Brookings Event on State Retirement Plans
Brookings Institution
“Are New Directions Needed in State Retirement Policy?”
Wednesday, October 7, 2015
Key Topics & Takeaways
- myRA: Bleier stated SIFMA’s support of the president’s My Retirement Account (myRA) due to its portability, being insured by the federal government, and that it encourages savers to transfer to a product that “allows you to get closer to retirement” after reaching a certain level.
- State Implementation: When asked what some of the practical implementation issues will be in establishing state plans, Biss replied that there are a number of issues that take time, which is why it will take two years to implement the Illinois bill. He outlined a few issues as an example, including structuring the investment, recordkeeping, and the “crucial questions” of educating employers and employees.
- DOL Guidance: Gotbaum asked the panelists what guidance they hope the Department of Labor (DOL) would release regarding state retirement plans. John replied that he hopes the DOL will clarify the legality of auto enrollment with an auto individual retirement account (IRA) and “eliminate” some of the questions states have regarding multiple employer plans (MEPs), as well as portability concerns from state to state. Bleier stated that she hopes the DOL will release the guidance as a proposal with the opportunity for public comment, as well as addressing how plans handle liability concerns. Biss discussed the sensitivity around creating plans outside of the Employee Retirement Income Security Act (ERISA), as well as the question of default investment for auto enrollment.
Speakers
- Joshua Gotbaum, Guest Scholar, Economic Studies
- David C. John, Deputy Director, Retirement Security Project
- Daniel Biss, IllinoisState Senator (D-Evanston)
- Lisa Bleier, Managing Director and Associate General Counsel, Public Policy and Advocacy, SIFMA
Structuring State Retirement Savings Plans – A Practical Guide to Policy Issues
Josh Gotbaum, Moderator, Guest Scholar, Economic Studies
Josh Gotbaum, panel moderator, explained that automatic payroll deduction encourages employees to save for retirement, but many small businesses do not think providing a retirement plan is affordable, noting that half of private sector employees do not have retirement plans. He continued that Illinois and three other states have legislation to implement secure choice programs, with other states considering legislation – adding that state efforts could be the most significant improvement for retirement “in decades.”
David John, Presenter, Deputy Director, Retirement Security Project
David John noted that policy decisions that need to be made when creating state-sponsored retirement plans include the type of account(s) that will be offered, whether to require automatic enrollment, and if small businesses with a minimum number of employees should be required to offer a plan to workers, among others. He suggested four types of accounts that states should consider when creating plans: 1) Automatic individual retirement accounts (Auto IRA); 2) Multiple employer plans (MEP); 3) Defined benefit (DB) plans; and 4) Marketplace models.
John stated that of the four options, there “isn’t a bad decision a state can make,” though some are “more likely to work out” than others. He continued that auto enrollment “works spectacularly” for employees of small businesses and that it is favored at all income levels, adding that while a state does not have to offer this, “it does make [the plan] better.” John explained that requiring an employer to offer a plan is “key,” but noted there is a provision in the Employee Retirement Income Security Act (ERISA) that states employers cannot be required to offer ERISA plans. As such, this would have to be clarified for state plans. He concluded that states are doing work that “desperately” needs to be done to protect the financial futures of the state and its citizens.
Daniel Biss, State Senator, Illinois 9th District
State Sen. Daniel Biss (D-Evanston) discussed the state retirement plan that was passed in Illinois on June 1 and noted that auto-enrollment was a must for the plan and would not be negotiated. He stated that an auto-enrollment default ensures that employees in their 20s – who are not thinking about retirement – are “taken care of.” Biss explained that his state plan will be rolled out on June 1, 2017, and will apply to employers with 25 or more workers. As to why Illinois chose an IRA plan, he stated that legislation involving a MEP under ERISA “would not pass” so they chose an IRA structure outside of ERISA protection. Biss noted the “significant pension debt” in Illinois and stated concern over creating a state retirement plan that “looked like a public pension system,” as citizens would not trust it. He concluded that two areas that were not addressed in the creation of the plan were auto-escalation and how to structure a system of decumulation to estimate the possible life stream of income, as both decisions can “comfortably be delayed.”
