The flurry of government activity in the retirement policy space isn’t in your head, and it isn’t accidental. The race is on to get something (anything) done before the president leaves office. An increase in interest at the state level is accompanied by the omnipresent fiduciary reform proposal from the DOL as well as new “guidance” on the inclusion of ESG factors in the investment process for pension managers. Don’t expect it to end there.
The former, the establishment of 401(k)s (or more accurately IRAs) at the state level, includes an ERISA safe harbor provision to avoid running afoul of reporting and discrimination requirements. You read that right; the administration wants new regulations to exempt the government from earlier government regulations.
Here’s the kicker: while private businesses will offer the plans in theory, state governments could potentially be on the hook for their funding. As The Wall Street Journal recently reported, language included in California’s law establishing its plan does not guarantee employee ownership, and therefore portability, of the proceeds. Additionally, it might end up simply acting as something akin to current state pensions, with taxpayers guaranteeing against losses, as is the case with Illinois’s plan.
The specter of state-sponsored retirement plans was first raised years ago, but has increased in intensity as opposition to the DOL’s fiduciary proposal, especially from Democrats, has also increased. It’s seen as an end-run around Congressional roadblocks.
Whether it’s a good or bad thing, or whether the following premise even holds, depends on one’s political persuasion. The argument against works in the same vein as the Affordable Care Act; dump enough people into public plans and the need for private plans will eventually wither. The argument for includes the cynical (some would say clever) appeal to states’ rights, à la Democrat attacks against Mitt Romney for establishing the Massachusetts health care plan.
Either way it ultimately means more government involvement in retirement, and more worry for 401(k) advisors.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.