The U.S. Department of Labor’s Employee Benefits Security Administration made public a final rule to assist states in creating IRAs for private-sector workers with no access to workplace savings. At the same time, it released a proposed rule that could do the same for cities and other local governments.
“For workers without access to savings arrangements through their employers, this rule means a new way to secure their financial futures,” Secretary of Labor Thomas E. Perez said in a statement. “More access to retirement investments equals more saving and a bigger piece of the American dream for workers and families in the decades ahead.”
“There is no silver bullet when it comes to solving the retirement savings issues facing workers and the nation, but increasing access to savings opportunities is a crucial step,” added Assistant Secretary of Labor for Employee Benefits Security Phyllis C. Borzi. “Increased access, improved transparency, and reduced conflicts of interest in investment advice are all critically important tools. This agency and this administration have set a course for success in these areas, and we are confident that worker savings will grow as a result of our actions.”
Eight states have already enacted legislation to create retirement savings programs for private-sector workers. Most of those laws require employers that do not offer workplace savings arrangements to automatically enroll their employees in payroll deduction IRAs administered by the states, while other state laws create a marketplace of retirement savings options geared at employers that do not offer workplace plans.
Although other states are considering similar measures, uncertainty over the application of the Employee Retirement Income Security Act’s preemption provisions has proven to be a roadblock to broader adoption of such programs.
The final rule “provides guidance for states in designing programs by providing a safe harbor from ERISA coverage to reduce the risk of ERISA preemption of the relevant state laws. Importantly, the rule also protects worker rights by ensuring they have the ability to opt out of auto-enrollment arrangements.”
As expected, not everyone is happy with the announcement.
“Oddly enough, this is the same Department of Labor that has just imposed a massive new set of ‘fiduciary’ regulations—projected to cost retirement savers $109 billion over the next 10 years—on private-sector retirement plans, IRAs, and their advisers, with little justification,” said ICI President and CEO Paul Schott Stevens soon after its release.
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.
