President Obama's budget may contain "unintentional harmful consequences" regarding efforts to increase retirement savings, says the Profit Sharing/401(k) Council of America (PSCA).
The PSCA says while two provisions are commendable (the modifications to the Saver's Credit and the reform of asset tests for means-tested public benefit programs), two provisions are problematic.
First, the budget appears to require that all employer-provided 401(k)-type plans offer automatic enrollment of all eligible employees. PSCA says it's "wary" of mandating a specific retirement plan design, and that part of the success of the defined contribution system is the flexibility to design and offer a plan that fits the needs of a particular workforce or business.
"While Washington favors a one-size-fits-all approach, this new mandate is sure to create a myriad of unintentional consequences," says PSCA President David Wray.
Furthermore, PSCA is urging Congress to "carefully scrutinize" the Automatic Workplace Pension proposal. The plan requires employers who do not currently offer a retirement plan to automatically enroll employees in a direct deposit IRA account. Employees may only opt out by signing a written waiver.
"A government-mandated program is very different from an employer proudly sponsoring a retirement plan to attract and retain employees and personally encouraging workers to participate," according to the PSCA. "A better approach might be to explore ways to increase voluntary small business retirement plan coverage before embarking on a mandatory program that may unintentionally make it more difficult for small employers to succeed."
PSCA is a national, nonprofit association of 1,200 companies and their 6 million plan participants. PSCA actively works with federal policymakers in 401(k) plan design, administration, investment, compliance and communication.