Big Apple Unveils MEP, Retirement Program for Private-Sector Workers
New York City Comptroller Scott M. Stringer has unveiled a new city-run retirement plan for private-sector workers — including a city-sponsored multiple employer plan (MEP).
The underlying rationale for the program? Nearly 60% of private sector workers in New York City lack access to retirement plans through work. According to the program announcement, the new proposal leverages recent changes in federal law that allow state and local governments to “help employers provide retirement savings plans without adding any burden to taxpayers.”
Most recently, the Department of Labor (DOL) has also released a modification to its final rule that would extend the authority to design and operate payroll deduction IRA programs with automatic enrollment to “qualified political subdivisions,” such as New York City.
The city would be under no obligation, nor would it commit to fund any losses experienced by investors in the normal course of operations — and employers who already provide a retirement plan, won’t have to do anything different. But for those who don’t…
The “NYC Nest Egg” program would work as follows:
- Employers that do not offer a retirement plan but would like to, would be able to shop for plans through a curated marketplace overseen by an independent board. This new, voluntary NYC 401(k) Marketplace would offer access to a set of screened, employer-sponsored, easier-to-use “prototype” 401(k) plans that would include a new publicly sponsored Empire City 401(k) Multiple Employer Plan (MEP), and potentially SEP-IRA and SIMPLE-IRA plans.
- Employers that want to offer a 401(k) plan but that (according to the program announcement) “are concerned about ERISA fiduciary responsibilities and paperwork associated with individually sponsoring a plan” would be able to select a voluntary publicly sponsored turnkey product in the new NYC 401(k) Marketplace, the Empire City 401(k) MEP. The sponsor and the participating employers would be insured against any residual liability, and since many employers could participate in a larger collective, a MEP is likely to facilitate more attractive terms for participating employers.
- Employers that do not select a plan on their own or through the NYC 401(k) Marketplace would default into the new NYC Roth IRA. Employers would be obliged to automatically enroll eligible employees into a basic publicly enabled payroll deduction IRA, although employees would be free to opt out at any time.
A publicly enabled independent governance board, consisting of subject matter experts with what was described as having “no actual or perceived conflicts of interest relating to their board duties” would oversee the NYC Nest Egg. This oversight would include sponsoring the Empire City 401(k) MEP and conducting periodic competitive bidding to prudently select and monitor private providers who would assume fiduciary responsibility, perform administrative functions and manage investments. Insurance would cover any residual fiduciary liability for the board and for employers. The board would also execute periodic competitive bidding to select a private provider for the NYC Roth IRA and play a role in the Marketplace’s administration. Additionally, the board would make available financial planning tools, including online calculators.
All marketplace plans and the NYC Roth IRA would harness the power of automatic enrollment, which has been shown to meaningfully improve participation in existing plans and make savings easier, with opt outs for employees. Plan features would include:
- A myRA would be available as an investment option (this would be the initial default investment for the NYC Roth IRA).
- Default contribution rates would be based on earnings and age. The program outline notes that differentiating savings rates by an estimate of annual earnings and age allows savers to better match their contributions to their needs than the current 401(k) system, which typically relies on a single, standard default savings rate.
- Contribution escalation would be dynamic and driven by market factors and specified participant financial data. Savers would be free to raise, lower, or stop their default contribution rate at any time, and the NYC Nest Egg plan would include a special calculator to help savers further customize the rate.
- Two policy options are presented for providing guaranteed lifetime income after retirement: In the first approach, up to 50% of savings would be defaulted into a competitively bid guaranteed income stream provider at retirement with the ability to opt out. The second would employ a suite of behavioral tools to encourage the highest possible voluntary opt in rate by age 70 (assisted by statements that express current savings as an estimated stream of monthly payments at retirement).
- All NYC Nest Egg investment options (with the exception of the myRA) would invest exclusively in passively managed lifecycle funds, consisting of several basic low-cost index funds modeled on the federal Thrift Savings Plan (TSP).
- The program outline says that administrative and investment fees for all NYC Nest Egg offerings would have to be “modest, competitive, and within parameters established by the independent governance board and could not disproportionately impact any group of savers, especially during the start-up phase.”
- To promote the goal of increasing retirement savings, the NYC Nest Egg plan would seek to limit loans and/or hardship withdrawals.
And, while the plan is crafted with New York City private sector workers in mind, the program rollout says that it could also serve as a blueprint for a statewide effort “if that were preferred or legally required.”