State Retirement Plans may end up on the cutting-room floor in new Congress.
Just as the retirement industry tries to figure out whether the DOL fiduciary rule will become effective April 10, 2017 if ever, there’s a Congressional resolution that could thwart efforts by states to provide workplace retirement plans for those not currently covered. While some industry experts are concerned about a patchwork of state and city plans, most have been supportive of a movement to provide workplace savings to the 55 million who do not have access.
The Congressional resolution would roll back 2016 DOL rules that gave states and cities the greenlight to create retirement plans that will not be subject to ERISA like 401k and some 403b plans. Almost 10 states have adopted laws either mandated auto-IRAs for business above a certain size like Oregon and California or setting up a marketplace or portal from which employers can choose.
Concerns about a patchwork of state and city plans is whether employers that have workers in multiple locations will have trouble complying; others cite the Oregon law which requires workers to be eligible to enroll in a workplace retirement savings plan within 90 days which may conflict with some employers’ current practices.
At the heart of the issue is the fact that workplace retirement savings plans have been extremely effective using payroll deductions making it 15 times more likely to save than on their own which may grow with automatic enrollment features. And many states are requiring companies of a certain size to offer some sort of retirement plan like an auto-IRA learning from the federal government’s failed experiment in the 1990s to make these plans optional.
Though state auto-IRAs are a good first step, investments are usually limited and there’s no opportunity for employers to match contributions. The hope is that many employers will eventually move to 401k plans which may become less costly and burdensome for small businesses if Congress allows for open, unaffiliated MEPs (multiple employer plans). With over half of the states passing laws or considering them along with a growing number of cities, some experts believe that it is only a matter of time before that federal government steps in learning from and leveraging these state “pilot” programs.
