Ronald O’Hanley, the president and CEO of State Street Global Advisors, has written an open letter to Congress advocating for new federal legislation that would extend employer-sponsored retirement plans.
“Nearly 40% of working households still have no access to an employer-sponsored defined contribution (DC) plan, which has become the foundation for retirement savings in the U.S,” writes O’Hanley, noting that the Employee Benefit Research Institute estimates a shortfall of more than $4 trillion in retirement savings as a result.
O’Hanley proposes that Congress pass new legislation that would:
- Require private employers to auto-enroll all workers in a defined contribution plan
- Require auto-escalation of contributions in such plans plus default investments such as target date funds
- Enact tax credits to help small employers cover the administration costs of implementing a DC plan
- Eliminate barriers to open Multiple Employer Plans (MEPs) so that businesses can bank together to offer affordable plans
He writes that the current system of patchwork initiatives from the White House, Congress and various states is complex and inefficient and could “perversely lead to lower savings levels.”
State Street’s initiative, called “Moving the Coverage Needle: Towards a National Framework to Address Retirement Access and Coverage,” is focused on the more than 33% of full-time private sector workers who don’t have access to a workplace retirement plan.
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According to a printed copy of the plan, written by Managing Director Melissa Kahn, there would be an auto-enrollment requirement that begins at 6% of employees’ salaries — about twice the auto-enrollment level of many existing DC plans — that would escalate automatically to 12% over three years but it could be set higher by employers. Employees would be allowed to opt out.