What You Need to Know
- IRAs lack consumer protections and should be regulated by ERISA, former EBSA head Phyllis Borzi says.
- Preston Rutledge, another former DOL official, says policymakers need to focus on the decumulation phase.
- Borzi and Rutledge agreed that state IRA plans have been a success.
What keeps Phyllis Borzi, former head of Labor’s Employee Benefits Security Administration, up at night?
“We are in the midst of a tsunami exit of assets from DC plans into the unregulated world of IRAs,” Borzi declared at recent event in Washington to celebrate the 50th anniversary of the Employee Retirement Income Security Act.
Borzi was on tap along with Preston Rutledge, former head of EBSA in the Trump administration, at the event to discuss the state of the retirement planning marketplace.
Borzi said that if she could make one change to ERISA, it would be to put IRAs under the full protection of the law.
Rollovers of DC plan asset to IRAs climbed from nearly $473 billion in 2015 to $618 billion in 2020, according to the Employee Benefit Research Institute.
I asked Borzi if the Labor Department’s new fiduciary rule was an attempt to do just that. She responded in an email that Labor’s rule ”only addresses one situation within ERISA’s broad fiduciary duty requirements — when the person is providing advice to an individual or plan for a fee.”
Said Borzi: “There are many other aspects of plan administration and management and ERISA consumer protections that are not applicable to entities covered by the law,” such as spousal benefits in ERISA.
“It’s the lack of consumer protections that most concern me, but rather than create an entirely new regulatory scheme, it seems more efficient to take ERISA’s current framework and adapt it” to regulate IRAs, Borzi said.
Living in a DC World
Rutledge stated that “For better or worse, we live in a DC world,” and that “one way or another we need to make these DC plans ‘true retirement plans.’” Borzi agreed.
Going forward, policymakers will need to “focus significant attention on the decumulation phase” of retirement, Rutledge said in an email after his remarks.
One success story, both agreed: state IRA plans. “Keep your eye on that,” Rutledge said.
These plans are “the only thing that has improved coverage,” Borzi added.
Rutledge reminded attendees that Rep. Richard Neal, D-Mass., reintroduced his auto-IRA bill earlier this year.
Neal’s Automatic IRA Act of 2024 would require businesses with 10 or more employees to offer a workplace retirement plan.