a little bit ofbackground about how you know,
(01:44):
as a young child you dreamed ofbeing a pension geek, or I guess
you were.
You also are in the Navy, somaybe during your Navy days you
thought, hey, I want to work onERISA.
So, anyway, how, how did youfind us?
Speaker 1 (01:59):
Well, thank you for the introduction.
I appreciate it and it is along tortured history and, like
most people, at least in mygeneration, who became ERISA
lawyers, they hadn't even heardabout it in law school and then
they stumbled into it one way oranother.
When they started practicing inthe supply corps, I served on a
(02:28):
destroyer and one of my jobswas payroll.
I did payroll twice a month andin those days all the sailors
wanted cash.
So I doled out about 40 grandin cash every two weeks to about
300 sailors.
But I also handled all theirpay records and I do remember
the first time I noticed thatsomeone came and complained to
me about how their pay had gonedown and I went to their payroll
record.
What I realized was theirSocial Security taxes had gone
(02:54):
up and but there had been norate increase.
What had happened is they hadraised the amount of income
subject to the FICA tax theamount of income subject to the.
FICA tax.
I remember thinking, yes, Ijust remember thinking to myself
well, that was sneaky.
No, no stories about theincrease, an increase in the
(03:15):
FICA tax rate.
They just raised the amountsubject to the tax.
So that sort of I'm not goingto tell you that, tell you that,
that you know stuck with meforever and ever.
But so years later I do leavethe Navy, I go to law school
here in Washington DC and I endup clerking on the fifth circuit
(03:36):
.
I actually was aiming myselftoward a life of as a litigator,
frankly, but early in my careerat a law firm I got.
I got put on a corporateproject and there were someone.
They needed some associate toscrutinize and dig through all
the boxes of documents on theiremployee benefit plans, and this
(03:57):
one in particular had a retireemedical plan.
So I'm digging into all of thatand I found it fascinating and
somehow I made the mistake oftelling the partner when it was
all done that I had enjoyed thatproject.
What happens when you do thatin my era as a junior lawyer?
Suddenly word gets around oh,there's a lawyer that just said
they like ERISA.
(04:17):
Suddenly all the ERISA projects.
But I enjoyed it.
So again, I stumbled into it.
I just got assigned tosomething but I found that I
liked it.
So I again I stumbled into it.
I just got assigned tosomething but I found that I
liked it and I ended up actuallybecoming uh, uh, after working
on a lot of merge, a lot of uhcorporate deals which was
mergers, acquisitions, lendingand stuff like that, I ended up,
um, having a kind of a, myfirst big client, a big break
(04:40):
actually, early in my career asan ERISA litigator I ended up
representing executive life andthen the executive life of state
during the crisis in the early90s which got me involved with
PBGC plan terminations, groupannuity contracts and all of
that.
One thing leads to another.
(05:01):
I spent quite a bit of my timeafter that on doing a risk
litigation, multi-employer plan,coal miner projects.
But then life change.
I go get an LLM in tax and Idecide I'm going to shift over
and I get an opportunity to goto the IRS office of chief
counsel and the qualified plansbranch and I jumped at it
(05:24):
because I knew the kind of workthey did.
I thought it was fascinatingand I could afford to do it.
I had young kids at home andmade a lot of sense, the stars
were aligned.
I walk in my first week there.
About a week before I arrived,enron declared bankruptcy and
they had a large defined benefitplan and a large 401k plan that
(05:45):
were both implicated.
So suddenly I'm working on bigprojects again, only with the
IRS.
One thing leads to another.
I do that for several years andthen I have an opportunity to
be detailed up to the SenateFinance Committee during TARP,
when the ranking member wasSenator Grassley of Iowa.
I just thoroughly enjoyed thatyear and a half up there.
(06:06):
And then, after the 2010election cycle, senator Hatch
the late Senator Hatch becamethe ranking member and I had an
opportunity to to be a permanentstaffer on the Senate Finance
Committee, handling theretirement, in fact all of the
employee benefits, as well asnonprofits and 501C and
(06:26):
insurance products, and I jumpedat that.
You don't get those chancesvery often.
So from 2011 until the end of2017, I was the senior benefits
counsel and then I was nominatedto be the assistant secretary
of labor and in 2018, I began myservice at the Department of
Labor.
I began my service at theDepartment of Labor and I left
(06:52):
in the middle of 2020, in themiddle of the COVID, and I've
been consulting and doing kindof running my own, my own shop
here since then and it's beenwonderful, coming up on, I guess
, four years of doing that sortof thing, and I've been able to
stay really active in employeebenefits, both for clients and
speaking, and it's been veryrewarding.
And I am a lifer but it'sbecause I've developed a real
(07:16):
love for this area, reallyemployee benefits generically,
not just retirement but alsohealth and everything else
retirement, but also health andeverything else.
Speaker 3 (07:33):
So you've been at this a little bit and, as I, you
know, as we talked about youknow, we're rolling into the
50th anniversary of the law weall have come to love so well
Arisa.
What do you think are, you know, one or two of the most
dramatic or significant aspectsof Arisa that have you know,
(07:59):
impacted the employee benefituniverse in totality?
So are there certaindevelopments that have occurred
that have struck you as being,you know, more significant than
others?
Speaker 1 (08:13):
Well, I think the one that I hope is obvious to
everybody has been you go back50 years to 1974, and come
forward to 2024, if you take asnapshot.
In 1974, the defined benefitplan reigned supreme.
That was the central retirementprogram.
There were defined contributionplans, profit sharing 401k not
(08:42):
401k, profit sharing moneypurchase plans, things like that
, but the 401k hadn't even comealong yet.
That was 1978.
The IRA was still in itsinfancy.
I'd say the two biggest thingsin addition to the sort of the
decline of the defined benefitplan and the rise of the defined
(09:04):
contribution plan.
But you know, the thing thathas risen even faster in terms
of assets, faster than thedefined contribution plan, is
the individual retirementaccount, the IRA.
That has more assets thananything now.
So the biggest change whetherit's in a 401k, where you still
have some structure and someemployer screening of the kinds
(09:26):
of investments you can make andthere's a fiduciary watching
over the investment platformmost of our retirement assets
now are in IRAs.
Individuals not only have tosort out how to make their
retirement money last throughouttheir retirement, they have to
manage the investments duringtheir working years.
(09:48):
That would be, I'd say, thebiggest thing, the biggest
changes.
You can point to many things,I'm sure, but those are the two
that strike me as the mostsignificant to the system to the
(10:12):
system.
Speaker 3 (10:14):
The one thing I would probably add to that, Preston,
is the development of litigationthrough ERISA and the degree of
litigation that I would besurprised that the authors of
the statute fully appreciate itwould occur.
Can you?
Can you talk a little bit aboutthat in your view, given the
fact that you were a litigator?
Speaker 1 (10:32):
Yeah, I agree with that.
The litigation that that I wasinvolved in was really driven by
the Department of Labor andgovernment, and so they're
indifferent to whether they can.
You know whether they can makelitigation.
You know, pay, quote, unquote.
Plaintiff's lawyers are likeother ways they have to make a
living.
So originally, it didn't looklike a very profitable area for
(10:56):
plaintiff's lawyers and therewere few and far between.
In the early years I remembermeeting one of the leading
plaintiff's lawyers and he'dwritten a book, a very book just
about everybody had, and Iremember asking him once, when I
had a meeting, what it was likebeing an ERISA plaintiff's
lawyer.
He says I have a very high hesaid I have a very high
(11:16):
tolerance for financialinsecurity.
But that did change and itchanged with the rise of the fee
litigation for 401k plans.
I guess that would be one ofthe biggest ones.
Fiduciary breach cases.
Speaker 3 (11:32):
It's also starting to you know.
It's now starting to transferover to the health care side.
Speaker 1 (11:37):
And it's interesting because the fee litigation for
401k started when when the Iguess in 2012, the fee
disclosure rules for 401k andthose, those were just extended
to to health plans in the lastyear or so and it's, you know,
the requirement to disclose thefees, anti-disclosure.
(12:01):
But that creates data thatfolks can use if they want to
allege that there are excessivefees being paid.
So you're right, the newfrontier of fee litigation is
health plans.
Speaker 3 (12:19):
And I think that the concern that I feel certainly
it's had this effect on theretirement side.
