The Automatic Retirement PlanAct, first sponsored in 2017 by Rep. Richard Neal, D-MA, Chair ofthe House Ways and Means Committee, is expected to be reintroducedthis summer. (Photo: Shutterstock)

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Does retirement plan sponsorship need to be mandated throughoutthe country?

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Susan Neely, the recently appointed president and CEO of theAmerican Council ofLife Insurers, thinks so.

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In a policy pivot that Neely says was not taken lightly, theACLI, which represents 280 life insurance companies, is throwingits weight behind a bill that would mandate retirement plan sponsorship for employers withmore than 10 workers.

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The Automatic Retirement Plan Act, first sponsoredin 2017 by Rep. Richard Neal, D-MA, Chair of the House Ways andMeans Committee, is expected to be reintroduced this summer.

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“This is an approach to a problem that's time has come,” saidNeely of ACLI's policy shift. “It comes down to this: Too manyAmericans are going to reach retirement age without adequatesavings. We think bold solutions are required to solve thatproblem.”

The leap of faith from IRAs to 401(k)s

In 2010, Chair Neal introduced legislation that would create afederal workplace IRA mandate, based on a provision that appearedin each of President Obama's budget proposals.

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Then, in 2016, State Street Global Advisors CEO Ronald O'Hanleyproposed a federal mandate for defined contribution sponsorship inan open letter to Congress.

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The IRA savings structure that was proposed by the ObamaAdministration at the federal level, and would ultimately beadopted by a handful of state legislatures, is laudable, but “mayfalsely lead individuals to believe that they have savedsufficiently when if fact they will come far short of the amountneeded for a secure retirement,” wrote O'Hanley.

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Chair Neal's 2017 bill tracked closely to the proposals inSSgA's letter. Under the legislation, employer contributions arenot required. Employees would be automatically enrolled in plans at6 percent of salary, with the ability to opt out. Deferrals wouldautomatically escalate at 1 percent a year, up to 10 percent. Thosethat do opt out, or set a deferral rate lower than 6 percent, arere-enrolled after three years. The bill also allows small employersto pool assets under Multiple Employer Plans.

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The plan is aggressive, acknowledges ACLI's Neely. Therein liesits brilliance, she says.

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“Auto enrollment is the key feature of the bill. But what makesit so effective is employees' ability to opt out,” she said. “Thereis full employee choice here—employees are not required to buyanything.”

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But what about for employers? Chair Neal's bill proposes toenforce the mandate through excise taxes. For many lawmakers onCapitol Hill, “mandate” is a dirty word, and not just forRepublicans. Just ask the Democrats that were swept out of officeafter Obama Care's mandates took hold.

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“Yes, there is a requirement for employers, but that's whatmakes this plan so bold,” explained Neely.

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As it was first proposed, the bill goes some lengths toameliorate the cost the mandate on small employers. Those withfewer than 25 employees are eligible for a new start-up credit thatcovers 100 percent of plan costs for five years. Those with 26 to100 employees would see the existing maximum start-up creditincreased from $500 for three years to $5,000 for five years.

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“That's the sole anxiety behind the plan—can small employersimplement this without absorbing a huge new burden. We want that tobe addressed,” said Neely.

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“We've changed our position, and hopefully that will be helpfulin getting others in the business community to look more closely atthe proposal as well,” she added. “But we shouldn't all retreat toour camps and debate whether or not this is an employer mandate.This is smart policy.”

Building a coalition and leveraging political power

According to the Bureau of Labor Statistics, half of Americansthat work for an employer with fewer than 50 employees have accessto a workplace savings plan; 33 percent of Americans employed bycompanies with 50 to 100 workers are without access; and nearly 20percent employed at companies with 100 to 500 workers are withoutaccess.

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From BLS data, ACLI estimates that Chair Neal's plan wouldincrease access to retirement workplace plans by 30 million, andbased on existing private sector take up rates, 22 millionAmericans would be newly enrolled retirement savers.

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For those that doubt the country is facing an impendingretirement crisis—Neely calls the camp an “interesting, vocalminority”—she counters with her experience meeting with theNational Association of Insurance Commissions. “They tell me thatthe retirement savings crisis is on the minds of regulators aroundthe world,” she said.

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Another vocal group–that may be less of a minority–is theprogressive caucus on Capitol Hill, whose defiance of market-basedbenefits solutions can be seen in calls for a single-payer healthcare system and recent legislation that would levy new financialtransaction taxes on retirement savers and other investors. It isnot hard to imagine the progressive element of the Democratic partycharacterizing Chair Neal's bill as a giveaway to Wall Street andinsurance companies.

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To them, Neely would point to 30 million more Americans havingaccess to workplace retirement plans.

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“There's no question that a market-based solution will do themost to close the retirement savings gap,” she said. Moreover,Neal's bill does not create an expansive, new government programthat would require more tax revenue, a reality that will attractRepublican lawmakers, thinks Neely.

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“We've looked closely at this package. You have to havesolutions that Congress will support. There may be tweaks orconcessions, but we've concluded we're going to lend our support tothe bill,” she said.

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“Our intent is to work with business groups and both sides ofthe aisle to build a coalition, and use whatever political power wehave to help Chairman Neal get this through,” added Neely.

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Nick Thornton

Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.