Decades ago, President Nixon’s first Attorney General, John Mitchell, offered timeless advice for judging any administration: “Watch what we do, not what we say.” That distinction -- between words and actions – is acutely relevant today in assessing the Obama administration’s strange, contradictory approach to retirement savings policy.
The administration’s official budget, released last month, calls for “near universal access to workplace retirement savings accounts” and advances several very positive ideas. But when we look past words to what the administration is actually doing to our retirement system, the gap between happy talk and damaging action is stark.
This past April, for the second time since 2010, the Department of Labor (DOL) re-proposed a massively complex rule – roughly the length of “War and Peace” – that would rework America’s retirement system root and branch. Its ostensible aim is to ensure that investment and retirement advisers put their clients “best interests” first and act as true fiduciaries. This, I hasten to say, is an ideal that all of us in the retirement services industry share -- provided it is done right.
Unfortunately, the DOL’s proposal is so unwieldy, complex, and costly that it would do far more damage to working Americans’ retirement security than any of the abuses it aims to correct. As drafted, it would severely limit access to routine investment advice for tens of millions of retirement savers. It would also make it nearly impossible for service providers to present investment advice and options to businesses with less than 100 employees.
The effect, if not the intent, would be to stymie the growth of the workplace savings system – period. Virtually all new businesses, after all, start with fewer than 100 workers. Twelve years ago this month, Facebook had five.
The rule’s impact on individual retirement savers’ would also be quite painful. Credible analysis suggests it would cause tens of billions of dollars in losses to savers and retirees over the next decade due to a cut-off of routine investment advice that low-balance savers can count on today.
All that is bad enough. But wait – there’s more.
At the behest of the White House, the Labor Department is also advancing another major change to retirement savings -- making it easier for state governments around the country to offer state-mandated Individual Retirement Accounts (IRAs) for private workers. The plans would be exempt from most of the costly investor protection regulations that private plans must live by under the Employee Retirement Income Security Act of 1974 (ERISA).
Here again, the goal of the Administration and of the sponsors of these emerging state-level plans is laudable. America really must address the workplace savings “coverage gap.” Roughly 50 million workers have no workplace savings options. The ideal solution would be national legislation that provides every American worker access to a payroll deduction savings option on the job.
But Congress’s failure -- so far -- to close the “coverage gap” is no justification for proliferating what may be dozens of state savings arrangements, free from the protections that ERISA mandates and free also to compete unfairly with private plans that meet those higher standards.
Taken together, the DOL’s twin rule-making efforts promises to have impacts as sweeping as any major piece of pension law in decades. But these profound changes – which could never survive democratic debate and passage through Congress -- are being enacted through a complex, “black box” bureaucratic process – leaving Congress as almost a by-stander.
Fortunately, as thousands of citizens and small businesses weigh in to object to what DOL is doing, Congress has begun to offer more effective – and constructive – alternatives.
Bipartisan legislation to protect retirement savers and ensure that their interests come first has been introduced in both houses of Congress. It would achieve the “best interest” goal DOL is aiming for – but without a crippling burden of red tape. I would also hope we can find bipartisan support for the Auto-IRA concept -- a truly national solution to filling America’s workplace savings “coverage gap.”
But for those positive gains to happen, Congress needs to wake up – soon -- to the seriousness of DOL’s two-pronged regulatory assault on our private retirement savings system. As John Mitchell warned us long ago, we need to look beyond what the administration is saying – and see what they are doing – before truly serious damage gets done.
Reynolds is president and CEO of Putnam Investments and Great-West Financial, whose Empower Retirement unit serves more than 7 million workplace savers.