I would imagine it could havethis effect on the health side
is the stifling of innovation,the chilling effect it has on
plan sponsors and theirwillingness to try new things
(12:42):
out of fear of being sued, andthat the whole advent of class
action litigation around ERISAplans you know was really could
not possibly have beenanticipated by the authors 50
years ago.
And the amount of cost that isadded to the system and
(13:08):
ultimately to employers andparticipants as a result of it.
I mean, if it's not the numberone litigated federal statute,
it's probably certainly in thetop three top three, and that
(13:30):
became a little bit evidentearly on too.
Speaker 2 (13:33):
So many cases started to go up to the Supreme.
Speaker 1 (13:34):
Court.
It was like a drumbeat.
There seemed like there was anERISA case almost every term for
several years and the court hadtaken a very expansive view of
ERISA preemption, which theyfinally, I think, dialed back a
little bit because they werejust getting.
The federal courts were gettingso inundated because ERISA, you
know, preempted everything, soto speak.
(13:56):
Some people joke that itcreated, preempted the Magna
Carta.
At one point it had gotten sobroad and used so much to defend
against those cases.
But I agree, another reason, Ithink, is there's also been a
steady drumbeat of congressionalaction.
(14:16):
You know, congress really seemsto not be able to keep its
hands off of the area either.
I think there have been greatimprovements, particularly in
the last couple of years withSecure and Secure 2.0.
And there are new proposalsalready being introduced that
might look forward to anotherretirement-oriented bill here in
the near future.
But if you look at the wayCongress constantly revisits
(14:40):
this area in both health andretirement, that always creates
maybe new opportunities forfolks to not only adopt changes
to their plans and practices butalso maybe litigation by the
outside.
One thing I will say that's beenimpressed upon me as I've
(15:03):
practiced over the years and Iwould not have expected this.
If you think of the thingsemployers worry about their tax
rates, their regulatory burdensand their exposure to litigation
Exposure to litigation is offthe charts, their biggest fear.
As much as we in Washingtonlike to focus on making the
(15:24):
regulations more, lessburdensome, more more, more more
commonsensical, having theright level of taxation so we're
not driving people you know outof the American economy and
overseas.
We focus a lot on that.
But the absolute, absolutedislike of having to deal with
(15:46):
lawsuits is, I think, one of thethings that creates so much of
a conservative approach to 401kplant management, and it's
understandable.
Speaker 3 (15:56):
So you know you mentioned a couple of things I
want to dig into.
Let's start given because onething you haven't spent a lot of
time talking about is yourexperience.
Irs did litigation, you workedat the department of labor as
secretary, but you also happento essentially be the the you
(16:18):
know the senior retirementpolicy staff on Capitol Hill.
So you you worked on, you knowyour on, although I don't think
anything quite got enacted underyour watch.
There was a whole bunch ofstuff that you worked on that
ultimately became secure 1.0.
Correct.
And you mentioned somethingthat I do think is worth
(16:43):
discussing.
And you mentioned somethingthat I do think is worth
discussing.
Erisa is a law that seems toconstantly get amended.
You know I've described it as ascience experiment that
Congress continually tinkerswith.
Why is that?
And is this?
(17:04):
Is it a good thing?
Speaker 1 (17:06):
It's kind of a mystery a little bit, because
it's also considered by mostmembers of Congress to be a very
boring area.
It's not exciting.
It's very technical verytechnical kind of boring.
I remember leaving a hearingonce and and uh, I guess I can
reveal this I'm walking down thehall leaving the hearing.
It was a really excellenthearing on on retirement plans
(17:30):
and, um, senator Hatch looked atme and said Preston, I that was
.
I was surprised.
That was a very, veryinteresting hearing, but you
know, retirement policy is justso boring.
Speaker 3 (17:48):
But that hearing was really exciting and for
listeners.
Senator Hatch was the chairmanof the Finance Committee at the
time and you were working forhim.
Speaker 1 (17:57):
Yes, this might have been when he was still a ranking
member.
He was a ranking member for thefirst four years I worked for
him and then the chairman afterthat.
But on the other hand, it doesget visited a lot and I think
that's because members see whereIRAs 401ks that's really where
the rubber meets the road withtheir voters, their constituents
(18:18):
.
It is how the middle class saves, and it is bipartisan.
And, despite all the rhetoricto the side, I always thought I
always found that members ofCongress really look for
opportunities to do somethingbipartisan.
Most of them do, and these havealways been bipartisan bills.
(18:39):
It might also be the industryhas been very active in trying
to improve the system and staysconstantly engaged.
That might be part of it too.
Speaker 3 (18:51):
Yeah, I mean there's been some articles about people
lobbying in the retirementindustry that one or two one or
two that I might, that Imight've been involved with.
So, in all seriousness, but youdidn't ask answer the other
(19:15):
part of the question, which ishas has it gone too far?
Maybe do we need to give it abit of a rest, or do you think
that the tinkering is healthy?
Speaker 1 (19:32):
I think it wouldn't hurt to give it a rest and let
the things that have beenenacted in recent years to take
hold, because it does take timeand many of them have delayed
effective dates.
You don't even have.
Speaker 3 (19:45):
Some of those effective dates haven't even
arrived yet.
Speaker 1 (19:47):
Let the system take hold the favors match, which is
not yes, yes, I think that, yeah, it wouldn't hurt to let things
settle and sink in and not makemajor changes.
I think one of the reasons thatsome of the changes have been
made it's occurred a little morefrequently than otherwise.
(20:10):
A lot of the changes over theyears have been voluntary.
There have been things thatemployers are allowed to do but
aren't mandated to do.
The mandatory aspect of thingsalways creates an additional
hurdle, but we did add somemandatory provisions in Secure
2.0 that was highly bipartisan.
(20:31):
And, by the way, you mentionedSecure 1.0, which passed after I
left the Senate and I was atthe DOL.
I will say the Senate version ofSecure 1.0 did pass the Senate
under my watch, which was well.
It passed the Senate FinanceCommittee in September of 2016.
(20:51):
Which is interesting becausethat's how long it took for it
to finally become enacted andsigned into law from September
of 2016 until December of 2019,which tells you something else
about this kind of legislationthe retirement legislation A lot
of it has a long, very longincubation period.
The fact that something doesn'tget enacted in a particular
(21:12):
Congress doesn't mean it won'tbe back and you'll get it
enacted in another one.
The startup, I'm sorry, thestarter 401k.
You may remember that SenatorHatch introduced that in 2013.
Speaker 3 (21:26):
Yeah, no, I mean the incubation period for a lot of
these ideas is very long.
I mean the Savers match.
The refundable Savers match wasfirst suggested in 2001.
Speaker 1 (21:36):
So, it only took 22 years.
We could have a Q&A section onwhat's the provision in SCURE
2.0 with the longest incubationperiod and what was the year.
If you really want to have asuper geeky Jeopardy kind of
(21:59):
kind of question.
Speaker 3 (22:00):
That would be a very small group of people.
That.
Speaker 1 (22:02):
Yes.
Speaker 3 (22:03):
Yeah, two of them are on this podcast.
So you mentioned bipartisan andI think you know there's been a
lot of folks here in town,yours truly included, that have
strived really hard to keep itbipartisan.
As a congressional staffer, asa lobbyist, you know you've
(22:30):
certainly been a key proponentof making sure that it remains
bipartisan and we've had apretty good run of
bipartisanship for, I'd say, 30years.
But it sort of feels that thewheels are coming off and I'm
(22:58):
interested to know I think ourlisteners would be interested to
know why do you think all of asudden?
Because you know, if we go backjust a few years ago, 401ks are
great.
We just you know we need tomake some improvements.
It's wonderful, everything'swonderful, and now it's.
You know the 401ks are worthless, they're terrible, they are a
(23:19):
complete failure according toBernie Sanders.
You know the New York Timescame out with another article
yesterday about how, you know,the 401k system needs to get
reworked.
It's almost a daily occurrenceyou see some article or academic
(23:40):
study trashing the 401k.
What is going on, in your view?
Speaker 1 (23:45):
I think the structural element to this is
that our defined contributionsystem, our retirement system,
employer-based retirement system, it's a voluntary system.
It's voluntary for theemployers to set it up and it's
voluntary for the employee toenroll and if they're
(24:06):
automatically enrolled, theyhave the right to opt out, given
the which I think is a strengthI think being.
I think voluntary is good.
