D.C. Pension Geeks
James Klein - ERISA at 50! Where We Are, Where We’re Going
The bipartisan nature of retirement plan legislation is key to its success. American Benefits Council President Jim Klein, the “OG” of retirement plan policy, joins Brian Graff for an in-depth discussion of retirement saving, healthcare and how ERISA—which turns 50 this year—has impacted both.
The bipartisan nature of retirement plan legislation is key to its success. American Benefits Council President Jim Klein, the “OG” of retirement plan policy, joins Brian Graff for an in-depth discussion of retirement saving, healthcare and how ERISA—which turns 50 this year—has impacted both.
It is a remarkable achievement right. I mean, you know, when you think about the vast majority of Americans who get their you know health care, financial security. You know, through this employer sponsored system, their retirement income security through this employer sponsored system, and you know, and how it's how it's grown.
Speaker 2:DC Pension Geeks brings you exclusive conversations with top retirement policymakers and regulators in and around Washington DC, hosted by Brian Graff, an attorney, accountant, former Capitol Hill staffer and CEO of the American Retirement Association. If you're looking for an insider's view of all the twists and turns that Washington takes on the road to ensuring a secure retirement for millions of Americans, you're in the right place. Welcome to DC Pension Geeks.
Speaker 3:Hello everybody, brian Graff here for another installment of DC Pension Geeks. I have with me the president and CEO of the American Benefits Council, jim Klein, otherwise known as one of the OGs in retirement policy, without question. In fact, jim was in his position when I was a little pup working on Capitol Hill way back when, when I'd like to describe it a period of time when there wasn't that many people working on retirement policy. It was a lot smaller community, the 401k was pretty much in its infancy during that period of time, but Jim was one of the leaders that sort of had the vision of trying to team up on a bipartisan basis with members of Congress to see if we could kind of like change the narrative about retirement. And there had been a lot of what we would describe as pretty lousy legislation passed and Jim was really at the forefront in turning that around. So, jim, thanks for being with us today and you know I think everyone liked you know, tell us about your background when you know how did you end up becoming a pension geek?
Speaker 1:Well, first of all, thank you for that extremely generous introduction and I would just say I return those sentiments to you in full measure. You know you mentioned that you were just what a pension pup or something like that on Capitol Hill, and you know, and look now, what you've far surpassed the rest of us here and in terms of your leadership in this role. But it's always been a pleasure to work with you both. You know, both when you were in government and also in the private sector, and kudos to you on the extraordinary career that you've had and what you've accomplished.
Speaker 1:So how did I get into it? Well, it's funny.
Speaker 1:I worked at Capitol Hill as well while I was in law school and you know, labor related issues were part of the portfolio that I had for the member of Congress for whom I worked. And then, you know, I graduated law school, I started applying to law firms and you know, serendipity right, I mean, I ended up going to work for a firm, very unusual firm. Half the firm did ERISA work, primarily multi-employer work, and the other half of the firm did toxic tort litigation defense work. So it was a very unusual mixture, not surprising the firm you know doesn't exist work. So it was a very unusual mixture, not surprising the firm doesn't exist anymore.
Speaker 1:But it was a terrific firm with terrific lawyers and that's really how I got. Well.
Speaker 3:I mean I started at the Groom what's now the Groom Law Group and people don't realize that they actually had a similar history. They did this strange I mean it was a little bit closer, but they did ERISA and international tax. Yeah yeah, and you know, I think at that time people just didn't see the ERISA practice quite the same as they do now. It was, you know, the breadth of it, the opportunity from a legal perspective. So but that, yeah, that's a pretty interesting combination.
Speaker 1:Yeah, it sure was, and just sort of you know kind of fast forward on it. So you know I was doing that, but I really had come to Washington DC because I loved public policy and so I said you know what?
Speaker 2:I don't think I really want to be necessarily a full time ERISA attorney.
Speaker 1:So I got a job with the US Chamber of Commerce, originally not doing anything related to benefits, and about six months later you may remember Mike Romig who is at the US Chamber and for those old timers who are listening in on this podcast, they'll remember Mike who then also went on to the American Council of Life Insurers and he left to go to the ACLI and they kind of looked at me and it was like that old life serial commercial. Like you know, let's get Mikey, he'll try anything, and it was like Jim you know, he knows how to spell Arisa.
