Retirement savings are in crisis, but state-run plans not the answer
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We can all agree that more Americans need to commence saving or increase their savings for retirement. According to the National Retirement Risk Index (NRRI), over half of the country’s households are “at risk” of not having enough to maintain their living standards in retirement. This is in large part due to American workers not having access to an employer-sponsored retirement plan or not saving enough due to other debts or lack of basic financial education.

What is the solution to this lack of retirement savings? Instead of focusing on the underlying issues that restrict an employer from offering a plan or an employee from saving for retirement, several states believe the solution is to implement government-run retirement plans that require employers to automatically enroll employees into individual retirement account plans. These state proposals would unnecessarily force plan sponsors of tax-qualified retirement plans to alter aspects of their plans or fulfill new compliance tasks to exempt themselves from these state mandates.

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Take for example Oregon, which is about to finalize their first set of regulations for the Oregon Retirement Savings Plan. Oregon will most likely require employers who already provide a retirement plan to file an application with the state to certify a plan is provided to employees. The filing of an application in Oregon may seem like a simple task — but try multiplying that by fifty for large employers that have operations in all states. The result: a drastic increase in compliance on employers already ensuring a secure retirement for their employees.

 

Today, most tax-qualified employer sponsored retirement plans fall under the Employee Retirement Income Security Act of 1974 (ERISA). ERISA — which was enacted to allow employers the ability to tailor voluntary retirement plans that meet the needs of their workforce — provides a uniform set of minimum standards for those plans.

State proposals, while well-intentioned, would come into direct conflict with ERISA and bring about a compliance nightmare for employers. If Oregon and other states enact rules that require employers who already provide a retirement plan to complete additional compliance tasks or even alter their current plan to be exempt from the state mandate, their actions will drive up the cost to operate a retirement plan. This could force employers to divert resources from, for example, employee financial education to additional compliance matters. Employers could step away from providing retirement plans altogether in favor of the state-run retirement plans, which do not allow for the valuable employer matching contribution.

How do we help Americans save more for retirement? Simple, instead of mandating a state-run plan, focus on decreasing the compliance burden placed on employers to open a voluntary retirement plan.

Congress and federal agencies have drastically increased the number of regulations that an employer must follow to operate a retirement plan. Further, Congress continues to advance legislation, such as the Lifetime Income Disclosure Act, an act that would further increase the compliance burden on employers through mandated changes to retirement statements that will only confuse employees.

Instead, Congress should focus on legislation that would decrease the compliance burden, such as policies to allow for electronic disclosure over paper disclosure of required retirement documents. Compliance is frequently noted as a primary reason an employer doesn't provide a retirement plan, thus, a decrease in the compliance burden could spur an increase in voluntary employer-provided retirement plans.

The solution, regrettably, involves more than just access to an employer-sponsored retirement plan. Other issues such as stagnant wages, cost of healthcare, debt repayment, and lack of basic budgeting and savings education must be a focus of any change in retirement policy in this country.

Should Congress fail to repeal the Labor Department rule allowing states to create auto-enrollment retirement plans, states should be cognizant of the impacts they will have on large employers. Specifically, employers who provide a tax-qualified retirement plan should not have to lift a finger if the employer operates in a state that implements a state-run retirement plan. The voluntary retirement system has been successful in providing a secure retirement to millions of Americans — future retirement policies shouldn't harm this important system.

Will Hansen is the senior vice president for retirement and compensation policy at The ERISA Industry Committee.


The views expressed by contributors are their own and are not the views of The Hill.