You'll never get everybody to,for folks that want everybody to
be covered, that will probablynever completely happen, because
(24:28):
people have choice and and, andpeople, at different times in
their life, have otherpriorities.
As much as we love and promoteretirement savings, there's a
point in your life where it's alot more important to save money
for a down payment, a lot moreimportant to think about, you
know, getting your kids throughschool, trade school, college,
whatever school, paying off yourstudent loans, which has been a
(24:51):
problem that they're startingto address with retirement
policy.
Retirement policy Folks, whenwe have a voluntary retirement
system, you're going to havesome folks that just don't get
covered.
Speaker 3 (25:07):
Hold on a second Time out, time, out, time out.
We don't have a voluntaryretirement system.
We have a mandatory retirementsystem.
You're talking about SocialSecurity.
Speaker 1 (25:15):
Yes, I said employer-based.
I don't think of SocialSecurity as employer-based.
Pay it out of your paycheck.
It's employer and employeefunded.
Okay, right, yeah, it's managedby the Social Security
Administration.
But we're such pension geeks Ididn't realize I had to make
(25:37):
state the obvious.
All right, I'll stake theobvious.
We have one mandatory definedbenefit system in this country.
We don't have a voluntary.
We don't have a mandatoryprivate defined benefit system
or or any kind of mandatorydefined contribution system.
Some countries do.
Speaker 3 (25:53):
That's not the route we've gone, and Well, but most
countries don't have the dualsystem that we.
In fact, I don't think there'sany country that has the dual
system that we have.
I think most countries thathave a mandatory system.
It's like Australia.
That's a defined contributionsystem, correct.
There's no social security,defined benefit.
(26:13):
If we want to call socialsecurity a defined benefit
program, let's just use that asa moniker.
(26:33):
People have no savings when infact they have a very effective
retirement program, socialSecurity, which is critically
foundational to retirementpolicy in this country.
For some reason, we don'treally think of this
holistically.
Speaker 1 (26:52):
We don't think of it holistically.
We don't think of what are allthe sources of retirement income
a person will ask themselvesabout when they sit down and
think about it.
There will be social security.
There will be.
Have you paid off your home?
In other words, have you paidoff your mortgage?
That's a form of retirementsavings in a way.
If your mortgage is paid off,what kind of regular savings do
(27:17):
you have paid off?
What kind of regular savings doyou have?
What does your spouse have?
Because it is a unit, if it's amarried couple, you're looking
at it from that perspective.
We don't look at itholistically.
We don't have good dataholistically.
So I guess what I was trying tosay was the criticism of the
401k system.
I hadn't gotten to this pointyet, but the point I was trying
(27:38):
to say was the criticism of the401k system.
I hadn't gotten to this pointyet, but the point I was going
to make is the criticisms Ithink are actually unfair in a
lot of ways.
They cherry pick theircriticisms.
They cherry pick their data on.
You know who's covered, who'snot.
What are the account balances?
You know median accountbalances, average account
balances.
They tend to ignore socialsecurity.
(27:59):
They also ignore a lot of othergovernmental transfer payments
that are available to people.
So you know, it's almost.
The arguments are based aroundstatistics and it brings to mind
the.
It's a cliche, but it's acliche because it's true what
Mark Twain said about statistics.
(28:20):
You know there's, there's,there's lies, damn lies and
statistics.
So it it's, it's.
It's a fat target and it's hardto defend because it's
complicated but it's also youknow it's easier to attack
(28:53):
because it's complicated.
Speaker 3 (28:53):
Focusing on is the, what someone else described as
the.
We don't have a retirementcrisis.
We have a retirement data crisis, and the crisis is that most of
the critics rely on the CensusBureau's consumer data surveys
(29:28):
current population survey and umand that survey um, actually
asks for retirement income, andthey use the phraseology regular
retirement income to meanessentially what is akin to
social security or a pension.
So when you take moneyintermittently from an IRA or DC
(29:49):
plan, it doesn't get reported,so that when you actually
compare the survey data to IRSdata, it's like 95% wrong.
But somehow we're relying onthis incredibly wrong data to
(30:11):
make generalized conclusionsabout the success or failure of
the system, which is verydangerous from a policy
standpoint because it leads tothese, you know, absurd um
obsuptions that the system youknow, the, the, the, the thing
is just completely not working.
(30:31):
Um, and so I think you knowwe're going to be focusing this
fall quite a bit on trying toput out information to make it
clearer exactly what is going onhere, as opposed to the false
rhetoric that academia seems tobe relying on.
(30:53):
So I think having goodinformation is really important,
and I'm not sureinstitutionally, from a
governmental standpoint, we'vedone a very good job.
I don't think the industry hasdone a good job, but I don't
think the government's done agood job either.
Speaker 1 (31:10):
No, and when you overlay and I've seen charts in
the past by folks that have duginto the data more broadly and
you see an overlay of the incomereplacement rates for Social
Security across, say, the fiveincome, if you want to split the
income groups up into five,from lowest to highest, and you
(31:35):
know the income replacementrates for Social Security are
quite high for the lowest incomegroups and they go, they go
down, they replace less and lessincome as people have higher
and higher income, which isappropriate.
It's a progressive incomereplacement system and if you
take the fund contributionsystem and you overlay that with
(31:55):
it, you'll find that it's lowerat the low income levels which
is where the criticism of itcomes in and it goes up as you
get into the higher incomegroups.
When you lay them across eachother, like one on top of the
other, you find incredibly highincome replacement rates across
the board.
And it's interesting, the loweryour income is, the more you
(32:17):
get from Social Security.
You top that off with some morefrom the foreign contribution
system and the incomereplacement rates are extremely
high for the lowest incomecohorts and that gets ignored
For the higher income folks.
They have similar incomereplacement rates on the charts.
I've seen Much more of it has tocome from their own savings,
(32:44):
which strikes me as a fair thingto demand.
Because they make more money,they can save more of their own
money.
When I first saw some of thatdata when I was working for the
Senate Finance Committee, Ithought, wow, for all the
complaints, our system hasactually landed in a very
rational place and a successfulplace, I thought.
Sometimes I do think there arefolks that just want to just, I
(33:07):
don't know, keep churning thepot for some reason, or you know
, want to constantly tear thebuilding down.
Speaker 3 (33:15):
So you have some real experience working on tax
legislation.
Yes, and we're about to embarkon another round of tax reform,
tax, whatever.
(33:36):
They're calling this round ofit, armageddon.
Speaker 1 (33:38):
Yeah it, armageddon.
Speaker 3 (33:39):
Yeah, tax Armageddon, what seems to be the every five
or 10 year tax free for allexercise that Congress engages
in.
Obviously, a lot will depend onthe election, but the one thing
that doesn't seem to bedependent on the election is the
fact that we will have a taxpolicy debate one way or the
(34:02):
other, shape of which obviouslywill change depending on who the
president is and who controlsCongress.
Talk a little bit.
I mean, there's always beenthis frustration by people in
our industry about the fact thatretirement always seems to be a
(34:24):
piggy bank that gets rated topay for other stuff.
There was the you know theproposal, the ratification
proposal which, you know, due toa tweet by President Trump got
(34:45):
kind of shot down, but it wasdefinitely in play for a while.
But historically it's been thisway, going back, frankly, 50
years, yeah, and you know what'syour thinking on that?
Speaker 1 (35:03):
Why is it?
Why is this constantly a battle?
Well, one of the reasonsretirement gets looked at is it
is the.
I think it might be the largestsingle tax exclusion in the in
the Internal Revenue Code.
Speaker 3 (35:19):
So there's a lot of money involved, but I think it's
the fiscal versus the healthcare premium.
Yeah, that fight over who'snumber one.
Speaker 1 (35:22):
Yes, but they both.
You put them together.
That's employee benefits andthat's the world of the IRS and
Department of Labor.
It's interesting We've usedretirement as a piggy bank.
Occasionally it gets talkedabout a lot, but when it
actually happens it tends to bewithin to pay for other
(35:44):
retirement policy.
So I'll give you a couple ofexamples.
Speaker 3 (35:49):
Of recent vendors, you go back into the 80s though
it had nothing to do withretirement policy, it was just a
piggy bank.
Speaker 1 (35:56):
And I was not referring to the 80s, I was
referring to more recent times.
The most recent tax reform billthat we're revisiting next year
the TCJA from 2017, really hadvirtually no retirement policy
in it.
