A simple way to make retirement savings easier for Americans
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America faces a retirement savings crisis that requires the joint efforts of Democrats and Republicans to solve. More than 50 percent of Americans aren’t enrolled in retirement savings plans, and about 55 million workers can’t save for retirement directly from their paychecks because they don’t have access to a workplace savings plan. With a cloud of uncertainty hanging over Social Security, our country needs a solution to ensure its workers are able to set retirement goals and start saving to achieve them.

Ironically, one solution that’s already effective may not even survive to see a potential saver contribute a penny from his or her paycheck. Congressional Review Act resolutions of disapproval were recently introduced in the House. They would overturn Department of Labor regulations finalized last summer to guide the establishment and operation of state-sponsored automatic enrollment individual retirement accounts (IRAs).

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Auto-IRAs, also known as “Secure Choice” or “Work and Save” programs, are a commonsense approach to retirement savings that can remove regulatory and operational barriers for small businesses to offer savings opportunities to employees through payroll-deduction automatic enrollment IRAs. The automatic element is key here, as employees are 15 times more likely to save if they have access to payroll deduction savings plans at work.

 

Nationwide, 75 percent of Americans believe these plans are a good idea. Moreover, 72 percent of Americans who identify as Republicans and 83 percent of Democrats support these plans. California, Connecticut, Illinois, Maryland, and Oregon have already passed laws that will require employers without a plan to automatically enroll their workers in auto-IRAs. This is clearly a bipartisan issue.

Over the past several days, rumors have circulated about auto-IRAs that simply aren’t true. If you’ve been following the story, odds are you’ve heard them, too.

Common misconceptions

The first misconception is that automatic enrollment IRAs are not subject to adequate consumer protections. Auto-IRA accounts are structured as individual IRAs and are protected under current IRA regulations. While it’s true IRAs aren’t subject to Employee Retirement Income Security Act (ERISA) requirements because of their nature as individually funded and controlled savings arrangements, the general fiduciary protections that exist for all IRA savers still apply. Employees will have just as much access and control over their retirement accounts as they would with a retail IRA. As with 529 college savings plans, state boards will oversee the investments available to ensure they’re appropriate to help meet retirement goals.

Another misconception is that auto-IRAs will hurt small business retirement plans. Rather than being a threat, auto-IRA programs may increase new plan adoption. When asked whether they would enroll their workers in a state-sponsored auto-IRA program or start their own retirement plan, 51 percent of businesses without plans said they would start their own. Furthermore, a survey from Boston College’s Center for Retirement Research found that the number of small businesses with plans that would switch to a state program was just one percent.

A third misconception is that with public pensions, taxpayers may be on the hook for underfunded auto-IRAs. But there is no relation between these plans and public pensions. auto-IRAs are self-funded programs that require minimal state investment and offer no state guarantees—again, similar to 529 plans. Monies can’t be used by the state in any form, including how social security has been leveraged federally.

The 529 plan precedent

Two refutations to the misconceptions listed above mention 529 plans. In many ways, automatic enrollment IRAs will take a path similar to these plans, which have found acceptance as a bipartisan solution while helping Americans make strides toward driving down student debt.

Consider that over the last 20 years, Americans have gone from saving $2.5 billion for college to more than $253 billion directly through 529 plans. Moreover, 529 account owners contribute their own money and fully control their accounts—there is no state guarantee or obligation. Finally, states in the 529 industry have driven down fees, provided sensible and sound investment options, and have a vested interest in reaching middle- and lower-income families.

Support for automatic IRAs

The lack of retirement plan coverage among Americans is a major societal risk and a bipartisan issue. Auto-IRAs can mitigate this risk and create a win-win situation for both employers and employees without access to a retirement plan. On the one hand, auto-IRAs can educate employers and promote private plan adoption among companies that have never offered a qualified plan before, since those plans can potentially provide even greater benefits than auto-IRAs. For those employers that still don’t adopt a qualified plan, auto-IRAs can provide a needed safety net for employees who would otherwise never have access to work-based retirement solutions.

If you believe Americans should be afforded the opportunity to save for a secure retirement, don’t support the Congressional Review Act resolutions of disapproval that were recently introduced in the House to overturn Department of Labor regulations regarding automatic enrollment IRA plans.

Bob Guillocheau is president and chief executive officer of Ascensus, the largest independent retirement and college savings services provider in the United States.


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