While You Were Obsessing Over the Fiduciary Proposal…
While many in the retirement industry are solely focused on the impending fiduciary rule, the Department of Labor is proceeding on another potentially far-reaching regulatory project at the direction of President Obama.
In July 2015, Obama tasked the Department of Labor to issue new regulations and guidance to facilitate state initiatives
that aim to increase retirement plan coverage in the private workforce. In September 2015, the Department of Labor sent its proposal
to the Office of Management and Budget for review. The details are expected to be released in the coming weeks.
In recent years, three states have passed legislation that include a requirement for businesses over a certain size to offer some type of retirement plan for their employees. These bills also create a state-based program that could be used as the default option for employers to fulfill the requirement. More than half of the other states across the country are now considering legislation in this policy area.
In this context, the Brookings Institution hosted an event Oct. 7
to examine the types of plan designs and administrative decisions that states need to consider as they address this issue. The event coincided with the release of a paper
co-authored by one of the founding fathers of the “auto-IRA” — David John — that laid out the various choices that states have been making when crafting legislation. John favors the “auto-IRA” plan design approach — an automatic enrollment payroll deduction program — adopted by California, Illinois, and Oregon, but cautioned that guaranteeing a rate of return on investments could be prohibitively expensive considering the expected modest account balances of participants in the program.
The event also featured a presentation by Illinois Senator Daniel Biss, who was the key architect of, and sponsor of, the Illinois Secure Choice legislation that became law in January 2015. Senator Biss is currently running to become the Illinois Comptroller, a statewide elected position with a seat on the Illinois Secure Choice Board that will implement his legislation. Senator Biss spoke to the political decisions he faced while trying to get the legislation enacted into law, including three core policy positions that were non-negotiable:
1. no task force to study the concept;
2. the requirement that businesses adopt a plan; and
3. that the state program contain an auto-enrollment feature.
Once that core framework was in place, he explained that he was willing to make compromises in other areas in order to get something done, like reducing the scope of the requirement so that it applied to businesses with 25 or more employees, requiring that the program not be subject to ERISA, and not having a guaranteed rate of return as the default investment.
Both Illinois and California are currently lobbying the Department of Labor to exempt their programs from ERISA.
The American Retirement Association is deeply concerned that the DOL will agree and exempt that state offering from ERISA while not giving a pass to similar products offered by the private sector.Andrew Remo is the American Retirement Association's Director of Congressional Affairs.