Discussant: Peter Orszag, Sebago Associates, Inc.
Janemarie Mulvey noted that the nondiscrimination rules were formulated to address two concerns: (1) That participation not be tilted towards the highly compensated; and (2) That tax expenditures not be tilted toward the highly compensated. In an empirical analysis, they found no increase in participation rates by low-income workers as a result of the nondiscrimination rules. Their policy recommendation was to lower administrative costs through fewer regulations, as an incentive for firms (particularly small firms) to improve pension coverage. Therefore they recommend the elimination of nondiscrimination rules.
Peter Orszag noted that DC plans also have to meet the nondiscrimination rules so that can’t be the source of the DB-DC cost differential. He also stated that 401(k) participation rates for low-income workers are much higher than participation rates in deductible IRAs, and speculates that nondiscrimination rules may be a primary reason. Furthermore, he stated that the rules could be simplified and strengthened, noting that most of the complexity comes from provisions that allow for skewing participation in favor of highly compensated workers.