Speaker 1:So I became, you know, the pension lobbyist for the US Chamber of Commerce, and a couple of years into that, the person who did health care left, and for the grand sum of an additional $2,000 a year. I also got to do his job and anyway. So it was great and had wonderful opportunities there, given a lot of responsibility, and through that I came in contact with the organization for which I now work, which at the time was called the Association of Private Pension and Welfare Plans APPWP and I started out as the deputy director and then, four years later, my predecessor boss. He moved on and I've stayed, so I've been there now 36 years and so it's been just a great, great career.
Speaker 3:So you know, talk a little bit about you know it's funny, you know I remember APPWP and of course ASPA was ARA. Predecessor was the American Society of Pension Professionals and Actuaries, which is one of our sister organizations, which is also an acronym with kind of a mouthful. We love our acronyms, arisa geeks love their acronyms, how you know, you kind of really took APPWP, kind of re-envisioned this as the American Benefits Council, both doing health care policy and retirement policy. But I think early on I think there's some recognition that if we're going to make this work from a policy standpoint it had to be bipartisan. So talk to me a little bit about you know what your role was in terms of trying to get Congress moving and the regulators kind of moving in the right direction, that we're not going to have this you know antagonistic position between the plans and the plan sponsors and the regulators and Congress.
Speaker 1:Yeah Well, first of all, thanks for that nice comment. I wouldn't take full credit for that, I think certainly it was kind of imbued in the culture of the organization before I got there.
Speaker 1:But I'm glad to have been able to, and one of the reasons I wanted to stay because I think our leadership, our members, are very pragmatic and interested in solutions and not so much ideology, and so that leads itself to bipartisanship.
Speaker 1:I mean, as you know so well, it was an era in which bipartisanship was an easier thing to accomplish perhaps than it is today, which isn't to say that there weren't. You know strong, you know different viewpoints, you know. I think you raise a really good point in terms of that tension between, you know, the regulators and the regulated community. But I think that you know what we've tried to do is to say hey look, you know our members, by definition, you know they are sponsors of plans, generous plans they're trying to do right by their employees and retirees, employees, family members, and you know so we try to look for pragmatic solutions, pragmatic solutions and I think, to a large degree, I think that has been appreciated by the regulators because ultimately, you know they have kind of a difficult job too, and at the end of the day they have to write the regs, and so you know I think they look to groups like ARA and our group and others for a roadmap to get them there.
Speaker 3:So you know, ERISA is turning 50th. We're going to have more information coming out about who's going to be speaking and the kind of topics that we're going to be covering, but certainly there's going to be a lot of it's going to be a retrospective and, importantly for our listeners, it's not just going to be retirement. There's a healthcare component to this too, because obviously ERISA has played an incredibly important part on the health care side. And so, yeah, let me pause there and ask a little bit about what ABC does from a health care policy perspective in general.
Speaker 1:Sure, and again, thank you and your team, will Hansen and Victoria and Aaron, just because you're the one who really inspired the idea of bringing together the entire benefits community, both retirement and health, to work on this joint event, which I think will be you know both really informative and hopefully a lot of fun as well. So you know, in terms of the health care area, I guess you know it would have been- really nice if the authors of ERISA had somehow worked the word health into the name of the healthcare area.
Speaker 1:I guess you know it would have been really nice if the authors of ERISA had somehow worked the word health into the name of the law, because for the first several years you know, I think we all spent a lot of time, you know, reminding policymakers in the media and others that you know, no, it wasn't an accident that ERISA also was regulating health benefits.
Speaker 1:It was very much a deliberate decision. And, you know, it has been interesting in the sense that, for all the if I can just skip, jump ahead for a second you know, for all the partisanship that we see every day being played out in the world of employee, benefits they're not on every issue, to be sure, but on a number of issues there actually is a fair amount of bipartisanship.
Speaker 1:Certainly, the secure and secure 2.2 are sort of classic examples of that. I think healthcare has typically been a lot more partisan, so it's been a tougher road to hoe road to hoe. But you know, even there, you know, house representatives, less than a year ago, by a 320 to 71 margin, passed the Lower Cost, more Transparency Act, transparency- Act. It may still be seen whether it gets over the finish line this year, but there are selected issues even in the health arena where there is a coming together.
