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 Roughly half of the U.S. states are working to create
government-sponsored automatic individual retirement account (IRA)
plans that would enroll workers without access to employer-sponsored
retirement plans.
California, Illinois, Oregon and Washington state have taken the
lead, passing legislation to launch Secure Choice Pension programs.
California and Illinois both aim to begin enrolling workers in 2017.
Employees would contribute through payroll deductions to Secure
Choice Pension accounts. The plan's investments would be
professionally managed, but no employer contributions would be
required.
There is a regulatory sticking point, though: Will the plans be
governed by the Employee Retirement Income Security Act (ERISA), the
federal law that sets standards for private-sector pension plans?
Although IRAs are not covered by ERISA, the payroll deduction
feature of Secure Choice Pension plans raises the question. Concerns
about regulatory burdens for employers - and their possible
fiduciary responsibilities under the plans - led states to include
clauses in their enabling legislation stating that these pension
plans would not proceed if they were deemed to be ERISA plans.
Now, the White House is getting behind the Secure Choice Pension
initiative. President Barack Obama recently directed the U.S.
Department of Labor to clear the path for states to create Secure
Choice Pension plans by clarifying the ERISA issues. If new Labor
Department rules are finalized before Obama leaves office at the end
of next year - and that is a major unknown - some states will start
offering their new retirement plans as early as 2017, and the ball
could get rolling in many more states.
Obama's move is a clear sign that his national auto-IRA initiative -
which he has been asking Congress to approve since 2010 - is dead,
and that the administration hopes to help at least a handful of
states launch Secure Choice Pension plans before Obama leaves
office. Regulatory red tape and foot-dragging could prevent that
from happening.
"We're being told that this is on a fast track, with a proposed
regulation by this fall, and a final regulation by the end of this
year - but that seems optimistic," says Dan Reeves, chief of staff
for California state Senator Kevin de León, sponsor of the
California legislation.
WORKERS STRUGGLING TO SAVE
A quick execution of new rules is exactly what workers struggling to
save for retirement need.
Ownership of various retirement plan accounts has been falling
sharply. Just 40 percent of households owned any type of retirement
account - IRA, 401(k) or traditional pension - in 2013, down from 48
percent in 2007, according to the Federal Reserve Board's triennial
Survey of Consumer Finances released last September.
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The Center for Retirement Research at Boston College estimates that
at any given point, only half of U.S. private-sector workers
participate in a retirement plan. The largest coverage gaps can be
found at small employers, who don't want to deal with the cost or
regulatory burden of administering 401(k) plans.
The states argue that fiduciary liability can be taken on by the
boards governing the plans, and by third-party financial services
companies that are hired to run them. California, the first state to
pass Secure Choice Pension legislation, has been waiting for
clarification on these issues for nearly three years now.
Labor Department officials have expressed concern about letting the
plans proceed without the regulatory protections of ERISA, and the
Obama administration preferred to focus on its own national auto-IRA
plan.
"The (Department of Labor) has always viewed its job under ERISA as
policing employers," says Joshua Gotbaum, a guest scholar at the
Brookings Institution who is the former director of the Pension
Benefit Guaranty Corporation, the federally sponsored agency that
insures private sector pensions. "So they have resisted moving from
policing employers to policing financial service providers. That's a
necessary step in order to get to any Secure Choice plan."
The nature of the new Labor Department rule will be critical to the
success of Secure Choice Pension plans. The regulators could simply
state that a payroll deduction plan isn't subject to ERISA; a much
better outcome would be a more expansive approval that gives states
a range of options.
The Department of Labor declined to comment.
Says Gotbaum, "What I hope they'll do is declare that these are
multi-employer 401(k) plans, that they can even be defined benefit
plans and that the employers won't be considered fiduciaries just by
participating."
(The writer is a Reuters columnist. The opinions expressed are his
own.)
(Editing by Beth Pinsker, Lauren Young and Leslie Adler)
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