Speaker 3 (36:10):
There were some things, but again, the proposal
of ratification was to reducecorporate taxes.
Speaker 1 (36:15):
The proposal was made and it failed.
It failed, dramatically failed.
I will tell you that, after itfailed, there was another one
more attempt at using Rothpolicy to raise revenue.
There was a proposal that wasscored to Rothify all the
(36:38):
catch-up contributions and itwas killed, only to be revived
later.
Only to be revived later in aslightly different form and a
more difficult way to implement,but Again, but used what Used
for other retirement policy, notused for tax reform.
Now, in 2017, it was allRepublicans, so they were using
(37:02):
a reconciliation bill, whichmeant they didn't need any
Democrat votes.
Still, they ended up not usingretirement as a pay for for more
general tax reform.
In the end yes, in the end Inthe Build Back Better, which was
the all-Democrat era of acouple of years ago 2021, 2022,
when the Democrats had theability to do reconciliation
(37:24):
bills.
There was some retirementpolicy in Build Back Better, but
again, and it would have raisedrevenue, but again it fell out.
And even within that, therevenue raisers were meant to
offset some additionalpro-retirement policy, but it
fell out.
And even within that, therevenue raisers were meant to
offset some additionalretirement pro-retirement policy
, but it fell out Again.
It would have been maybe a veryit would have been the first
(37:45):
example of, in recent times, ofa purely partisan retirement
bill because Bill Bettebatterhad no Republican support, but
it did not succeed.
So the retirement bills Secure1.0, secure 2.0, they've still
been, they've been passed andthey've been bipartisan.
So they've not been part ofeither of the Democrat-only
(38:08):
reconciliation tax bills or theRepublican-only reconciliation
tax bills.
So, looking ahead to next year,you say that a lot will depend
on the election.
That's an understatement.
So if we have an all Republicansituation in 2025, or an all
Democrat situation in 2025, Ithink the odds are that the
(38:31):
retirement policy will stay onthe sidelines awaiting a
bipartisan bill.
You can't be sure things change, but that would be my
expectation.
Speaker 3 (38:42):
So you're telling me that you don't think, given the
enormous hunger for revenuebecause the Tax Cut and Jobs Act
will cost four and a halftrillion dollars stand, that
you're not even remotely worriedthat retirement won't be used
(39:05):
in some way to pay for stuff.
Speaker 1 (39:08):
You put some words in my mouth that I did not, that I
did not speak.
Speaker 3 (39:12):
It's my expectation, that's what I wanted you to
clarify.
Speaker 1 (39:15):
It's my expectation.
That's what I wanted you toclarify.
It's my expectation.
It would be my expectation,based on the past, that that
that retirement policy won't beused to raise revenue for
non-retirement tax reductions,but it's clearly.
Nobody can be sure, and this2025 might be the year when this
(39:37):
all changes the otherpossibility is we have divided
government.
We have a, you know, one partyhas the house, one party has the
senate, a different party hasthe house or the senate or the
white house, so you end uphaving to have a bipartisan tax
armageddon bill.
Um, my guess is in that caseit'll be much more about
gridlock and maybe even maybefrankly, with gridlock, maybe
(40:00):
even a lesser chance of therebeing a retirement bill.
I do think there'll be aretirement bill at some point in
the next Congress.
Speaker 3 (40:09):
You mean a secure 3.0 ?
Speaker 1 (40:12):
There may be, at least.
I mean mean the beginnings ofit are already forming.
There's already three or fourbills that have been introduced,
and this is how it started withsecure and secure 2.0.
You get several programs,several policy ideas bubble up.
They get introduced.
You know there's a number ofpolicy ideas out there.
I know you're aware of some ofthem and it's starting to bubble
(40:34):
up Now.
Is it going to happen in 2025?
I think that'd be pretty rapidand probably way too soon.
But I think at some point againit's like in the past, these
ideas bubble around and peoplelike these ideas, I mean ranking
member, neil, has reintroducedhis auto IRA bill.
(40:56):
There's an age 18 minimumparticipation rule bill out
there.
Auto re-enrollment is a policypeople have been talking about
for a while.
One of the ones that I thinkwould fit well with the current
state auto IRA system, even ifthere is no federal auto IRA
system, is the proposal I knowyou're aware of to allow Roth
(41:17):
IRA rollovers into anemployer-sponsored plan.
If an employee is in one ofthese state auto IRA programs
and then changes their job andgoes to a new employer and that
employer has a 401k, it would bea great policy to allow them to
take whatever they may havesaved at that earlier job in an
(41:38):
auto Roth auto IRA and roll itinto their 401k.
I mean little things, these arethings around the edges, but
these are ideas that are alreadybubbling up and there's a bill,
a lot of these are bills thatwe've proposed, as you know, and
have gotten some of themintroduced, including tax
credits for nonprofit employers,startup plans.
(41:59):
And that's how it happened inSecure.
They started bubbling up in2013.
Speaker 3 (42:04):
I guess, I would say clearly, we're already doing
meetings on Secure 3.0.
Already doing meetings onSecure 3.0.
I agree with you that Secure3.0 won't generally be I mean,
(42:25):
most of it.
There might be a few things,but most of it won't be part of
a broader tax policy debate.
The 3.0 stuff would be more ofa separate bipartisan exercise,
like it's always been.
I'm not sure we squeeze it intothis Congress.
To be perfectly honest with you, I think it might wait until
2027, and I'm not sure that's abad thing, given the fact that
(42:46):
the industry is still digestingSecure 1 and Secure 2.0.
Speaker 1 (42:51):
I would agree with that.
Speaker 3 (43:06):
But the thing that I am significantly more concerned
about I would agree with thatgoing to want to write a blank
check for this one and I dothink that I don't think it's
roughification, I think they gottheir hands slapped on that one
but I do think the chances oflittle cuts, whether it be, you
(43:27):
know, raising COLA limits, youknow COLA adjustments and some
limit changes.
You know there are definitelythings that potentially could be
on the table that are going tobe seen as negative by the
(43:49):
retirement plans in the universe.
Speaker 1 (43:52):
You're right to be on guard.
It is going to be, there'sgoing to be a massive search, a
search for paid for us, becauseof the massive costs involved.
Speaker 3 (44:02):
And this is the first time in a long time, I think
either one of us have heardsenators and house members talk
about deficit reduction in a ina really meaningful way.
It's been a very long time.
Speaker 1 (44:15):
It is starting to come back.
Yes, it is starting to comeback.
Speaker 3 (44:21):
So I guess we're going to find out.
I'm glad that you'll be part ofthis debate because your voice
is needed and your expertise isneeded and your expertise is
needed.
And the one thing I overArisa's 50th, you know 50 years.
(44:42):
I think the one thing we candefinitely agree on is it's
never been boring.
It has never been boring,despite what Senator Hatch said.
Speaker 1 (44:53):
I probably should not have revealed that private
conversation.
He said it with a smile on hisface as he did most things and a
twinkle in his eye because hewas just saying how interesting
that hearing was.
So I think it surprises peoplesometimes just how fascinating
this area is when they get intoit in a meaningful way.
Speaker 3 (45:11):
Thank you so much, Preston.
Preston really enjoyed it and Iappreciate you willing to take
the time to speak to ouraudience today.
Speaker 1 (45:20):
Well, I'm very honored that you asked me and I
appreciate the opportunity totalk with you.
The criticisms, I think, are actually unfair in a
lot of ways.
They cherry pick theircriticisms.
They cherry pick their data on.
You know who's covered, who'snot.
What are the account balances?
Speaker 2 (00:13):
DC Pension Geeks brings you exclusive
conversations with topretirement policymakers and
regulators in and aroundWashington DC, hosted by Brian
Graff, an attorney, accountant,former Capitol Hill staffer and
CEO of the American RetirementAssociation.
If you're looking for aninsider's view of all the twists
and turns that Washington takeson the road to ensuring a
(00:33):
secure retirement for millionsof Americans, you're in the
right place.
Welcome to DC Pension Geeks.
Speaker 3 (00:39):
Well, good day everyone.
We're here with another episodeof DC Pension Geeks, continuing
kind of the roll up, if youwill, towards the ERISA 50th
anniversary celebration, whichwill be a festival, really, of
(01:00):
events, no doubt in DC,including one that we're helping
to organize on September 12th.
Very fortunate today to haveour guest, preston Rutledge.