Lisa Bleier, Managing Director and Associate General Counsel, Public Policy and Advocacy, SIFMA
Lisa Bleier disagreed that states are the “right place to find the answer” to improving retirement savings, noting the problem with portability and issues of liability within state plans. She explained that existing IRAs can be set up with low costs, so there is not an issue of accessibility as there are “a lot of avenues today.” Bleier stated SIFMA’s support of the president’s My Retirement Account (myRA) due to its portability, being insured by the federal government, and that it encourages savers to transfer to a product that “allows you to get closer to retirement” after reaching a certain level. As to criticisms that myRA is too small of an amount to save for retirement, she explained that those using myRA do not have a significant amount of money to put away, but it gets them to “start thinking about saving.”
Question & Answer
Department of Labor Guidance
Gotbaum asked the panelists what guidance they hope the Department of Labor (DOL) would release regarding state retirement plans. John replied that he hopes the DOL will clarify the legality of auto enrollment with an auto IRA and “eliminate” some of the questions states have regarding MEPs, as well as portability concerns from state to state. Bleier stated that she hopes the DOL will release the guidance as a proposal with the opportunity for public comment, as well as addressing how plans handle liability concerns. Biss discussed the sensitivity around creating plans outside of ERISA, as well as the question of default investment for auto enrollment.
Gotbaum asked if guidance would open possibilities for an ERISA piece or hybrid DB piece. John stated that states may consider a hybrid, as some states want to include an ERISA plan “for many reasons.” Bleier stated that if the plan is within the ERISA structure and looks like a MEP, “it will be the best practice.”
Concerns Over Plans
Gotbaum noted SIFMA’s opposition to secure choice auto IRAs, and asked whether if the DOL made it clear that the auto IRAs were legal to have a MEP 401(k) model, then SIFMA would be able to get behind the plan. Bleier stated that if the plan was behind the ERISA structure and provided the same protections, responsibility and liabilities, “we could be.”
An audience member asked how states will ensure workers’ money gets from the employer to plans in a “non-ERISA world.” Biss stated that the amount of “ERISA-like” protections that are imported into state laws is “massively important,” and noted that the Illinois bill has protections and fines in place to protect employees’ money.
When asked about the prospect for a MEP, Bleier noted that there is “a lot of legislation to try to address that,” though there are still issues from Republicans and Democrats. She offered her support for MEPs but stated the challenge with where liability “falls,” adding that some options could be the Board of Directors. Bleier noted that while some may want to put the liability on providers, providers may not take on the plans, and it deserves a conversation with a “wider community to resolve that.”
Implementation Issues
Gotbaum asked what some of the practical implementation issues will be in establishing state plans. Biss replied that there are a number of implementation issues that take time, which is why it will take two years to implement the Illinois bill. He outlined a few issues as an example, including structuring the investment, recordkeeping, and the “crucial questions” of educating employers and employees. John echoed Biss’ concerns with structure and added the issue of portability.
Parallel Structures
An audience member asked about families combining savings for long- and short-term needs. John noted that retirement savings is largely “above a certain income level and below another,” adding that there needs to be structure. He explained that the value of a Roth IRA is that individuals can withdraw money during a financial crisis, and noted that if there is a parallel structure, it will make retirement plans “useful earlier,” as they will be able to access the account when money is needed.
Definition of Employee
When asked how the Illinois bill defines “employee,” Biss stated that it covers anyone that works for the company, including contractors and part-time workers.
Technology
When asked how important technology will be in lowering the costs of state programs, John noted that it will make a “huge difference” and that it is “up to all of us to embrace it.” Bleier noted her interest in studies regarding small businesses that do not have electronic platforms and comparing those numbers to people not saving for retirement. Biss stated that a long-term goal of reducing costs is “smart use of contemporary technology.”
