Ready the pitchforks and torches. In an act of financial industry heresy, State Street Global Advisors has joined its Blackrock brethren in calling for a government-sponsored mandatory retirement savings plan.
Ticking off a laundry list of 401(k) coverage statistics (more than 30 million full-time American workers do not have access to a workplace retirement plan; only 47% of small employers offer a workplace retirement plan), the Boston-based investment giant makes its case.
“We call for a cohesive national framework that is borne out of a dialogue among experts that will help guide a consistent and universal solution for all American employers and employees,” SSGA writes, and then offers the five following suggestions:
Make it Easy: Include Universal Coverage with Automatic Features
Universal coverage. Federal law should require all employers, including those that currently do not sponsor a plan, to automatically enroll and automatically escalate all employees, including part-time workers, into a defined contribution plan.
Auto enrollment and auto escalation. The auto enrollment required by this proposal would begin at 6 percent in the first year and would be automatically escalated up to 12 percent (in 2 percent increments) over three years.
Provide Sufficient Savings Incentives: Offer Tax Credits for Small Employers that offer a Match
Tax credits for small employers who provide a company match on contributions up to 12 percent should be enacted, similar to proposals in leading Congressional bills.
Ensure Appropriate Investment Offerings: Afford a Safe Harbor for Appropriate Investment Defaults
The national framework should recommend similar requirements regarding default investments that resulted from the enactment of the Pension Protection Act (PPA) and promulgation of the Qualified Default Investment Alternatives (QDIA) regulation.
Ensure Consistency: Create More Accessible MEPs with Consistent Governance Structures
Barriers to the creation of “open” Multiple Employer Plans by private organizations should be eliminated. Specifically, the “nexus” requirement that requires an affiliation among employers and the “one bad apple” rule that would disqualify an entire MEP if one employer engages in a disqualifying event, should both be eliminated.
Incent Employer Participation: Offer Plan Start-Up Tax Credits for Small Employers
Enhanced plan adoption tax credits for small employers (with no more than 100 employees) should be enacted, as included in many leading Congressional proposals and the Administration’s budget. These tax credits should cover all administrative costs associated with offering an employer-sponsored plan for the first five plan years.
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.
