(The opinions expressed here are those of the author, a
columnist for Reuters.)
By Mark Miller
CHICAGO, March 23 At the risk of stating the
obvious: People are much more likely to save for retirement when
they can do it automatically at work. How much more likely? Ten
times, according to a study released this week.
But someone apparently forgot to tell U.S. Congress and the
White House, because both are moving to block millions of
workers from getting that opportunity. Any day now, the Senate
is expected to approve a resolution - already passed by the
House - that throws a roadblock in front of states preparing to
offer government-sponsored, low-cost retirement saving plans to
people who do not have them at work.
President Donald Trump has pledged to sign the resolution -
but the Senate could do something important for the future
retirement security of millions by rejecting it. In fact, all it
needs to do is - nothing.
If the Senate does not act, a ruling issued last year by the
Department of Labor (DoL) goes forward. It makes it easier for
states to launch programs that would require employers without
their own plans to set up payroll deductions for automatic
contributions to a publicly run IRA account. The rule exempts
state plans from the Employee Retirement Income Security Act of
1974 (ERISA) if they meet certain conditions. That provides
important reassurance to employers participating in the plan,
who worry about compliance cost and legal liability under ERISA.
This is the latest in a series of anti-consumer, pro-Wall
Street moves coming out of Washington since the Republican Party
consolidated its control in January. The Trump administration
also has moved to throw the brakes on the fiduciary rule that
requires financial advisers to act in the best interest of
In addition, Republican lawmakers are aiming to curtail the
oversight powers of the Consumer Financial Protection Bureau,
which - among other achievements - last year exposed a massive
fraud against customers by Wells Fargo (reut.rs/2mp9QPX)
Opponents of state auto IRA plans in the financial services
industry argue that consumers need the protections of ERISA. But
that does not hold water, since most IRAs are not covered by
ERISA. Their real concern is that they do not want to see a
lower-cost government-sponsored “public option” to the
retirement products they sell.
They further argue that the public option plans would have
an unfair competitive advantage over private plans. But the tax
incentives for employers to provide plans would continue to be
much larger than for an IRA, and employers would be prohibited
from making matching contributions.
Research by the Employee Benefit Research Institute (EBRI)
confirms that the impact of auto IRAs would be modest compared
with 401(k)s, because they generally default to a relatively low
contribution rate (3 percent of pay) and have opt-out features
The expected rule rollback will not stop the seven states
that already have enacted auto IRA programs from proceeding, but
it will create uncertainty for them - and could discourage other
states from starting plans.
Auto IRAs have the potential to help 55 million people gain
workplace coverage, AARP estimates. And here is the irony: just
as the Senate prepares to pull the rug out from under auto IRAs,
the aforementioned “factor of ten” research was published -
indicating just how badly these plans are needed.
This week, EBRI issued its 27th annual Retirement Confidence
Survey - the longest-running annual study of how well American
workers are doing with retirement planning. Confidence among
workers dipped last year despite the strong stock market - the
share of workers who say they feel very or somewhat confident
about their retirement prospects fell from 64 percent to 60
percent, and overall confidence is still well below where it was
before the Great Recession.
Even more troubling, 47 percent say their total household
savings and investments total less than $25,000, including 24
percent who have less than $1,000.
Successful planning is correlated strongly to availability
of a workplace saving option. As mentioned, workers who
participate are 10 times more likely to be saving currently, and
they have significantly higher savings.
But availability is falling. Another study released this
month looked at retirement plan coverage among households near
retirement age (51-56), finding that it shrank from 70 percent
in 2004 to 63 percent in 2010. Conducted by the Center for
Retirement Research at Boston College (CRR), the study is based
on data from the Health and Retirement Study, an ongoing
longitudinal survey of older Americans sponsored by the National
Institute on Aging and the Social Security Administration.
CRR also found that the shift away from traditional pensions
to 401(k) and IRA accounts has mainly benefited people with more
education and wealth. In 2010, some 52 percent of wealth in
defined contribution plans was held by the top quartile of the
households measured by education. By contrast, 35 percent of
wealth from traditional pensions was held in the top quartile.
All of this at a time when Social Security is projected to
replace less income in the years ahead due to higher retirement
ages, and as medical costs and longevity are both are rising.
The trends underscore the need for state auto-IRA plans to
proceed, said Alicia Munnell, CRR’s director. "Everyone needs to
save for retirement to supplement Social Security, but half of
private sector workers do not have an employer-based retirement
savings plan at any given point, and few save outside of
She added: "Since the federal government has not acted to
close this enormous coverage gap, states are stepping into the
breach to help their own citizens."
(Editing by Matthew Lewis)