Re-Envisioning Retirement Security: Guaranteed Benefit Plan

The following proposal was presented by Mark Ugoretz at the Re-Envisioning Retirement Security Conference on October 21, 2009. 

The Guaranteed Benefit Plan

The Guaranteed Benefit Plan (GBP), developed by The ERISA Industry Committee (ERIC), is part of a more comprehensive ERIC proposal covering retirement, health and other life security benefits titled, the “New Benefit Platform for Life Security.” 

The GBP would provide retirement income in the form of a hybrid account-based retirement arrangement, such as a cash balance plan, reflecting elements of both defined benefit and defined contribution plans.  At a minimum, the GBP would guarantee the principal that employers and employees contributed to the plan. In addition the GBP could establish a minimum investment credit that would apply to the balance of each individual account. The interest credit could be a fixed guarantee (e.g., three percent) or an index (e.g., composite corporate bond rate), that is, not unlike the arrangements of current cash balance arrangements.

Independent Benefits Administrators would administer the accounts including selecting investments and assuming liabilities for contractual and other common-law obligations (similar to existing ERISA fiduciary responsibilities). Employers would have only limited fiduciary responsibilities, primarily in selecting an independent benefit administrator.  Benefit Administrators would be either competitive, non-governmental for-profit or non-profit entities that would arrange with retirement product and service vendors for retirement arrangements.

Employers would select one or more Benefits Administrators and could make contributions to the GBP on behalf of their employees but would not be required to do so. Employees could also contribute. The benefits administrators would be the guarantor of the minimum investment credit for the GBP.  Further, the GBP would be guaranteed by the Pension Benefit Guaranty Corporation (PBGC).

The GBP would pay out benefits only as a stream of payments or in an annuity form.  Joint and survivor annuities would be available and spouses of participants would have equivalent rights and protections that currently exist under ERISA. A single federal regulator could provide regulatory oversight although the exact structure is flexible, it would be nationally uniform across the country and state laws would not apply.

In addition to the GBP, benefits administrators would offer a separate Retirement Savings Plan, which would be similar to a 401(k), and Short-Term Security Accounts, to provide a vehicle for non-retirement savings. Pre-retirement withdrawals would be permitted from the Short-Term Security Accounts.