The Government Does Not Do it Better
November was a good month for those who believe that the government should take over the private retirement system.
Since far too many Americans continue to lack access to a retirement plan at work, state governments have been legislating retirement policy in recent years to address this significant coverage gap. A few states — California, Illinois and Oregon — have enacted legislation requiring businesses over a certain size to offer a retirement savings program to their employees, coupled with the creation of a state-run auto-IRA program that employers can use to meet the requirement. And more than two dozen other states are considering various bills focused on retirement policy.
These efforts are spearheaded in states controlled by Democrats, where the narrative that the private retirement system has failed the American public and so the government needs to step in to curtail the crisis is pervasive. Sound familiar? We heard the same thing in the health care debate in the last decade, which led to Obamacare. Now retirement is the new health care.
In May, more than two dozen Senate Democrats put pressure on the Obama administration to clarify the legal issues surrounding these state initiatives because of the frenetic activity in these Democrat-leaning states. In particular, questions needed to be answered about the interaction of ERISA with these new state-run retirement programs and whether ERISA prevents the ability of the state to require businesses to offer retirement savings options for their employees.
In July, President Obama responded, directing his Department of Labor to facilitate the implementation of these state laws. Now, with the DOL’s Nov. 16 release of their comprehensive guidance on state retirement programs, the Obama administration has officially greenlighted these efforts and provided a roadmap for more states to follow going forward.
Tragically, however, the DOL’s guidance helps state-run retirement plan solutions at the expense of the private sector, giving state products an unfair advantage over those offered in the private without any reasonably apparent policy justification. The guidance is a misplaced attempt by the Obama administration to promote coverage by suggesting that the state is somehow going to do a better job providing retirement plan products than the private sector.
Specifically, the proposal creates a new state plan payroll deduction IRA safe harbor to allow for automatic enrollment provisions for the state program without making it an ERISA arrangement, if there is a requirement to offer the program and it is the default option. The proposal capriciously does not extend this new ERISA exemption to private sector automatic enrollment payroll deduction IRAs.
In addition, the DOL issued an official opinion that allows states to create a state-run “open” multiple employer plan (MEP). This is the same DOL that shut down private open MEPs in 2010 with a stringent economic nexus requirement. What nexus do states have that the private sector doesn’t, you may ask? From the opinion: “a state can indirectly act in the interest of the employers and sponsor a MEP under ERISA because the state is tied to the contributing employers and their employees by a special representational interest in the health and welfare of its citizens.” Translation: the states care about their citizens, but private sector enterprises do not care about their customers.
I could point out the numerous occasions in the last decade in which state officials in control of state pension assets failed to represent the interests of citizens by succumbing to corruption, but enough with the sour grapes. What our industry needs to do instead is lobby at the federal level to enact bipartisan policies to increase the types of private retirement plan product options available in the marketplace, and let American business owners decide who can do it best. For instance, let’s change federal law to open up private MEPs to any employer as long as there is a designated plan service provider the employer can count on to keep that plan running properly. And let’s create a new deferral-only 401(k) plan safe harbor for start-up businesses. These new options will move the needle on coverage and allow private industry to compete and succeed against the state.Brian H. Graff, Esq., APM, is the Executive Director of ASPPA.