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EBRI’s Salisbury on Auto-IRA Plans: Nobody Likes a Mandate

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When one wants to know what’s happening in the world of employee benefits, Dallas Salisbury, president and CEO of the Washington-based Employee Benefits Research Institute (EBRI), is the go-to resource.

Salisbury sat with AdvisorOne on Thursday at EBRI’s Policy Forum in Washington to discuss some of the top issues facing employee benefits—specifically whether Congress will preserve the current tax incentives for retirement savings in any deficit reduction measures, Social Security and the auto-IRA proposal.

AdvisorOne: Do you see Congress tackling whether to include retirement incentives in any deficit reduction measures this year?

Salisbury: It could well take place this year; if not this year, right after the first of the year. If it’s this year, it could be sometime between Nov. 9 and Jan. 3.

AdvisorOne: What’s on the table for debate?

Salisbury: The most likely proposals on the table is the proposal included in the [Alice] Rivlin/ [Peter] Domenici bipartisan policy committee proposal as well as the [proposal put forth by the] National Deficit Commission, better known as the Bowles/Simpson Commission. Both of them reduced the limits for defined contribution programs below what they are now; at the same time they provided for the eventual taxation of health insurance benefits and changes in the payroll tax system as it related to employee benefit programs. All of those details would likely be included in a grand bargain [in Congress] in some form.

With the expirations that are due to occur at the end of this year, with all of the Bush tax cuts going away and rates going up, the challenge of sequestration and many other things … by acting right after the first of the year to put things in order [Congress] essentially would be reducing taxes even if those new tax rates were higher than what is now in effect because they would be lower than what will be in effect on January 1 after everything expires.

AdvisorOne: Do you think Congress will tackle reforming Social Security next year?

Salisbury: Social Security in the scheme of things is a relatively minor issue. What I mean by minor is that fixing Social Security is a relatively low-cost proposition compared to many of the other challenges that the nation faces.

For example, Medicaid and Medicare have larger and far bigger shortfalls than Social Security. As a practical matter, if one were to simply look at Social Security as a pay-as-you-go program, and one were to say we are going to match benefits to payroll tax revenue, than right now one could pay 98% to 100% of the promised benefits simply by using payroll taxes. And when real problems hit between 2034 and 2037, with the tax rates that are currently in the law for 2013, they would be able to pay about 78% to 80% of the current … Social Security benefit. So as a practical matter, what does that say? That means all, or a very significant portion, of Social Security is totally sustainable, doable, within the tax rates that are currently in the law. So if one moves beyond the rhetoric and moves beyond arguments back and forth aimed at confusing the public, Social Security will be there. In the worst case, only 80% of it will be there after 2040.

That’s not a crisis.

On the other hand, Medicare…and healthcare, which are vital things that retirees need [are] a major national challenge that has the potential of being a crisis because [they] need huge amounts of revenue beyond what is already scheduled to be implemented into law.

AdvisorOne: Do you see the auto-IRA legislation that was introduced by Rep. Richard Neal, D-Mass., in February passing in some form?

Salisbury: As an observation, what we know is that mandates are not currently something that seems to be popular with policymakers or with the public. It is the mandate in the Affordable Care Act that is at the center of the Supreme Court challenge currently taking place. And the auto-IRA proposal puts a mandate on small employers.

Members of Congress in both parties have said that the inclusion of the mandate makes that [auto-IRA proposal] a difficult policy to adopt. And many interest groups have said they would oppose that because of the mandate. So setting aside the merits of auto-IRA per se, as a practical matter, the current debate about mandates affects very much what the likely outcome in that area is. It makes it quite unlikely, in the near term, that you would see that proposal enacted. That is not a statement on whether they think more retirement savings is needed, it is a statement on current attitudes toward mandating that individuals or employers do things as opposed to having free choice.


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