Speaker 2:So it's a little bit harder to control.
Speaker 1:There maybe are some more moving pieces in the area of health, but the truth of the matter is I've always felt that one of the biggest challenges to ensure that people have retirement income security is our ability to get control of health care costs, because it chews up so much of people's you know available resources in retirement, and so the two really are Absolutely.
Speaker 3:They really intertwined, couldn't agree more. And you know one of the things that you know as an observer on health care policy I worked on health care policy when I was on the Hill. It is frustrating, that you know. The Health Security Act obviously really did, you know is primarily a coverage bill and you know there are some attempts to, particularly on the pharmaceutical side, to address the cost issue, but really not a lot.
Speaker 3:And we continue to spend an increasing percentage of our GDP on health care and it certainly doesn't seem to be going. It will continue to go in that in the up direction, and it raises pressure on the retirement system. You know there's most of the criticism around retirement is over. You know adequacy, particularly for lower-income people, but we don't really ever talk about the spending side and that's, as you are indicating, a huge part of the challenge. There is actually a lot of interest among the listeners on the health side, but in particular the CAA legislation, jim, I know that you're probably familiar with that seems to be imputing. You know fiduciary kind of concepts on plan sponsors with respect to health care costs as well, as you know transparency issues. Obviously, the Johnson litigation is a big deal that a lot of our members are actually following because, as planned fiduciaries, there's obviously a connection between the two. You talk about how ABC is involved in that and you know what's your thoughts on that issue other than that and you know what's your thoughts on that issue.
Speaker 1:Yeah, really, really complex issue in this Lewandowski versus Johnson Johnson case could really be, you know, a turning point or a milestone. You know, I think that fiduciary responsibilities obviously do apply in the healthcare context. I think you know the law is evolving, the decisions aren't exactly the same. Maybe there are some more opportunities. You know. You know to in both retirement and health. You know to to sort of go for plaintiffs to go back with 2020 vision. You know and say you know, well, you know there were three other choices on the retirements in that mid-cap class that performed better. Therefore, it was important of the plan sponsor to choose the particular fund. They did, and a lot of that kind of thinking translates over, I think, potentially on the health care side as well, and sort of the notion that employer plan sponsors you know that at the heart of this Lewandowski case is this notion.
Speaker 1:you know that they're spending too much. Well, I mean, is there any employer plan sponsor that would you know unnecessarily be wasting money in this area, either for themselves or their employees? That's kind of a hard notion to grasp and yet you know in large part that's a central theme of this and other litigation.
Speaker 3:Yeah, and it is very reminiscent, jim, of the of, you know, going back 20-ish years when you saw the developing trend among trial lawyers to, you know, go after a risk of retirement plans for fees that they were arguing were excessive relative to the market. Those early cases, once you got your first settlement, once you got your first win, then they sort of proliferated. One of the big issues since in the 50 years of ERISA, really without question has to be the development of, or the environment that has been created around, litigation. You know, erisa as a federal law, if not the most litigated, has got to be in the top three of most litigated statutes in terms of lawsuits against employers and plant sponsors. What you know what, what has that done, both positively and negatively, to the system in your view?
Speaker 1:Well, look, I mean, where there have been outlier, you know behaviors, then obviously any kind of litigation that's, you know, justified and you know well served, you know, makes people whole and that's, and that's a good thing, that represents large employer plan sponsors as well as sort of all of the other service providers you know, in this industry of ours, you know it's hard to find much.
Speaker 1:You know much good in a lot of this litigation, because we know how hard plan sponsors and their advisors work to do the right thing in an area that's extraordinarily, as we all know heavily regulated and it is so easy, quote unquote, for plaintiffs, lawyers, to sort of come back, as I said earlier, with 20-20 vision about should have done this or should have done that.
Speaker 1:There's a lot of money at stake here, which makes it, you know, also very attractive and lucrative if they can succeed. And you know, to me it is really amazing and a real tribute to employer plan sponsors that they remain as committed as they do to this system in the face of, you know, the enormous downside risks and exposure that they can have to a lot of these suits where, you know, even when it's unjustified, it's so time and money consuming to fight it. You know that they often feel compelled to settle just to get rid of it. And so I think that you know I hate to be a Debbie Downer about it, but the litigation really is kind of the bane of existence, I think, for a lot of folks in this arena the overwhelming predominant desire and effort on the part of the argument that you described them as outliers.