For more information on this event, please click here.
Brookings Institution
“Are New Directions Needed in State Retirement Policy?”
Wednesday, October 7, 2015
Key Topics & Takeaways
- myRA: Bleier stated SIFMA’s support of the president’s My Retirement Account (myRA) due to its portability, being insured by the federal government, and that it encourages savers to transfer to a product that “allows you to get closer to retirement” after reaching a certain level.
- State Implementation: When asked what some of the practical implementation issues will be in establishing state plans, Biss replied that there are a number of issues that take time, which is why it will take two years to implement the Illinois bill. He outlined a few issues as an example, including structuring the investment, recordkeeping, and the “crucial questions” of educating employers and employees.
- DOL Guidance: Gotbaum asked the panelists what guidance they hope the Department of Labor (DOL) would release regarding state retirement plans. John replied that he hopes the DOL will clarify the legality of auto enrollment with an auto individual retirement account (IRA) and “eliminate” some of the questions states have regarding multiple employer plans (MEPs), as well as portability concerns from state to state. Bleier stated that she hopes the DOL will release the guidance as a proposal with the opportunity for public comment, as well as addressing how plans handle liability concerns. Biss discussed the sensitivity around creating plans outside of the Employee Retirement Income Security Act (ERISA), as well as the question of default investment for auto enrollment.
Speakers
- Joshua Gotbaum, Guest Scholar, Economic Studies
- David C. John, Deputy Director, Retirement Security Project
- Daniel Biss, IllinoisState Senator (D-Evanston)
- Lisa Bleier, Managing Director and Associate General Counsel, Public Policy and Advocacy, SIFMA
Structuring State Retirement Savings Plans – A Practical Guide to Policy Issues
Josh Gotbaum, Moderator, Guest Scholar, Economic Studies
Josh Gotbaum, panel moderator, explained that automatic payroll deduction encourages employees to save for retirement, but many small businesses do not think providing a retirement plan is affordable, noting that half of private sector employees do not have retirement plans. He continued that Illinois and three other states have legislation to implement secure choice programs, with other states considering legislation – adding that state efforts could be the most significant improvement for retirement “in decades.”
David John, Presenter, Deputy Director, Retirement Security Project
David John noted that policy decisions that need to be made when creating state-sponsored retirement plans include the type of account(s) that will be offered, whether to require automatic enrollment, and if small businesses with a minimum number of employees should be required to offer a plan to workers, among others. He suggested four types of accounts that states should consider when creating plans: 1) Automatic individual retirement accounts (Auto IRA); 2) Multiple employer plans (MEP); 3) Defined benefit (DB) plans; and 4) Marketplace models.
John stated that of the four options, there “isn’t a bad decision a state can make,” though some are “more likely to work out” than others. He continued that auto enrollment “works spectacularly” for employees of small businesses and that it is favored at all income levels, adding that while a state does not have to offer this, “it does make [the plan] better.” John explained that requiring an employer to offer a plan is “key,” but noted there is a provision in the Employee Retirement Income Security Act (ERISA) that states employers cannot be required to offer ERISA plans. As such, this would have to be clarified for state plans. He concluded that states are doing work that “desperately” needs to be done to protect the financial futures of the state and its citizens.
Daniel Biss, State Senator, Illinois 9th District
State Sen. Daniel Biss (D-Evanston) discussed the state retirement plan that was passed in Illinois on June 1 and noted that auto-enrollment was a must for the plan and would not be negotiated. He stated that an auto-enrollment default ensures that employees in their 20s – who are not thinking about retirement – are “taken care of.” Biss explained that his state plan will be rolled out on June 1, 2017, and will apply to employers with 25 or more workers. As to why Illinois chose an IRA plan, he stated that legislation involving a MEP under ERISA “would not pass” so they chose an IRA structure outside of ERISA protection. Biss noted the “significant pension debt” in Illinois and stated concern over creating a state retirement plan that “looked like a public pension system,” as citizens would not trust it. He concluded that two areas that were not addressed in the creation of the plan were auto-escalation and how to structure a system of decumulation to estimate the possible life stream of income, as both decisions can “comfortably be delayed.”
