Georgetown Event on State and International Retirement Savings
Georgetown Center for Retirement Initiatives
“State and International Strategies to Expand Private Sector Retirement Savings”
Wednesday, October 21, 2015
Key Topics & Takeaways
- ERISA Uncertainty: Panelists emphasized concerns around the uncertainty of ERISA application to state-run retirement plan proposals, and Hermes and Gray explained that the Dept. of Labor’s authority is limited by law. Therefore, while the Department may take actions to minimize uncertainty, no action could erase these concerns.
- IRA vs. 401(k): Panelists discussed the split within and between states on whether or not states should seek to design proposals to fit within an ERISA exemption. Proponents for ERISA-covered plans noted the importance of allowing employers to contribute to plans and the importance of the strong investor protections provided by ERISA.
Speakers
- Sharon Hermes and Jessica Gray, Senior Analysts, Education, Workforce, and Income Security Issues, U.S. Government Accountability Office (GAO)
- Kathleen Kennedy Townsend, Commissioner, Maryland Commission on Retirement Security and Savings
- Julian Federle, Chief Policy and Programs Officer, Office of the Illinois State Treasurer
- Michael P. Kreps, Principal, Groom Law Group and former Senior Pensions and Employment Counsel, U.S. Senate Committee on Health, Education, Labor and Pensions
- Moderator: Angela M. Antonelli, Executive Director, Georgetown Center for Retirement Initiatives
Panel Discussion
ERISA Application to State Plans
Sharon Hermes and Jessica Gray of the U.S. Government Accountability Office (GAO), reviewed six states in their report: California, Illinois, Maryland, Massachusetts, Washington State, and West Virginia. They noted that the Employee Retirement Income Security Act of 1974 (ERISA) raised a number of difficulties and created uncertainty when applied to plans run directly by the state, though the specific level of uncertainty differed depending on the specifics of the plan.
Michael Kreps of the Groom Law Group noted that the uncertainty arose because there were no specific on-point authorities that address state run retirement programs for private sector workers. He subsequently discussed anticipated actions by the Dept. of Labor (DOL) that are expected to address this issue, and stated that the anticipated actions are expected to be broken up into two parts: 1) a proposed regulation to address the use of auto-enroll, payroll deduction IRAs which would not be covered by ERISA; and 2) guidance for how states can work within ERISA. He opined that the guidance may involve the development of a new type of multi-employer plan (MEP).
Alternatively, he noted that the DOL proposals could fall short of these expectations, explain ERISA applicability, and address the use of Master & Prototype-style 401(k) plans. Hermes and Gray both noted that the authority of the DOL to act is limited by law. They explained that the DOL did not have the ability to waive ERISA preemption and that, regardless of the specific DOL action, the DOL would be unable to erase ERISA-related uncertainties.
Julian Federle of the Office of the Illinois State Treasurer stated that ensuring there is no ERISA liability for employers was an important factor in the Illinois Secure Choice plan. Kathleen Kennedy Townsend of the Maryland Commission on Retirement Security and Savings echoed the importance of ensuring employers faced no ERISA liability.
Importance of ERISA Protections and Employer Contributions
Panelists discussed the investor protections provided by ERISA and their importance to the retail retirement market, including spousal and death-related protections. Townsend relayed a conversation she had with Utah’s Deputy Treasurer, in which the Deputy Treasurer noted his shock at the lack of investor protections in the state’s ERISA-exempt pension plan and stated that he was glad he also held a private-sector retirement account with ERISA protections.
Other panelists noted that there was a divide within and between states regarding whether or not a state plan should seek ERISA exemption when designing a proposal. Federle noted that the Illinois Secure Choice plan was designed to minimize the risk associated with ERISA. In response to a question about how states would make the decision between ERISA covered and ERISA exempt plans, Townsend noted that she had changed her opinion on the secure choice proposals and explained that she believed the investor protections and the ability of employers to contribute to a 401(k)-style ERISA-covered plans were important, as the savings that would be generated by Secure Choice proposals “is not enough.”