The Honorable Preston Rutledge,the former Assistant Secretary
of Labor for the EmployeeBenefit Security Administration
(01:22):
within the Department of Labor,preston's got a long pension
geek resume, including stints onthe Hill and the IRS.
Preston, thank you for joiningus today and we'd like to kick
these off with a little bit ofbackground about how you know,
(01:44):
as a young child you dreamed ofbeing a pension geek, or I guess
you were.
You also are in the Navy, somaybe during your Navy days you
thought, hey, I want to work onERISA.
So, anyway, how, how did youfind us?
Speaker 1 (01:59):
Well, thank you for the introduction.
I appreciate it and it is along tortured history and, like
most people, at least in mygeneration, who became ERISA
lawyers, they hadn't even heardabout it in law school and then
they stumbled into it one way oranother.
When they started practicing inthe supply corps, I served on a
(02:28):
destroyer and one of my jobswas payroll.
I did payroll twice a month andin those days all the sailors
wanted cash.
So I doled out about 40 grandin cash every two weeks to about
300 sailors.
But I also handled all theirpay records and I do remember
the first time I noticed thatsomeone came and complained to
me about how their pay had gonedown and I went to their payroll
record.
What I realized was theirSocial Security taxes had gone
(02:54):
up and but there had been norate increase.
What had happened is they hadraised the amount of income
subject to the FICA tax theamount of income subject to the.
FICA tax.
I remember thinking, yes, Ijust remember thinking to myself
well, that was sneaky.
No, no stories about theincrease, an increase in the
(03:15):
FICA tax rate.
They just raised the amountsubject to the tax.
So that sort of I'm not goingto tell you that, tell you that,
that you know stuck with meforever and ever.
But so years later I do leavethe Navy, I go to law school
here in Washington DC and I endup clerking on the fifth circuit
(03:36):
.
I actually was aiming myselftoward a life of as a litigator,
frankly, but early in my careerat a law firm I got.
I got put on a corporateproject and there were someone.
They needed some associate toscrutinize and dig through all
the boxes of documents on theiremployee benefit plans, and this
(03:57):
one in particular had a retireemedical plan.
So I'm digging into all of thatand I found it fascinating and
somehow I made the mistake oftelling the partner when it was
all done that I had enjoyed thatproject.
What happens when you do thatin my era as a junior lawyer?
Suddenly word gets around oh,there's a lawyer that just said
they like ERISA.
(04:17):
Suddenly all the ERISA projects.
But I enjoyed it.
So again, I stumbled into it.
I just got assigned tosomething but I found that I
liked it.
So I again I stumbled into it.
I just got assigned tosomething but I found that I
liked it and I ended up actuallybecoming uh, uh, after working
on a lot of merge, a lot of uhcorporate deals which was
mergers, acquisitions, lendingand stuff like that, I ended up,
um, having a kind of a, myfirst big client, a big break
(04:40):
actually, early in my career asan ERISA litigator I ended up
representing executive life andthen the executive life of state
during the crisis in the early90s which got me involved with
PBGC plan terminations, groupannuity contracts and all of
that.
One thing leads to another.
(05:01):
I spent quite a bit of my timeafter that on doing a risk
litigation, multi-employer plan,coal miner projects.
But then life change.
I go get an LLM in tax and Idecide I'm going to shift over
and I get an opportunity to goto the IRS office of chief
counsel and the qualified plansbranch and I jumped at it
(05:24):
because I knew the kind of workthey did.
I thought it was fascinatingand I could afford to do it.
I had young kids at home andmade a lot of sense, the stars
were aligned.
I walk in my first week there.
About a week before I arrived,enron declared bankruptcy and
they had a large defined benefitplan and a large 401k plan that
(05:45):
were both implicated.
So suddenly I'm working on bigprojects again, only with the
IRS.
One thing leads to another.
I do that for several years andthen I have an opportunity to
be detailed up to the SenateFinance Committee during TARP,
when the ranking member wasSenator Grassley of Iowa.
I just thoroughly enjoyed thatyear and a half up there.
(06:06):
And then, after the 2010election cycle, senator Hatch
the late Senator Hatch becamethe ranking member and I had an
opportunity to to be a permanentstaffer on the Senate Finance
Committee, handling theretirement, in fact all of the
employee benefits, as well asnonprofits and 501C and
(06:26):
insurance products, and I jumpedat that.
You don't get those chancesvery often.
So from 2011 until the end of2017, I was the senior benefits
counsel and then I was nominatedto be the assistant secretary
of labor and in 2018, I began myservice at the Department of
Labor.
I began my service at theDepartment of Labor and I left
(06:52):
in the middle of 2020, in themiddle of the COVID, and I've
been consulting and doing kindof running my own, my own shop
here since then and it's beenwonderful, coming up on, I guess
, four years of doing that sortof thing, and I've been able to
stay really active in employeebenefits, both for clients and
speaking, and it's been veryrewarding.
And I am a lifer but it'sbecause I've developed a real
(07:16):
love for this area, reallyemployee benefits generically,
not just retirement but alsohealth and everything else
retirement, but also health andeverything else.
Speaker 3 (07:33):
So you've been at this a little bit and, as I, you
know, as we talked about youknow, we're rolling into the
50th anniversary of the law weall have come to love so well
Arisa.
What do you think are, you know, one or two of the most
dramatic or significant aspectsof Arisa that have you know,
(07:59):
impacted the employee benefituniverse in totality?
So are there certaindevelopments that have occurred
that have struck you as being,you know, more significant than
others?
Speaker 1 (08:13):
Well, I think the one that I hope is obvious to
everybody has been you go back50 years to 1974, and come
forward to 2024, if you take asnapshot.
In 1974, the defined benefitplan reigned supreme.
That was the central retirementprogram.
There were defined contributionplans, profit sharing 401k not
(08:42):
401k, profit sharing moneypurchase plans, things like that
, but the 401k hadn't even comealong yet.
That was 1978.
The IRA was still in itsinfancy.
I'd say the two biggest thingsin addition to the sort of the
decline of the defined benefitplan and the rise of the defined
(09:04):
contribution plan.
But you know, the thing thathas risen even faster in terms
of assets, faster than thedefined contribution plan, is
the individual retirementaccount, the IRA.
That has more assets thananything now.
So the biggest change whetherit's in a 401k, where you still
have some structure and someemployer screening of the kinds
(09:26):
of investments you can make andthere's a fiduciary watching
over the investment platformmost of our retirement assets
now are in IRAs.
Individuals not only have tosort out how to make their
retirement money last throughouttheir retirement, they have to
manage the investments duringtheir working years.
(09:48):
That would be, I'd say, thebiggest thing, the biggest
changes.
You can point to many things,I'm sure, but those are the two
that strike me as the mostsignificant to the system to the
(10:12):
system.
Speaker 3 (10:14):
The one thing I would probably add to that, Preston,
is the development of litigationthrough ERISA and the degree of
litigation that I would besurprised that the authors of
the statute fully appreciate itwould occur.
Can you?
Can you talk a little bit aboutthat in your view, given the
fact that you were a litigator?
Speaker 1 (10:32):
Yeah, I agree with that.
The litigation that that I wasinvolved in was really driven by
the Department of Labor andgovernment, and so they're
indifferent to whether they can.
You know whether they can makelitigation.
You know, pay, quote, unquote.
Plaintiff's lawyers are likeother ways they have to make a
living.
So originally, it didn't looklike a very profitable area for
(10:56):
plaintiff's lawyers and therewere few and far between.
In the early years I remembermeeting one of the leading
plaintiff's lawyers and he'dwritten a book, a very book just
about everybody had, and Iremember asking him once, when I
had a meeting, what it was likebeing an ERISA plaintiff's
lawyer.
He says I have a very high hesaid I have a very high
(11:16):
tolerance for financialinsecurity.
But that did change and itchanged with the rise of the fee
litigation for 401k plans.
I guess that would be one ofthe biggest ones.
Fiduciary breach cases.
Speaker 3 (11:32):
It's also starting to you know.
It's now starting to transferover to the health care side.
Speaker 1 (11:37):
And it's interesting because the fee litigation for
401k started when when the Iguess in 2012, the fee
disclosure rules for 401k andthose, those were just extended
to to health plans in the lastyear or so and it's, you know,
the requirement to disclose thefees, anti-disclosure.
(12:01):
But that creates data thatfolks can use if they want to
allege that there are excessivefees being paid.