Speaker 3:Yes, I think there were plans that were probably in many cases because fiduciary processes were not as developed early on. In the case of 401k, plans were paying more than they probably should have in terms of certain fees. That's really been rooted out of the system in many respects by particularly transparency rules that the Department of Labor have put in place that, for the most part, I think, do a good job of of providing information to plan sponsors. I think the problem at this point uh, kind of following up on what you're saying is that, you know, I think my concern is is the stifling effect it has in terms of innovation. You know, you know, but a good current example is Lifetime Income Solutions.
Speaker 3:A lot of plant sponsors, when you talk to the HR folks, they're really interested in the idea of trying to figure out how do we, you know, for someone who's got $250,000, $300,000 in their 401k account that gets a retirement, they've got Social Security but they also, you know, also like a little bit more regular income. We've got lots of people who are encroaching retirement age. There are only about 250,000 advisors out there. There's not enough advisors for all these people who are going to be retiring, and having in-plan solutions would make a lot of sense, but there's such a concern.
Speaker 3:I mean, I've talked to, like you do, very large employer-planned sponsors and their number one job is not to get sued. And I guess my question in this regard is we've spent a lot of time over the last 30, you and I have spent a lot of time over the last 30 years tinkering with ERISA right, and we've made some great changes secure, you know, pension Protection Act. Secure one, secure two Is the issue of ERISA litigation really the next frontier? Do we really, if we really need to make some reforms to ERISA, does it really need to focus on this litigation issue that seems, in many cases, to be out of control?
Speaker 1:Yeah, I think that's a really, really interesting observation and I think I would agree with you. And you know I do sometimes try to remove myself from my world of benefits and see like is this so much different than the rest of? Society and of course we have become such a litigious society overall. But you're right, there's been what appears to be a disproportionate amount in our area.
Speaker 1:And you know you kind of see that frankly, in terms of the number of cases even that the Supreme Court takes, yeah, marissa focused.
Speaker 1:So yeah, I think this, this is an area, I think that.
Speaker 1:So yeah, I think this is an area.
Speaker 1:I think that right now, though and this certainly arises in the litigation sphere, but unfortunately, what seems to be the biggest arena of activity these days is the steady efforts to erode what I consider and what certainly the authors of ERISA considered to be the central element of the law, which was ERISA federal preemption.
Speaker 1:And you know, when the law passed, one of the true authors of the law, Congressman John Dent, said at the time that the federal preemption feature of the law was the crowning achievement because it's what enabled management and labor to come together in support of passage of this. You know enormous landmark legislation and we see the states chipping away at it. We see an amicus friend of the court brief from the Department of Labor a year ago in a 10th Circuit Court of Appeals case that seemed to have an extremely narrow reading of ERISA preemption, and some efforts thus far not successful at the federal legislative level to perhaps do a little bit of an end or run around preemption as well. And if that should happen and again, this is being heavily litigated, particularly as it relates to pharmacy benefit.
Speaker 1:Yeah, yeah, that will have a spillover effect on the protections that federal preemption provides for retirement plans as well, you know, for it's not just even a matter for, like my members, large multistate employers who want to have some you know better efforts and you know administration of their plans.
Speaker 1:It's also a matter of equity to their employees that if you're an employee, you know, working for a particular employer, your ability to get the same benefit as somebody else who's doing the exact same job as you are but living in a different state. And so you know, your question was and I'm sorry for sort of rambling on here you know, is litigation sort of the next frontier? You know it is, and I do worry that, in addition to all of the fees and the fiduciary and all of that stuff that's been burgeoning in terms of litigation, fiduciary and all of that stuff that's been burgeoning in terms of litigation, we've now got this new tranche. That is something else for us to kind of have to look over our shoulders about.
Speaker 1:And something that we thought for many years was a well-established notion that was supported by labor and management alike. Certainly it is still by management, by Democrats and Republicans alike. And last point I'll just make about that is that, for completely different reasons, there has been a bit of a weakening in the resolved and supportive of a risk of preemption on the part of Republicans and Democrats. From the Republican perspective, of course, it's sort of the philosophical favorable disposition toward more local control and therefore not wanting to sort of step on the prerogatives of the states. From the Democratic side, I think there's been a frustration that at the federal level more hasn't been done in terms of providing more health and retirement security and da da, da. So they've been OK with the states taking the lead in that area, and a lot of this, of course, is all very, very, very well-intentioned and there's a lot to be done that really can help boost coverage and adequacy and all the rest of that.