GAO Report
Hermes and Gray provided an overview of the GAO report examining coverage and participation rates in workplace retirement savings programs, as well as state and certain international strategies to expand retirement savings. The report was commissioned by U.S. Senator Patty Murray, utilized Survey of Income and Program Participation (SIPP) data, and was cross-checked against data from Form W-2s.
The report concluded that roughly half of private sector workers did not participate in a plan, and many did not have access. Generally speaking, Hermes and Gray reported that workers who lacked coverage were often lower-income, part-time workers whose workplace did not offer retirement plans or who did not qualify for their workplace plan. They also noted that the size of the firm played a role, with larger firms nine times more likely to offer a plan.
Gray stated that the report recommended that DOL “do all that it can” to address issues regarding ERISA uncertainty, and urged Congress to take action to promote state efforts.
State & International Efforts
Panelists discussed various state proposals with references to certain foreign retirement savings initiatives. These initiatives included the NEST program in the UK, the Kiwi Saver program in New Zealand, the Voluntary Retirement Saving Plan in Canada (Quebec), and the Pooled Registration Pension Plans in Canada (Federal and most provinces).
Hermes explained that successful state efforts would reduce complexity, cost, and risk for workers, and reduce the cost, administrative burden, and liability for employers. She highlighted the need to ensure employers could use their existing payroll processes, as well as the necessity to ensure plan portability, a default contribution rate, and a simplified structure for retirement options.
Townsend emphasized the importance of ensuring that plans include a mandate on employers, auto-enrollment, and employer obligations to deduct contributions from employee pay. Federle discussed the new federal MyRA savings accounts, which he stated were a “great step,” but not a final solution. He also stated that the Secure Choice “knot” consisted of four features that must be included in a proposal for Secure Choice to be effective: 1) mandatory employer participation; 2) no employer ERISA liability; 3) auto-enrollment; and 4) a default investment option.
For more information on this event, please click here.
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Georgetown Center for Retirement Initiatives
“State and International Strategies to Expand Private Sector Retirement Savings”
Wednesday, October 21, 2015
Key Topics & Takeaways
- ERISA Uncertainty: Panelists emphasized concerns around the uncertainty of ERISA application to state-run retirement plan proposals, and Hermes and Gray explained that the Dept. of Labor’s authority is limited by law. Therefore, while the Department may take actions to minimize uncertainty, no action could erase these concerns.
- IRA vs. 401(k): Panelists discussed the split within and between states on whether or not states should seek to design proposals to fit within an ERISA exemption. Proponents for ERISA-covered plans noted the importance of allowing employers to contribute to plans and the importance of the strong investor protections provided by ERISA.
Speakers
- Sharon Hermes and Jessica Gray, Senior Analysts, Education, Workforce, and Income Security Issues, U.S. Government Accountability Office (GAO)
- Kathleen Kennedy Townsend, Commissioner, Maryland Commission on Retirement Security and Savings
- Julian Federle, Chief Policy and Programs Officer, Office of the Illinois State Treasurer
- Michael P. Kreps, Principal, Groom Law Group and former Senior Pensions and Employment Counsel, U.S. Senate Committee on Health, Education, Labor and Pensions
- Moderator: Angela M. Antonelli, Executive Director, Georgetown Center for Retirement Initiatives
Panel Discussion
ERISA Application to State Plans
Sharon Hermes and Jessica Gray of the U.S. Government Accountability Office (GAO), reviewed six states in their report: California, Illinois, Maryland, Massachusetts, Washington State, and West Virginia. They noted that the Employee Retirement Income Security Act of 1974 (ERISA) raised a number of difficulties and created uncertainty when applied to plans run directly by the state, though the specific level of uncertainty differed depending on the specifics of the plan.