So you're right, the newfrontier of fee litigation is
health plans.
Speaker 3 (12:19):
And I think that the concern that I feel certainly
it's had this effect on theretirement side.
I would imagine it could havethis effect on the health side
is the stifling of innovation,the chilling effect it has on
plan sponsors and theirwillingness to try new things
(12:42):
out of fear of being sued, andthat the whole advent of class
action litigation around ERISAplans you know was really could
not possibly have beenanticipated by the authors 50
years ago.
And the amount of cost that isadded to the system and
(13:08):
ultimately to employers andparticipants as a result of it.
I mean, if it's not the numberone litigated federal statute,
it's probably certainly in thetop three top three, and that
(13:30):
became a little bit evidentearly on too.
Speaker 2 (13:33):
So many cases started to go up to the Supreme.
Speaker 1 (13:34):
Court.
It was like a drumbeat.
There seemed like there was anERISA case almost every term for
several years and the court hadtaken a very expansive view of
ERISA preemption, which theyfinally, I think, dialed back a
little bit because they werejust getting.
The federal courts were gettingso inundated because ERISA, you
know, preempted everything, soto speak.
(13:56):
Some people joke that itcreated, preempted the Magna
Carta.
At one point it had gotten sobroad and used so much to defend
against those cases.
But I agree, another reason, Ithink, is there's also been a
steady drumbeat of congressionalaction.
(14:16):
You know, congress really seemsto not be able to keep its
hands off of the area either.
I think there have been greatimprovements, particularly in
the last couple of years withSecure and Secure 2.0.
And there are new proposalsalready being introduced that
might look forward to anotherretirement-oriented bill here in
the near future.
But if you look at the wayCongress constantly revisits
(14:40):
this area in both health andretirement, that always creates
maybe new opportunities forfolks to not only adopt changes
to their plans and practices butalso maybe litigation by the
outside.
One thing I will say that's beenimpressed upon me as I've
(15:03):
practiced over the years and Iwould not have expected this.
If you think of the thingsemployers worry about their tax
rates, their regulatory burdensand their exposure to litigation
Exposure to litigation is offthe charts, their biggest fear.
As much as we in Washingtonlike to focus on making the
(15:24):
regulations more, lessburdensome, more more, more more
commonsensical, having theright level of taxation so we're
not driving people you know outof the American economy and
overseas.
We focus a lot on that.
But the absolute, absolutedislike of having to deal with
(15:46):
lawsuits is, I think, one of thethings that creates so much of
a conservative approach to 401kplant management, and it's
understandable.
Speaker 3 (15:56):
So you know you mentioned a couple of things I
want to dig into.
Let's start given because onething you haven't spent a lot of
time talking about is yourexperience.
Irs did litigation, you workedat the department of labor as
secretary, but you also happento essentially be the the you
(16:18):
know the senior retirementpolicy staff on Capitol Hill.
So you you worked on, you knowyour on, although I don't think
anything quite got enacted underyour watch.
There was a whole bunch ofstuff that you worked on that
ultimately became secure 1.0.
Correct.
And you mentioned somethingthat I do think is worth
(16:43):
discussing.
And you mentioned somethingthat I do think is worth
discussing.
Erisa is a law that seems toconstantly get amended.
You know I've described it as ascience experiment that
Congress continually tinkerswith.
Why is that?
And is this?
(17:04):
Is it a good thing?
Speaker 1 (17:06):
It's kind of a mystery a little bit, because
it's also considered by mostmembers of Congress to be a very
boring area.
It's not exciting.
It's very technical verytechnical kind of boring.
I remember leaving a hearingonce and and uh, I guess I can
reveal this I'm walking down thehall leaving the hearing.
It was a really excellenthearing on on retirement plans
(17:30):
and, um, senator Hatch looked atme and said Preston, I that was
.
I was surprised.
That was a very, veryinteresting hearing, but you
know, retirement policy is justso boring.
Speaker 3 (17:48):
But that hearing was really exciting and for
listeners.
Senator Hatch was the chairmanof the Finance Committee at the
time and you were working forhim.
Speaker 1 (17:57):
Yes, this might have been when he was still a ranking
member.
He was a ranking member for thefirst four years I worked for
him and then the chairman afterthat.
But on the other hand, it doesget visited a lot and I think
that's because members see whereIRAs 401ks that's really where
the rubber meets the road withtheir voters, their constituents
(18:18):
.
It is how the middle class saves, and it is bipartisan.
And, despite all the rhetoricto the side, I always thought I
always found that members ofCongress really look for
opportunities to do somethingbipartisan.
Most of them do, and these havealways been bipartisan bills.
(18:39):
It might also be the industryhas been very active in trying
to improve the system and staysconstantly engaged.
That might be part of it too.
Speaker 3 (18:51):
Yeah, I mean there's been some articles about people
lobbying in the retirementindustry that one or two one or
two that I might, that Imight've been involved with.
So, in all seriousness, but youdidn't ask answer the other
(19:15):
part of the question, which ishas has it gone too far?
Maybe do we need to give it abit of a rest, or do you think
that the tinkering is healthy?
Speaker 1 (19:32):
I think it wouldn't hurt to give it a rest and let
the things that have beenenacted in recent years to take
hold, because it does take timeand many of them have delayed
effective dates.
You don't even have.
Speaker 3 (19:45):
Some of those effective dates haven't even
arrived yet.
Speaker 1 (19:47):
Let the system take hold the favors match, which is
not yes, yes, I think that, yeah, it wouldn't hurt to let things
settle and sink in and not makemajor changes.
I think one of the reasons thatsome of the changes have been
made it's occurred a little morefrequently than otherwise.
(20:10):
A lot of the changes over theyears have been voluntary.
There have been things thatemployers are allowed to do but
aren't mandated to do.
The mandatory aspect of thingsalways creates an additional
hurdle, but we did add somemandatory provisions in Secure
2.0 that was highly bipartisan.
(20:31):
And, by the way, you mentionedSecure 1.0, which passed after I
left the Senate and I was atthe DOL.
I will say the Senate version ofSecure 1.0 did pass the Senate
under my watch, which was well.
It passed the Senate FinanceCommittee in September of 2016.
(20:51):
Which is interesting becausethat's how long it took for it
to finally become enacted andsigned into law from September
of 2016 until December of 2019,which tells you something else
about this kind of legislationthe retirement legislation A lot
of it has a long, very longincubation period.
The fact that something doesn'tget enacted in a particular
(21:12):
Congress doesn't mean it won'tbe back and you'll get it
enacted in another one.
The startup, I'm sorry, thestarter 401k.
You may remember that SenatorHatch introduced that in 2013.
Speaker 3 (21:26):
Yeah, no, I mean the incubation period for a lot of
these ideas is very long.
I mean the Savers match.
The refundable Savers match wasfirst suggested in 2001.
Speaker 1 (21:36):
So, it only took 22 years.
We could have a Q&A section onwhat's the provision in SCURE
2.0 with the longest incubationperiod and what was the year.
If you really want to have asuper geeky Jeopardy kind of
(21:59):
kind of question.
Speaker 3 (22:00):
That would be a very small group of people.
That.
Speaker 1 (22:02):
Yes.
Speaker 3 (22:03):
Yeah, two of them are on this podcast.
So you mentioned bipartisan andI think you know there's been a
lot of folks here in town,yours truly included, that have
strived really hard to keep itbipartisan.
As a congressional staffer, asa lobbyist, you know you've
(22:30):
certainly been a key proponentof making sure that it remains
bipartisan and we've had apretty good run of
bipartisanship for, I'd say, 30years.
But it sort of feels that thewheels are coming off and I'm
(22:58):
interested to know I think ourlisteners would be interested to
know why do you think all of asudden?
Because you know, if we go backjust a few years ago, 401ks are
great.
We just you know we need tomake some improvements.
It's wonderful, everything'swonderful, and now it's.
You know the 401ks are worthless, they're terrible, they are a
(23:19):
complete failure according toBernie Sanders.
You know the New York Timescame out with another article
yesterday about how, you know,the 401k system needs to get
reworked.
It's almost a daily occurrenceyou see some article or academic
(23:40):
study trashing the 401k.
What is going on, in your view?
Speaker 1 (23:45):
I think the structural element to this is
that our defined contributionsystem, our retirement system,
employer-based retirement system, it's a voluntary system.
