SSgA Chief Calls for Retirement Savings Mandate
The head of one of the world’s largest asset managers is calling for a mandate of retirement savings.
In what was described as an “open letter to Congress
,” Ron O’Hanley, president and chief executive officer of State Street Global Advisors (SSgA), which has about $2.4 trillion in assets under management, called for:
- requiring private sector employers to auto-enroll all workers into a defined contribution plan;
- requiring the use of auto-escalation and default investments such as target date funds to help employees maximize retirement savings;
- enacting tax credits for small employers to cover the administrative costs of implementing these plans; and
The SSgA proposal
- eliminating barriers to open multiple employer plans (MEPs) “to allow businesses to band together and offer affordable retirement savings plans” (specifically, the “nexus” requirement that requires an affiliation among employers and the “one bad apple” rule that would disqualify an entire MEP if one employer engages in a disqualifying event, would both be eliminated under the SSgA proposal).
calls for deferring 6% in the first year, with automatic escalation up to 12% (in 2% increments) over three years, though employers could default workers in at higher rates, and without a cap.‘Patchwork’ Initiatives
The letter cautioned that “patchwork initiatives” such as the various state-run retirement offerings will lead to a complex and inefficient set of retirement savings programs that perversely could lead to lower savings levels. SSgA notes that the lack of consistency in the structure and requirements of these programs “will be problematic for individuals who move from state to state, as well as for employers with operations that extend across state lines.” Moreover, it notes that the “proliferation of state and municipal based plans could potentially lead to an impenetrable web of plans that increases leakage and actually encourages non-participation by both employers and employees.”
The letter to Congress cites “countless studies” that have “highlighted the savings inadequacies of IRA approaches due to constraints on participant and employer contributions.” Across a range of different starting salaries, the lack of employer contributions (which results in lower savings rates) and the lower cap on annual contributions materially reduces retirement savings within an IRA construct, according to the report. “Rather than basing the plans for smaller employers on the IRA model, we recommend following the practices of the traditional employer-sponsored 401(k) and bringing those designs and practices to the small employer market,” according to the proposal.
O’Hanley noted that the nonpartisan Employee Benefit Research Institute (EBRI) has projected that the SSgA proposal could reduce the expected retirement savings shortfall by as much as $740 billion, or nearly 18%.