“These issues are very much in motion at present. What happens next is far from clear.”
It’s how I ended a post last year about state-run retirement initiatives, and I was right; nowhere on the list of possibilities envisioned at that time was the seldom-used Congressional Review Act being invoked to block state-run auto-IRA programs (such as California’s and Illinois’ Secure Choice programs.) But that’s what’s happened.
The retirement coverage gap is real
This is an investment blog, not a political blog, so I’ll limit my observations to this: the retirement coverage gap—something states are attempting to address with these programs—is a real issue.
A large proportion of private sector workers don’t have access to a workplace-based retirement savings program, and that means that few of them save for retirement. And if state-run programs are not to be part of the answer to the retirement coverage gap, it will likely increase the focus on the most viable alternative: open multiple employer plans (MEPs).
Open MEPs would allow small employers to offer a 401k plan without having to set it up themselves. Compared to a program based on IRAs, there are significant benefits for employees under this approach.
As I have noted previously:
“As well as offering the convenience of payroll-deduction, an open MEP that operates within the 401(k) system offers a number of other advantages for workers, including the scope for employer contributions and higher contribution limits. What’s more, fees may well be lower than is possible within the retail IRA market. And it would offer the protection of ERISA, which gives (in the words of the DOL) ‘a well-established uniform regulatory structure with important consumer protections, including fiduciary obligations.”1
And – here’s an unusual thing in today’s world – the concept seems to have bipartisan appeal. So whatever your take on today’s vote in the House of Representatives, it seems to me that it may simply prove to be one more step toward open MEPs.
Bob Collie is Chief Research Strategist, Americas Institutional, at Russell Investments.
1 Interpretive Bulletin Relating to State savings Programs That Sponsor or Facilitate Plans Covered by the Employee Retirement Income Security Act of 1974 (11/18/2015). www.dol.gov/ebsa/
Bob Collie is Director, US Pension Investments at GSK. He worked as an actuary, an asset allocation specialist, a general investment consultant, a business leader, a head of research, and, currently, as a Director of Investments, Bob has been involved in many aspects of investment strategy such as ESG, liability-driven investing and defined contribution design, including writing, with Don Ezra and Matthew X. Smith, the 2009 book The Retirement Plan Solution: The Reinvention of Defined Contribution (John Wiley & Sons).