It's voluntary for theemployers to set it up and it's
voluntary for the employee toenroll and if they're
(24:06):
automatically enrolled, theyhave the right to opt out, given
the which I think is a strengthI think being.
I think voluntary is good.
You'll never get everybody to,for folks that want everybody to
be covered, that will probablynever completely happen, because
(24:28):
people have choice and and, andpeople, at different times in
their life, have otherpriorities.
As much as we love and promoteretirement savings, there's a
point in your life where it's alot more important to save money
for a down payment, a lot moreimportant to think about, you
know, getting your kids throughschool, trade school, college,
whatever school, paying off yourstudent loans, which has been a
(24:51):
problem that they're startingto address with retirement
policy.
Retirement policy Folks, whenwe have a voluntary retirement
system, you're going to havesome folks that just don't get
covered.
Speaker 3 (25:07):
Hold on a second Time out, time, out, time out.
We don't have a voluntaryretirement system.
We have a mandatory retirementsystem.
You're talking about SocialSecurity.
Speaker 1 (25:15):
Yes, I said employer-based.
I don't think of SocialSecurity as employer-based.
Pay it out of your paycheck.
It's employer and employeefunded.
Okay, right, yeah, it's managedby the Social Security
Administration.
But we're such pension geeks Ididn't realize I had to make
(25:37):
state the obvious.
All right, I'll stake theobvious.
We have one mandatory definedbenefit system in this country.
We don't have a voluntary.
We don't have a mandatoryprivate defined benefit system
or or any kind of mandatorydefined contribution system.
Some countries do.
Speaker 3 (25:53):
That's not the route we've gone, and Well, but most
countries don't have the dualsystem that we.
In fact, I don't think there'sany country that has the dual
system that we have.
I think most countries thathave a mandatory system.
It's like Australia.
That's a defined contributionsystem, correct.
There's no social security,defined benefit.
(26:13):
If we want to call socialsecurity a defined benefit
program, let's just use that asa moniker.
(26:33):
People have no savings when infact they have a very effective
retirement program, socialSecurity, which is critically
foundational to retirementpolicy in this country.
For some reason, we don'treally think of this
holistically.
Speaker 1 (26:52):
We don't think of it holistically.
We don't think of what are allthe sources of retirement income
a person will ask themselvesabout when they sit down and
think about it.
There will be social security.
There will be.
Have you paid off your home?
In other words, have you paidoff your mortgage?
That's a form of retirementsavings in a way.
If your mortgage is paid off,what kind of regular savings do
(27:17):
you have paid off?
What kind of regular savings doyou have?
What does your spouse have?
Because it is a unit, if it's amarried couple, you're looking
at it from that perspective.
We don't look at itholistically.
We don't have good dataholistically.
So I guess what I was trying tosay was the criticism of the
401k system.
I hadn't gotten to this pointyet, but the point I was trying
(27:38):
to say was the criticism of the401k system.
I hadn't gotten to this pointyet, but the point I was going
to make is the criticisms Ithink are actually unfair in a
lot of ways.
They cherry pick theircriticisms.
They cherry pick their data on.
You know who's covered, who'snot.
What are the account balances?
You know median accountbalances, average account
balances.
They tend to ignore socialsecurity.
(27:59):
They also ignore a lot of othergovernmental transfer payments
that are available to people.
So you know, it's almost.
The arguments are based aroundstatistics and it brings to mind
the.
It's a cliche, but it's acliche because it's true what
Mark Twain said about statistics.
(28:20):
You know there's, there's,there's lies, damn lies and
statistics.
So it it's, it's.
It's a fat target and it's hardto defend because it's
complicated but it's also youknow it's easier to attack
(28:53):
because it's complicated.
Speaker 3 (28:53):
Focusing on is the, what someone else described as
the.
We don't have a retirementcrisis.
We have a retirement data crisis, and the crisis is that most of
the critics rely on the CensusBureau's consumer data surveys
(29:28):
current population survey and umand that survey um, actually
asks for retirement income, andthey use the phraseology regular
retirement income to meanessentially what is akin to
social security or a pension.
So when you take moneyintermittently from an IRA or DC
(29:49):
plan, it doesn't get reported,so that when you actually
compare the survey data to IRSdata, it's like 95% wrong.
But somehow we're relying onthis incredibly wrong data to
(30:11):
make generalized conclusionsabout the success or failure of
the system, which is verydangerous from a policy
standpoint because it leads tothese, you know, absurd um
obsuptions that the system youknow, the, the, the, the thing
is just completely not working.
(30:31):
Um, and so I think you knowwe're going to be focusing this
fall quite a bit on trying toput out information to make it
clearer exactly what is going onhere, as opposed to the false
rhetoric that academia seems tobe relying on.
(30:53):
So I think having goodinformation is really important,
and I'm not sureinstitutionally, from a
governmental standpoint, we'vedone a very good job.
I don't think the industry hasdone a good job, but I don't
think the government's done agood job either.
Speaker 1 (31:10):
No, and when you overlay and I've seen charts in
the past by folks that have duginto the data more broadly and
you see an overlay of the incomereplacement rates for Social
Security across, say, the fiveincome, if you want to split the
income groups up into five,from lowest to highest, and you
(31:35):
know the income replacementrates for Social Security are
quite high for the lowest incomegroups and they go, they go
down, they replace less and lessincome as people have higher
and higher income, which isappropriate.
It's a progressive incomereplacement system and if you
take the fund contributionsystem and you overlay that with
(31:55):
it, you'll find that it's lowerat the low income levels which
is where the criticism of itcomes in and it goes up as you
get into the higher incomegroups.
When you lay them across eachother, like one on top of the
other, you find incredibly highincome replacement rates across
the board.
And it's interesting, the loweryour income is, the more you
(32:17):
get from Social Security.
You top that off with some morefrom the foreign contribution
system and the incomereplacement rates are extremely
high for the lowest incomecohorts and that gets ignored
For the higher income folks.
They have similar incomereplacement rates on the charts.
I've seen Much more of it has tocome from their own savings,
(32:44):
which strikes me as a fair thingto demand.
Because they make more money,they can save more of their own
money.
When I first saw some of thatdata when I was working for the
Senate Finance Committee, Ithought, wow, for all the
complaints, our system hasactually landed in a very
rational place and a successfulplace, I thought.
Sometimes I do think there arefolks that just want to just, I
(33:07):
don't know, keep churning thepot for some reason, or you know
, want to constantly tear thebuilding down.
Speaker 3 (33:15):
So you have some real experience working on tax
legislation.
Yes, and we're about to embarkon another round of tax reform,
tax, whatever.
(33:36):
They're calling this round ofit, armageddon.
Speaker 1 (33:38):
Yeah it, armageddon.
Speaker 3 (33:39):
Yeah, tax Armageddon, what seems to be the every five
or 10 year tax free for allexercise that Congress engages
in.
Obviously, a lot will depend onthe election, but the one thing
that doesn't seem to bedependent on the election is the
fact that we will have a taxpolicy debate one way or the
(34:02):
other, shape of which obviouslywill change depending on who the
president is and who controlsCongress.
Talk a little bit.
I mean, there's always beenthis frustration by people in
our industry about the fact thatretirement always seems to be a
(34:24):
piggy bank that gets rated topay for other stuff.
There was the you know theproposal, the ratification
proposal which, you know, due toa tweet by President Trump got
(34:45):
kind of shot down, but it wasdefinitely in play for a while.
But historically it's been thisway, going back, frankly, 50
years, yeah, and you know what'syour thinking on that?
Speaker 1 (35:03):
Why is it?
Why is this constantly a battle?
Well, one of the reasonsretirement gets looked at is it
is the.
I think it might be the largestsingle tax exclusion in the in
the Internal Revenue Code.
Speaker 3 (35:19):
So there's a lot of money involved, but I think it's
the fiscal versus the healthcare premium.
Yeah, that fight over who'snumber one.
Speaker 1 (35:22):
Yes, but they both.
You put them together.
That's employee benefits andthat's the world of the IRS and
Department of Labor.
It's interesting We've usedretirement as a piggy bank.
Occasionally it gets talkedabout a lot, but when it
actually happens it tends to bewithin to pay for other
(35:44):
retirement policy.
So I'll give you a couple ofexamples.
Speaker 3 (35:49):
Of recent vendors, you go back into the 80s though
it had nothing to do withretirement policy, it was just a
piggy bank.
