NEWS RELEASE

February 24, 2009
PR-09/05
For additional information:
Jason Hammersla
202-289-6700

Defined contribution plan system must be preserved

WASHINGTON, D.C. — "Workplace defined contribution plans, like 401(k)s, provide essential retirement savings for more than 75 million Americans and must be preserved," said American Benefits Council President James A. Klein today on the occasion of the House of Representatives Education and Labor Committee's hearing on strengthening worker retirement security.

"In today's tumultuous economy, it is prudent to examine whether workers are well-served by these arrangements," Klein said. "We believe the long-term value of these plans far outweigh the risks of participation. As Congress considers improvements to the 401(k) system, we hope it will also act to sustain and increase employer sponsorship of retirement plans."

The Council has formally submitted a statement for the hearing record outlining the value of retirement savings plans and enunciating principles that should govern additional reform:

• Defined contribution plans reach tens of millions of workers and provide an important source of retirement savings. There are now more than 630,000 private-sector defined contribution plans covering more than 75 million active and retired workers, with another 10 million employees covered by tax-exempt and governmental defined contribution plans.

• Employers make significant contributions into defined contribution plans. At least 95 percent of employers make some form of contribution to complement employee deferrals and share the responsibility for financing retirement.

• Employer sponsorship offers advantages to employees. Employer sponsors of defined contribution plans must adhere to strict fiduciary obligations, exercising oversight through selection of plan investment options, educational materials and investment education.

• Defined contribution plan coverage and participation rates are increasing. The number of employee participants grew from 11.5 million in 1975 to more than 75 million in 2005, and 65 percent of full-time private-sector employees had access to a defined contribution plan in 2008.

• Defined contribution plan rules promote benefit fairness. Congress has established detailed rules to ensure that benefits in defined contribution plans are delivered across all income groups.

• 401(k) plans have evolved in ways that benefit workers. Both Congress and private innovation have enhanced 401(k) plans, aiding their evolution from bare-bones savings plans into retirement plans. Among these enhancements have been incentives for plan creation, catch-up contributions for older workers, accelerated vesting schedules, tax credits, automatic contribution escalation, single-fund investment solutions and investment education programs.

• Recent enhancements to the defined contribution system are working. The Pension Protection Act of 2006 (PPA) encouraged automatic enrollment and automatic contribution escalation. PPA also provided new rights to diversify contributions made in company stock, accelerating existing trends toward greater diversification of 401(k) assets.

• Defined contribution plan savings is an important source of investment capital. With more than $4 trillion in combined assets as of March 2008, these plans represent a significant share of American investment capital.

• Defined contribution plans should not be judged on short-term market conditions. Workers, retirees and employers are naturally concerned about the impact of the recent market turmoil. Policymakers and participants should judge defined contribution plans based on whether they serve workers' retirement interests over the long term.

• Inquiries about risk are appropriate but no retirement plan design is immune from risk. The recent market downturn has spawned questions about whether defined contribution plan participants may be subject to undue investment risk. Yet it is difficult to imagine any retirement plan design that does not have some kinds of risk. Any efforts to mitigate risk should focus on refinements to the existing successful employer-sponsored retirement plan system and shoring up the Social Security safety net.

For more information, or to arrange an interview with Council staff, please contact Jason Hammersla, Council director of communications, at jhammersla@abcstaff.org or by phone at 202-289-6700 (office) or (202) 253-5458 (cell).

The American Benefits Council is the national trade association for companies concerned about federal legislation and regulations affecting all aspects of the employee benefits system. The Councils member's represent the entire spectrum of the private employee benefits community and either sponsor directly or administer retirement and health plans covering more than 100 million Americans.

http://www.americanbenefitscouncil.org/issues/retirement/dcplan.cfm