Mandatory Retirement Policy Creeps Closer
President Barack Obama is promoting two proposals that would deliver two more blows to the voluntary nature of the private retirement system.
In his 2010 budget blueprint unveiled February 26, Obama proposed requiring employers sponsoring 401(k) or similar defined-contribution plans to offer automatic enrollment. A second proposal would require employers without existing retirement plans to enroll their employees in a direct-deposit individual retirement account.
The president’s proposals follow one in the works by senior Democratic congressmen that would provide funding relief to companies with defined-benefit plans that commit, for an undefined period, to keep their plans open.
All three are seen as steps toward changing the nation’s retirement system from a voluntary one to a mandatory one. And the potential for a combined assault on the voluntary nature of retirement plans is giving some pension industry lobbyists the shudders.
Chief among their concerns is the possibility of additional requirements, such as a mandate that employers provide matching contributions to their defined-contribution plans, something that has always been voluntary, said Ed Ferrigno, Washington vice president of the Profit Sharing/401(k) Council of America, based in Chicago.
“Where does this stop?” Ferrigno said. “It’s very ominous.”
Kathryn Ricard, vice president of retirement policy for the ERISA Industry Committee in Washington, agreed.
“It’s that slippery slope of what’s next; that’s what gives us pause.”
“Employers will be concerned that this is the first mandate in what has been a voluntary system,” said Jan Jacobson, senior counsel, retirement policy at the American Benefits Council in Washington.
Despite those concerns, the concept of enrollment mandates has the support of the mutual fund industry’s Investment Company Institute in Washington.
“We should consider requiring all 401(k) plans to use automatic enrollment and automatic savings escalation,” Paul Schott Stevens, ICI president and CEO, said at a February 24 hearing on strengthening retirement security before the House Education and Labor Committee.
Another retirement-related proposal in Obama’s budget would dramatically expand the existing saver’s tax credit program to make it fully refundable, meaning qualified taxpayers would receive a federal payment to their retirement accounts. That proposal has the support of the Profit Sharing/401(k) Council of America.
“The goal is to increase savings,” Thomas E. Gavin, a spokesman for the White House’s Office of Management and Budget, wrote in an e-mail response.
“As the budget noted, 75 million working Americans—roughly half the work force—currently lack access to employer-based retirement plans,” Gavin said. “In addition, the existing incentives to save for retirement are weak or non-existent for the majority of middle- and low-income households.”
Meanwhile, House Education and Labor Committee Chairman George Miller, D-California, is considering sweeping reforms to the U.S. retirement system, though he has yet to endorse any specific proposals.
Miller said he had heard several proposals aimed at making retirement coverage universal. “People clearly believe you have to do this.”
During the February 24 hearing—the first of a series planned to consider how to strengthen the U.S. retirement system, Miller said Congress had to address ways to improve 401(k) plans, making them more transparent, fair “and operated on behalf of the account holder, not Wall Street firms.”
“But we must also ask the difficult questions about the state of our nation’s retirement system as a whole and look to see whether we need to create a new leg of retirement security,” Miller said. “For too many Americans, 401(k) plans have become little more than a high-stakes crapshoot.”
Among those hoping to help fill in Miller’s reform agenda are the Pension Rights Center, the Economic Policy Institute and the National Committee to Preserve Social Security and Medicare, all worker advocacy and policy groups in Washington.
The three groups plan to announce on Tuesday, March 10, an effort to establish a “new retirement system that, together with Social Security, will provide universal, secure and adequate income for future retirees,” according to a PRC advisory. No specifics have been revealed.
With the retirement reform train roaring out of the station, House Republican Leader John Boehner of Ohio is asking GOP lawmakers to come up with alternatives to Miller’s efforts to help the public rebuild savings and retirement accounts that have been devastated by the economic downturn, said Kevin Smith, a spokesman for Boehner.
“This is an effort to counter the fight that George Miller has already picked: He wants to wipe out 401(k)s completely and replace them with accounts controlled by bureaucrats instead of the people who own them,” Smith said. “We will vigorously oppose that idea and develop solutions that better help rebuild Americans’ savings.”