Speaker 1:It's some of the inadvertent implications that sort of is making life more challenging.
Speaker 3:Yeah, certainly Arisa. The preemption issue and I think you know hopefully there'll be some discussion about that in the symposium that's attached to the event celebrating Arisa's 50th is foundational. It's a cornerstone of the legislation and to a large degree it was innovative at the time, this notion of creating a common set of rules that companies and both management and labor could rely on. And yeah, you're seeing some chipping away at that for the reasons that you've articulated. And I think, in addition to this, most of the preemption attacks seem to be healthcare-focused in general. But now, if you potentially add the let's call it another transtion around the CAA legislation, the Johnson Johnson case that could be derived from that legislation, we could see this even larger believe it or not proliferation of litigation in the ERISA area. I think that really warrants examination.
Speaker 1:You articulated it better than I could. You're 100% right. You're 100% right. You know, for all as I'm reflecting back on a lot of my comments here the last 20 minutes or so you know, for all of these challenges and difficulties, you know it is valuable for us and, of course, we all in the industry and the people who are listening to this podcast, you know kind of intuitively understand it. You know it is a remarkable achievement, right? I mean, you know, when you think about the vast majority of Americans who get their you know health care, financial security.
Speaker 1:You know, through this employer sponsored system, their retirement income security through this employer sponsored system. And you know, and how it's, how it's grown, is it you know? Does it have flaws? Yes, are there areas for improvement? Yes, but you know it's grown, is it you know? Does it have flaws? Yes, are there areas for improvement?
Speaker 1:Yes, but you know, it's really quite an achievement that everybody should you know should partake in, and one of the other things that I think is terribly underappreciated is what a tremendous bargain it is from the taxpayers' perspective and federal government's perspective.
Speaker 1:And this is going to be important for all of us, I think, to remember next year, when the 2017 tax law are expiring and Congress is going to be looking, needing to find sources of revenue in order to extend those provisions and maybe do other tax policy initiatives. And there's no question that the tax expenditure, that is to say, the provision of the tax code responsible for the largest quote unquote foregone revenue to the federal government is the one attributable to employer-sponsored health coverage, estimated by the federal government to be $3.1 trillion with a T over the next 10 years. The second largest is the tax expenditure for employer-sponsored retirement plans $2.6 trillion over the next 10 years, far, far exceeding the amount of lost revenue related to mortgage interest deduction, charitable contributions, state and local tax deduction, all of those, all of those. And that makes our world of benefits, retirement and health, you know, extraordinarily vulnerable.
Speaker 1:Now, as you know, happy to get into it too. You know the way in which the Office of Management and Budget or the Joint Committee on Taxation or the other agencies sort of calculate that revenue loss is flawed. But you know, even assuming that it's not flawed, that the assumptions underlying it are not flawed, for every dollar of foregone revenue to the federal government related to. You know, employer-sponsored health care employers are spending $5.36 on health care benefits for their employees and their family members In the retirement arena. As you know, it's even greater for every dollar of foregone revenue and, as we know, it's really just deferred right, I mean it's not deferred, it's on the order of $8.11.
Speaker 2:That is a huge bargain.
Speaker 1:It would cost us so much more as a nation to provide that same level of health and retirement security if we had to do it, let's say, through just expanded federal programs. So you know, this is the constant mission I think that all of us collectively have is to remind our policymakers of what is able to be accomplished through these tax incentives to enable employers to provide. And of course it's not really the employer who would be affected by some of these caps either.
Speaker 1:It's the individual, so that I think is sort of could be very, very prominent next year.
Speaker 3:Oh, you could not be more right.
Speaker 1:You know you and I've been doing this for so long to get to my point.