Lisa Bleier, Managing Director and Associate General Counsel, Public Policy and Advocacy, SIFMA
Lisa Bleier disagreed that states are the “right place to find the answer” to improving retirement savings, noting the problem with portability and issues of liability within state plans. She explained that existing IRAs can be set up with low costs, so there is not an issue of accessibility as there are “a lot of avenues today.” Bleier stated SIFMA’s support of the president’s My Retirement Account (myRA) due to its portability, being insured by the federal government, and that it encourages savers to transfer to a product that “allows you to get closer to retirement” after reaching a certain level. As to criticisms that myRA is too small of an amount to save for retirement, she explained that those using myRA do not have a significant amount of money to put away, but it gets them to “start thinking about saving.”
Question & Answer
Department of Labor Guidance
Gotbaum asked the panelists what guidance they hope the Department of Labor (DOL) would release regarding state retirement plans. John replied that he hopes the DOL will clarify the legality of auto enrollment with an auto IRA and “eliminate” some of the questions states have regarding MEPs, as well as portability concerns from state to state. Bleier stated that she hopes the DOL will release the guidance as a proposal with the opportunity for public comment, as well as addressing how plans handle liability concerns. Biss discussed the sensitivity around creating plans outside of ERISA, as well as the question of default investment for auto enrollment.
Gotbaum asked if guidance would open possibilities for an ERISA piece or hybrid DB piece. John stated that states may consider a hybrid, as some states want to include an ERISA plan “for many reasons.” Bleier stated that if the plan is within the ERISA structure and looks like a MEP, “it will be the best practice.”
Concerns Over Plans
Gotbaum noted SIFMA’s opposition to secure choice auto IRAs, and asked whether if the DOL made it clear that the auto IRAs were legal to have a MEP 401(k) model, then SIFMA would be able to get behind the plan. Bleier stated that if the plan was behind the ERISA structure and provided the same protections, responsibility and liabilities, “we could be.”
An audience member asked how states will ensure workers’ money gets from the employer to plans in a “non-ERISA world.” Biss stated that the amount of “ERISA-like” protections that are imported into state laws is “massively important,” and noted that the Illinois bill has protections and fines in place to protect employees’ money.
When asked about the prospect for a MEP, Bleier noted that there is “a lot of legislation to try to address that,” though there are still issues from Republicans and Democrats. She offered her support for MEPs but stated the challenge with where liability “falls,” adding that some options could be the Board of Directors. Bleier noted that while some may want to put the liability on providers, providers may not take on the plans, and it deserves a conversation with a “wider community to resolve that.”
Implementation Issues
Gotbaum asked what some of the practical implementation issues will be in establishing state plans. Biss replied that there are a number of implementation issues that take time, which is why it will take two years to implement the Illinois bill. He outlined a few issues as an example, including structuring the investment, recordkeeping, and the “crucial questions” of educating employers and employees. John echoed Biss’ concerns with structure and added the issue of portability.
Parallel Structures
An audience member asked about families combining savings for long- and short-term needs. John noted that retirement savings is largely “above a certain income level and below another,” adding that there needs to be structure. He explained that the value of a Roth IRA is that individuals can withdraw money during a financial crisis, and noted that if there is a parallel structure, it will make retirement plans “useful earlier,” as they will be able to access the account when money is needed.
Definition of Employee
When asked how the Illinois bill defines “employee,” Biss stated that it covers anyone that works for the company, including contractors and part-time workers.
Technology
When asked how important technology will be in lowering the costs of state programs, John noted that it will make a “huge difference” and that it is “up to all of us to embrace it.” Bleier noted her interest in studies regarding small businesses that do not have electronic platforms and comparing those numbers to people not saving for retirement. Biss stated that a long-term goal of reducing costs is “smart use of contemporary technology.”
For more information on this event, please click here.