The head of State Street Global Advisors is calling on the nation’s lawmakers to legislate a comprehensive retirement policy that would guarantee access to a retirement savings platform for all Americans.

In an open letter to Congress, Ronald O’Hanley, CEO of the Boston-based investment management company, which has $2.3 trillion in total assets under management, said addressing the country’s projected $4 trillion retirement shortfall will require “multiple remedies and hard choices.”

He cited recent data from the Government Accountability Office showing 40 percent of working households lack access to an employer-sponsored retirement savings plan.

“Time is not on our side, and the cost of inaction is great,” wrote O’Hanley.

“Generations will be unable to retire with dignity and our country’s economic and social fabric will be at risk. Every day we fail to act is another day that Americans fail to save for the future and the crisis deepens,” he added.

Initiatives led by the Obama Administration, including the rollout of its MyRA savings program, and efforts at the state level to implement state-sponsored options, are laudable, says O’Hanley.

But absent comprehensive, bipartisan policy at the federal level, that “patchwork” of initiatives will “lead to a complex and inefficient set of retirement savings programs that perversely could lead to lower savings levels,” according to the letter to Congress.

State Street has formulated its own plan that O’Hanley says could reduce the nation’s retirement savings shortfall by $740 billion.

That plan would require all private-sector employer to auto enroll workers into a defined contribution plan, and would deploy an auto-escalation feature, while relying on default investment alternatives such as target date funds that are already qualified under the Pension Protection Act of 2016.

Auto-enrollment would begin at 6 percent of income in the first year and automatically escalate to 12 percent over three years.

Continue reading ...

Throwing a paper airplane at work

Existing policy proposals at the federal and state level fail to fully address workers’ tendency to procrastinate, according to State Street’s proposal. (Photo: iStock)

All workers — including part-time employees — would be required to be enrolled, though employers would not be required to contribute to plans.

But they would be incentivized to do so. In State Street's proposal, small employers would be incentivized to offer increased contributions on employer deferrals up to 12 percent, which is twice as much as the 6 percent cap on matching contributions often found in plan design.

The proposal would also increase tax credits to small employers to cover the costs of implementing and administering the plan, and would eliminate barriers to multiple employer plans so small sponsors could pool resources and mitigate plan administration costs.

O’Hanley is not the first voice from industry to advocate for some portion of State Street's proposal.

But the call to legislate mandatory enrollment and automatic escalation offers a unique and aggressive twist to proposed policy remedies.

“Enacting a national framework will extend access to retirement plans exponentially,” argues O’Hanley in his letter.

“By using existing programs that have already received bipartisan support, we believe this is a workable plan both parties can act on now. It is a solution that allows us to put aside our differences, avoid making perfect the enemy of the good, and work toward a common goal of greater retirement security for millions of working Americans,” he added.

Existing policy proposals at the federal and state level fail to fully address human nature as it relates to the country’s retirement savings shortfall — particularly workers’ tendency to procrastinate, according to State Street’s proposal.

They also don’t adequately address the lack of American’s financial literacy — State Street gives the country a collective "D" grade.

Automatic escalation and deferring assets into qualified alternatives — two features absent from the MyRA plan, for instance — are needed to best address participant inertia, says State Street.

And the IRA structure on which states such as Illinois are building a state-sponsored plan “may falsely lead individuals to believe that they have saved sufficiently when in fact they will come far short of the amount needed for a secure retirement,” State Street notes in its proposal, citing data showing the impact lower contribution caps on IRAs have on retirement outcomes.

State Street’s proposed policy would preempt efforts at the state and municipal level to mandate participation. Employers in business for less than three years would be exempt, according to the proposal.

Instant Insights /

State Street proposes aggressive federal retirement policy

More From HR Executive

Related Stories

Recommended For You