Michael Kreps of the Groom Law Group noted that the uncertainty arose because there were no specific on-point authorities that address state run retirement programs for private sector workers. He subsequently discussed anticipated actions by the Dept. of Labor (DOL) that are expected to address this issue, and stated that the anticipated actions are expected to be broken up into two parts: 1) a proposed regulation to address the use of auto-enroll, payroll deduction IRAs which would not be covered by ERISA; and 2) guidance for how states can work within ERISA. He opined that the guidance may involve the development of a new type of multi-employer plan (MEP).
Alternatively, he noted that the DOL proposals could fall short of these expectations, explain ERISA applicability, and address the use of Master & Prototype-style 401(k) plans. Hermes and Gray both noted that the authority of the DOL to act is limited by law. They explained that the DOL did not have the ability to waive ERISA preemption and that, regardless of the specific DOL action, the DOL would be unable to erase ERISA-related uncertainties.
Julian Federle of the Office of the Illinois State Treasurer stated that ensuring there is no ERISA liability for employers was an important factor in the Illinois Secure Choice plan. Kathleen Kennedy Townsend of the Maryland Commission on Retirement Security and Savings echoed the importance of ensuring employers faced no ERISA liability.
Importance of ERISA Protections and Employer Contributions
Panelists discussed the investor protections provided by ERISA and their importance to the retail retirement market, including spousal and death-related protections. Townsend relayed a conversation she had with Utah’s Deputy Treasurer, in which the Deputy Treasurer noted his shock at the lack of investor protections in the state’s ERISA-exempt pension plan and stated that he was glad he also held a private-sector retirement account with ERISA protections.
Other panelists noted that there was a divide within and between states regarding whether or not a state plan should seek ERISA exemption when designing a proposal. Federle noted that the Illinois Secure Choice plan was designed to minimize the risk associated with ERISA. In response to a question about how states would make the decision between ERISA covered and ERISA exempt plans, Townsend noted that she had changed her opinion on the secure choice proposals and explained that she believed the investor protections and the ability of employers to contribute to a 401(k)-style ERISA-covered plans were important, as the savings that would be generated by Secure Choice proposals “is not enough.”
GAO Report
Hermes and Gray provided an overview of the GAO report examining coverage and participation rates in workplace retirement savings programs, as well as state and certain international strategies to expand retirement savings. The report was commissioned by U.S. Senator Patty Murray, utilized Survey of Income and Program Participation (SIPP) data, and was cross-checked against data from Form W-2s.
The report concluded that roughly half of private sector workers did not participate in a plan, and many did not have access. Generally speaking, Hermes and Gray reported that workers who lacked coverage were often lower-income, part-time workers whose workplace did not offer retirement plans or who did not qualify for their workplace plan. They also noted that the size of the firm played a role, with larger firms nine times more likely to offer a plan.
Gray stated that the report recommended that DOL “do all that it can” to address issues regarding ERISA uncertainty, and urged Congress to take action to promote state efforts.
State & International Efforts
Panelists discussed various state proposals with references to certain foreign retirement savings initiatives. These initiatives included the NEST program in the UK, the Kiwi Saver program in New Zealand, the Voluntary Retirement Saving Plan in Canada (Quebec), and the Pooled Registration Pension Plans in Canada (Federal and most provinces).
Hermes explained that successful state efforts would reduce complexity, cost, and risk for workers, and reduce the cost, administrative burden, and liability for employers. She highlighted the need to ensure employers could use their existing payroll processes, as well as the necessity to ensure plan portability, a default contribution rate, and a simplified structure for retirement options.
Townsend emphasized the importance of ensuring that plans include a mandate on employers, auto-enrollment, and employer obligations to deduct contributions from employee pay. Federle discussed the new federal MyRA savings accounts, which he stated were a “great step,” but not a final solution. He also stated that the Secure Choice “knot” consisted of four features that must be included in a proposal for Secure Choice to be effective: 1) mandatory employer participation; 2) no employer ERISA liability; 3) auto-enrollment; and 4) a default investment option.
For more information on this event, please click here.