Speaker 1 (35:56):
And I was not referring to the 80s, I was
referring to more recent times.
The most recent tax reform billthat we're revisiting next year
the TCJA from 2017, really hadvirtually no retirement policy
in it.
Speaker 3 (36:10):
There were some things, but again, the proposal
of ratification was to reducecorporate taxes.
Speaker 1 (36:15):
The proposal was made and it failed.
It failed, dramatically failed.
I will tell you that, after itfailed, there was another one
more attempt at using Rothpolicy to raise revenue.
There was a proposal that wasscored to Rothify all the
(36:38):
catch-up contributions and itwas killed, only to be revived
later.
Only to be revived later in aslightly different form and a
more difficult way to implement,but Again, but used what Used
for other retirement policy, notused for tax reform.
Now, in 2017, it was allRepublicans, so they were using
(37:02):
a reconciliation bill, whichmeant they didn't need any
Democrat votes.
Still, they ended up not usingretirement as a pay for for more
general tax reform.
In the end yes, in the end Inthe Build Back Better, which was
the all-Democrat era of acouple of years ago 2021, 2022,
when the Democrats had theability to do reconciliation
(37:24):
bills.
There was some retirementpolicy in Build Back Better, but
again, and it would have raisedrevenue, but again it fell out.
And even within that, therevenue raisers were meant to
offset some additionalpro-retirement policy, but it
fell out.
And even within that, therevenue raisers were meant to
offset some additionalretirement pro-retirement policy
, but it fell out Again.
It would have been maybe a veryit would have been the first
(37:45):
example of, in recent times, ofa purely partisan retirement
bill because Bill Bettebatterhad no Republican support, but
it did not succeed.
So the retirement bills Secure1.0, secure 2.0, they've still
been, they've been passed andthey've been bipartisan.
So they've not been part ofeither of the Democrat-only
(38:08):
reconciliation tax bills or theRepublican-only reconciliation
tax bills.
So, looking ahead to next year,you say that a lot will depend
on the election.
That's an understatement.
So if we have an all Republicansituation in 2025, or an all
Democrat situation in 2025, Ithink the odds are that the
(38:31):
retirement policy will stay onthe sidelines awaiting a
bipartisan bill.
You can't be sure things change, but that would be my
expectation.
Speaker 3 (38:42):
So you're telling me that you don't think, given the
enormous hunger for revenuebecause the Tax Cut and Jobs Act
will cost four and a halftrillion dollars stand, that
you're not even remotely worriedthat retirement won't be used
(39:05):
in some way to pay for stuff.
Speaker 1 (39:08):
You put some words in my mouth that I did not, that I
did not speak.
Speaker 3 (39:12):
It's my expectation, that's what I wanted you to
clarify.
Speaker 1 (39:15):
It's my expectation.
That's what I wanted you toclarify.
It's my expectation.
It would be my expectation,based on the past, that that
that retirement policy won't beused to raise revenue for
non-retirement tax reductions,but it's clearly.
Nobody can be sure, and this2025 might be the year when this
(39:37):
all changes the otherpossibility is we have divided
government.
We have a, you know, one partyhas the house, one party has the
senate, a different party hasthe house or the senate or the
white house, so you end uphaving to have a bipartisan tax
armageddon bill.
Um, my guess is in that caseit'll be much more about
gridlock and maybe even maybefrankly, with gridlock, maybe
(40:00):
even a lesser chance of therebeing a retirement bill.
I do think there'll be aretirement bill at some point in
the next Congress.
Speaker 3 (40:09):
You mean a secure 3.0 ?
Speaker 1 (40:12):
There may be, at least.
I mean mean the beginnings ofit are already forming.
There's already three or fourbills that have been introduced,
and this is how it started withsecure and secure 2.0.
You get several programs,several policy ideas bubble up.
They get introduced.
You know there's a number ofpolicy ideas out there.
I know you're aware of some ofthem and it's starting to bubble
(40:34):
up Now.
Is it going to happen in 2025?
I think that'd be pretty rapidand probably way too soon.
But I think at some point againit's like in the past, these
ideas bubble around and peoplelike these ideas, I mean ranking
member, neil, has reintroducedhis auto IRA bill.
(40:56):
There's an age 18 minimumparticipation rule bill out
there.
Auto re-enrollment is a policypeople have been talking about
for a while.
One of the ones that I thinkwould fit well with the current
state auto IRA system, even ifthere is no federal auto IRA
system, is the proposal I knowyou're aware of to allow Roth
(41:17):
IRA rollovers into anemployer-sponsored plan.
If an employee is in one ofthese state auto IRA programs
and then changes their job andgoes to a new employer and that
employer has a 401k, it would bea great policy to allow them to
take whatever they may havesaved at that earlier job in an
(41:38):
auto Roth auto IRA and roll itinto their 401k.
I mean little things, these arethings around the edges, but
these are ideas that are alreadybubbling up and there's a bill,
a lot of these are bills thatwe've proposed, as you know, and
have gotten some of themintroduced, including tax
credits for nonprofit employers,startup plans.
(41:59):
And that's how it happened inSecure.
They started bubbling up in2013.
Speaker 3 (42:04):
I guess, I would say clearly, we're already doing
meetings on Secure 3.0.
Already doing meetings onSecure 3.0.
I agree with you that Secure3.0 won't generally be I mean,
(42:25):
most of it.
There might be a few things,but most of it won't be part of
a broader tax policy debate.
The 3.0 stuff would be more ofa separate bipartisan exercise,
like it's always been.
I'm not sure we squeeze it intothis Congress.
To be perfectly honest with you, I think it might wait until
2027, and I'm not sure that's abad thing, given the fact that
(42:46):
the industry is still digestingSecure 1 and Secure 2.0.
Speaker 1 (42:51):
I would agree with that.
Speaker 3 (43:06):
But the thing that I am significantly more concerned
about I would agree with thatgoing to want to write a blank
check for this one and I dothink that I don't think it's
roughification, I think they gottheir hands slapped on that one
but I do think the chances oflittle cuts, whether it be, you
(43:27):
know, raising COLA limits, youknow COLA adjustments and some
limit changes.
You know there are definitelythings that potentially could be
on the table that are going tobe seen as negative by the
(43:49):
retirement plans in the universe.
Speaker 1 (43:52):
You're right to be on guard.
It is going to be, there'sgoing to be a massive search, a
search for paid for us, becauseof the massive costs involved.
Speaker 3 (44:02):
And this is the first time in a long time, I think
either one of us have heardsenators and house members talk
about deficit reduction in a ina really meaningful way.
It's been a very long time.
Speaker 1 (44:15):
It is starting to come back.
Yes, it is starting to comeback.
Speaker 3 (44:21):
So I guess we're going to find out.
I'm glad that you'll be part ofthis debate because your voice
is needed and your expertise isneeded and your expertise is
needed.
And the one thing I overArisa's 50th, you know 50 years.
(44:42):
I think the one thing we candefinitely agree on is it's
never been boring.
It has never been boring,despite what Senator Hatch said.
Speaker 1 (44:53):
I probably should not have revealed that private
conversation.
He said it with a smile on hisface as he did most things and a
twinkle in his eye because hewas just saying how interesting
that hearing was.
So I think it surprises peoplesometimes just how fascinating
this area is when they get intoit in a meaningful way.
Speaker 3 (45:11):
Thank you so much, Preston.
Preston really enjoyed it and Iappreciate you willing to take
the time to speak to ouraudience today.
Speaker 1 (45:20):
Well, I'm very honored that you asked me and I
appreciate the opportunity totalk with you.
Popular Podcasts
Crime Junkie
Does hearing about a true crime case always leave you scouring the internet for the truth behind the story? Dive into your next mystery with Crime Junkie. Every Monday, join your host Ashley Flowers as she unravels all the details of infamous and underreported true crime cases with her best friend Brit Prawat. From cold cases to missing persons and heroes in our community who seek justice, Crime Junkie is your destination for theories and stories you won’t hear anywhere else. Whether you're a seasoned true crime enthusiast or new to the genre, you'll find yourself on the edge of your seat awaiting a new episode every Monday. If you can never get enough true crime... Congratulations, you’ve found your people. Follow to join a community of Crime Junkies! Crime Junkie is presented by audiochuck Media Company.
24/7 News: The Latest
The latest news in 4 minutes updated every hour, every day.
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.