Speaker 3:Yeah, no, no, no, not at all. It's an incredibly important point and you know you and I have been doing this for so long. We know that every time there's a global tax policy debate, because of the fact that we are number one and number two in terms of tax expenditures notwithstanding the fact that those numbers are wrong we're looked at as a pot of money to pay for perceived other priorities, be they, you know, on Republican side, state tax exclusion, corporate tax rates, on the Democratic side, child tax credits, earned income credit. You pick it, credit, you pick it. And you know we're going to reboot the study that we've done that shows that the retirement tax expenditure is actually the real economic cost to the Treasury is 70% less than what it's scored at, because it's a deferral, not a deduction.
Speaker 3:But also, you know this argument that's increasingly prevalent, jim, particularly in the media, which doesn't seem to be interested in hearing the other side's, our side's, perspective. They're just, they like to just do a story about what the academic critics think that you know the 401k is only for the wealthy and only you know wealthy people have any meaningful amounts in their retirement plans, and that you know, and that the tax incentives are backwards because they're based on, you know, marginal rates. You know you raised a very critical point to that, because what they ignore is that employers are making contributions for these workers to matching profit sharing contributions. Obviously, if it's a defined benefit plan, you know even more valuable contributions and they just completely ignore those. And the truth of the matter is, as you're alluding to, particularly on the retirement side, the tax incentives are incredibly efficient. Most of the tax benefits, because of the non-discrimination rules, because of the matching and other contributions that go on behalf of workers, you know the lion's share of the tax benefits actually go to people making less than $100,000 a year.
Speaker 3:And yes, we've got to. You know we've got to emphasize that story because you know that's why you know we're a constant target. We've been a constant target, you know, since ERISA passed. If you go back to the 80s, when was the last time Congress was focused on deficit reduction TEFRA, defra and REIA? We were, you know, we were whacked all the time and I think it's going to be critical that we all work together to try to prevent that. I mean, let's just add to that a little bit. This is very different than the last time we did a tax bill that you mentioned in 2016 and 17. We did a tax bill that you mentioned in 2016 and 17. There's a lot more attention to deficit reduction or the deficit in general.
Speaker 1:How do you think that's going to change the drivers around policymaking?
Speaker 3:I don't know if I necessarily believe that there's been more attention in the sense that we've kind of had a steady stream of laws. That's, you know, right now there's been this bill to extend the corporate tax, these so-called corporate tax extenders that are a lot of corporate tax credits or other incentives that have been expired for several years that you know the larger companies really want. The child tax credit's been expired, democrats want that and you know basically Republicans have been resistant because it's not quote paid for.
Speaker 1:In principle, yeah, yeah, I mean. So, on the one hand, it's, you know, a good thing when there is a sensitivity on either side of the aisle for the burgeoning national debt which grows as.
Speaker 3:We're encroaching $35 trillion in national debt In each year.
Speaker 1:What is it now? Latest estimate $1.7, 1.9 trillion for this year. Yeah, yeah, so. So that part's good the the our. Our mission, I guess, is to make sure that in addressing it if they are going to be serious about addressing it, that you know that they make the right kind of decisions and you know, yeah, we live in this world and we love benefits and we recognize it, and other people who are in the you know other parts of the economic world, you know, have their own sort of cherished.
Speaker 1:You know tax preferences and so on, but really understanding sort of which ones are the right investments to make, and I think that's why, sort of like, the numbers that you and I were talking about earlier are so relevant here. It's tough because you know gosh, you and I have both seen how. You know, at two in the morning, you know, when they're housing the senator negotiating and they're coming up you know $3 billion short, they say, well, you know let's, you know let's do this with PBGC premiums in order to pay for the highway funding bill. You know, as if that's to do with highways.
Speaker 3:So so we are attempting target and that's that's why you know so we are attempting target, and that's why just making the case for what this contributes in terms of economic security for the vast majority of Americans is so central to make sure that this doesn't end up on the chopping block just because it's close on that. We are grateful for your role, for ABC's continued role in being vigilant to protect the system, to improve the system, and look forward to continue working with you, as well as everyone else at ABC, to make sure that, as I often say, our job is to make sure that the government doesn't mess up the good stuff that they actually have spent a long time trying to create.
Speaker 1:Brian, thank you so much for that, for this opportunity and just for the ongoing work that you and everybody at ARA is doing and the leadership that you have in this industry and this system that we all believe in so strongly.
Speaker 3:Thanks, Jim.
Speaker 1:Be well, thank you.