Why are state governments implementing mandatory retirement plans? The answer is simple: Some Americans are not saving for retirement and an auto-enrollment IRA program could increase the retirement savings rate.
The tougher question: Why are they not saving? The answer is much more complicated: stagnant wages, increases in health care spending, credit card and student loan debt, a lack of education on budgeting and saving and no access to an employer-sponsored retirement plan.
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To counter the limited access to employer-sponsored retirement plans, the Department of Labor issued a rule last year that turns the voluntary employer retirement system into a state-level mandatory system that could lead to a patchwork of laws across the nation. A state-level mandatory retirement plan will not solve the problem of Americans not saving; instead, it will force employers to be the intermediary between the employee and the state-run retirement plan.
If a state must mandate an employer to auto-enroll employees into a state-level retirement plan, then it begs the question: Why are certain employers not providing a retirement plan to employees? Over the last several decades, the federal government has consistently made it more difficult and expensive to operate a retirement plan due to laws and regulations. While a state-level retirement plan strips away a large chunk of the employer's compliance burden (since the plan is exempt from federal laws and regulations), it is still only a Band-Aid on larger problems the retirement community will continue to face — increasing compliance burdens with participants unable to save due to issues like debt or lack of financial education.
While I do not believe state-level mandatory retirement plans are the best policy to increase retirement plan access and savings, I do hope the plans — if implemented — are successful in making individuals aware of the importance of saving. However, I am discouraged by recent proposals at the state level that unnecessarily disrupt active employer-sponsored retirement plans already in full compliance with federal laws and regulations.
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These state proposals would force plan sponsors of tax-qualified retirement plans to alter aspects of their plans or fulfill new compliance tasks to be exempt from the state mandate. For example, the Oregon State Retirement Savings Plan, scheduled to be implemented later this year, proposes a conditional exemption from the program for employers that provide a retirement plan to all employees, but only if the employer enrolls all employees within 90 days of hire. While the State of Oregon has since clarified via informal guidance that the 90-day rule does not apply to employers who already provide a retirement plan, it is clear that states will be creative in attempting to regulate them. Due to this overreach, I support efforts in Congress to repeal the Department of Labor rule that allowed states to move forward with implementing mandatory retirement plans.
If states can continue to implement state-run retirement programs that infringe on employers' ability to provide a consistent retirement plan across state lines, we may experience a decrease in tax-qualified employer sponsored retirement plans. Keep in mind, the employer retirement system provides the bulwark of retirement security for working Americans. And, most employers provide a generous match, or employer contribution, to individual retirement accounts which significantly increases retirement savings for workers and families — a contribution most state-level plans are not allowed to accept without being subject to federal rules and regulations.
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We all support a desire to increase access to retirement plans for America's workforce, but we must protect the value provided by the current retirement plan system and avoid unnecessary burdens that could result in unintended adverse consequences to the country and its workers, retirees and families. I am hopeful the Senate will pass the resolution of disapproval on the DOL rule for state retirement plans. I encourage a national conversation on retirement access and savings to ensure we implement sound policy that does not harm a system already providing quality retirement plans to tens of millions of working Americans.
Will Hansen is the senior vice president for retirement policy at The ERISA Industry Committee.
