Lou Harvey, president of Boston-based Dalbar Inc., which provides third-party audits and evaluation services to the financial-services industry, says that more change is coming in the area of retirement plans.
What reform do you see next on the horizon?
Harvey: Last year as part of the campaign, Obama adopted very strongly and persistently this automatic IRA proposal that had been hanging around for several years. Obama endorsed it as his solution for the retirement gap that exists.
Several weeks ago, within the preliminary budget proposal, there was funding for the automatic IRA. All of a sudden, it’s moved from the campaign discussions to front and center. Clearly, this will now be debated in the coming months.
The mood in Congress now says that it is very likely to happen, especially given the great apprehension with 401(k) plans today. I give this a relatively high probability of being enacted in some form.
Employers without a pension plan must offer it, but employees can opt out.
Within ERISA, you cannot force anyone to have a 401(k) plan. So, the push is now going to be put behind the IRA, but there will be none of the ERISA liability for the employers.
What will be the overall impact of this reform?
This shakes the deck up quite a bit. There are four key provisions. The first is a mandate for expanding the pension system via the IRA to cover all workers, rather than the half that are covered today. But if employers are forced to offer the IRA but not to administer it, why would they bother to have a 401(k) plan and its associated burdens.