Industry trade groups are taking issue with the Department of Labor’s plan to boost workers’ access to retirement plans through state-run programs, with the Investment Company Institute and the Securities Industry and Financial Markets Association arguing that the plan will spur a “confusing, state-by-state patchwork of savings programs” that could lack strict federal controls.
Complying with a directive from the White House, DOL released on Nov. 16 a proposed rule and interpretive bulletin to help guide states in developing state-run retirement plans that don’t run afoul of the Employee Retirement Income Security Act. Comments were due on the plan by Jan. 19.
Labor Secretary Thomas Perez said in releasing the plan that employees’ inability to save through work is not only a “potential financial crisis for these individuals and their families, but a critical economic issue for the nation,” noting that there are nearly 70 million workers without access to retirement plans at work.
DOL is proposing to update the Employee Retirement Income Security Act by instituting a safe harbor describing circumstances in which a payroll deduction savings program, including one with automatic enrollment, would not be considered an employee pension benefit plan under ERISA.
Lisa Bleier, managing director and general counsel for SIFMA, told DOL in a comment letter that DOL’s safe harbor exempting certain employee benefit plans from complying with ERISA is “counterproductive to achieving that objective by eliminating important protections provided under ERISA and discouraging employers from voluntarily establishing more substantial plans for employees.”
While SIFMA agrees that Americans should be saving more for retirement, Bleier said, the retirement savings “is not due to a lack of affordable options, but a lack of education on the importance of saving. State-run plans are not the solution to our saving problem and by granting states a safe harbor, the DOL will only make a flawed policy even worse.”
While DOL’s plan could lead to 50 different state plans throughout the country, it also places “an additional cost burden on states and crowds out the private market,” Bleier argued. “States would be highly unlikely to provide the same level of education, service and guidance as private sector providers.”
The Mandatory Auto IRA within the plan will also “discourage business owners from providing more expansive and substantive retirement plans,” she said. “By setting a minimum requirement, employers will take this option as the easy way to avoid creating 401(k), SEP or SIMPLE plans, which offer greater saving options to employees.”
The federal government should focus on encouraging employer sponsored plans to help individuals save for retirement, Bleier said.
Employer limits will make saving harder for employees, as the proposal prohibits a matched contribution or other monetary incentive to participate. Data shows that while auto enrollment increases overall participation, it does not increase the savings rate. Auto-enrollment is not enough. The focus needs to be on educating individuals about the importance of saving for retirement.