© Reuters. Column: Ten-fold increase in retirement savings? No thanks, Republicans say
By Mark Miller
CHICAGO (Reuters) – At the risk of stating the obvious: People are much more likely to save for retirement when they can automatically save at work. How much more likely? Ten times, according to a study published this week.
But apparently someone forgot to tell the US Congress and the White House, because both are moving to prevent millions of workers from having that opportunity. At any moment, the Senate is expected to pass a resolution, already passed by the House, putting a bar on states preparing to offer low-cost, government-sponsored retirement savings plans to people who don’t. they have them at work.
President Donald Trump has vowed to sign the resolution, but the Senate could do something important for the future retirement security of millions by rejecting it. In fact, all you need to do is nothing.
If the Senate does not act, a ruling issued last year by the Department of Labor (DoL) goes ahead. 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 public IRA. The rule exempts state plans from the Employee Retirement Income Security Act of 1974 (ERISA) if they meet certain conditions. That provides significant peace of mind to participating employers who are concerned about the cost of compliance and legal liability under ERISA.
This is the latest in a series of anti-consumer and pro-Wall Street movements to come out of Washington since the Republican Party consolidated its control in January. The Trump administration has also taken steps to curb the fiduciary rule that requires financial advisers to act in the best interest of clients.
Additionally, Republican lawmakers are aiming to restrict the supervisory powers of the Consumer Financial Protection Bureau, which, among other achievements, last year exposed massive customer fraud by Wells Fargo (NYSE 🙂 (http: //reut.rs/2mp9QPX)
Opponents of state auto IRA plans in the financial services industry argue that consumers need the protections of ERISA. But that doesn’t hold up, as most IRAs aren’t covered by ERISA. Their real concern is that they don’t want to see a lower-cost, government-sponsored “public option” for the retirement products they sell.
Furthermore, they argue that public option plans would have an unfair competitive advantage over private plans. But the tax incentives for employers to provide plans would still be much higher than for an IRA, and employers would be barred from making matching contributions.
Research by the Employee Benefit Research Institute (EBRI) confirms that the impact of automatic IRAs would be modest compared to 401 (k), because they generally have a relatively low contribution rate (3 percent of pay) and have characteristics opt-out for workers.
The expected reversal of the rule will not prevent the seven states that have already enacted automatic IRA programs from continuing, but it will create uncertainty for them and could deter other states from initiating plans.
Automatic IRAs have the potential to help 55 million people obtain coverage in the workplace, AARP estimates. And here’s the irony: Just as the Senate prepares to ditch auto IRAs, the aforementioned “factor of ten” research was released, indicating how necessary these plans are.
This week, EBRI released its 27th Annual Retirement Confidence Survey, the longest-running annual study of the performance of American workers with retirement planning. Confidence among workers declined last year despite the strength of the stock market: the proportion of workers who say they feel very or somewhat confident in their retirement prospects fell from 64% to 60%, and overall confidence remains well below where it was before the Great Recession. .
Even more worrying, 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 strongly correlated with the availability of a savings option in the workplace. As mentioned, participating workers are 10 times more likely to be saving today, and have significantly higher savings.
But availability is falling. Another study published this month looked at retirement plan coverage among households near retirement age (51-56) and found that it fell from 70 percent in 2004 to 63 percent in 2010. Conducted by the Research Center on Boston College Retirement (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 from traditional pensions to 401 (k) and IRA accounts has primarily benefited people with more education and wealth. In 2010, approximately 52 percent of wealth in defined contribution plans was held by the top quartile of households as measured by education. By contrast, 35 percent of traditional pension wealth was held in the top quartile.
All of this at a time when Social Security is expected to replace lower earnings in the years to come due to higher retirement ages, and when medical costs and longevity are increasing.
The trends underscore the need for state self-IRA plans to continue, said Alicia Munnell, director of CRR. “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 time, and few save outside of social security plans. job”.
He added: “Since the federal government has not acted to close this huge coverage gap, states are taking steps to help their own citizens.”
(Views expressed here are those of the author, a Reuters columnist.)