Does retirement plan sponsorship need to be mandated throughout the country?

Susan Neely, the recently appointed president and CEO of the American Council of Life Insurers, thinks so.

In a policy pivot that Neely says was not taken lightly, the ACLI, which represents 280 life insurance companies, is throwing its weight behind a bill that would mandate retirement plan sponsorship for employers with more than 10 workers.

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

“This is an approach to a problem that's time has come,” said Neely of ACLI's policy shift. “It comes down to this: Too many Americans are going to reach retirement age without adequate savings. We think bold solutions are required to solve that problem.”

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

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

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

The IRA savings structure that was proposed by the Obama Administration at the federal level, and would ultimately be adopted by a handful of state legislatures, is laudable, but “may falsely lead individuals to believe that they have saved sufficiently when if fact they will come far short of the amount needed for a secure retirement,” wrote O'Hanley.

Chair Neal's 2017 bill tracked closely to the proposals in SSgA's letter. Under the legislation, employer contributions are not required. Employees would be automatically enrolled in plans at 6 percent of salary, with the ability to opt out. Deferrals would automatically escalate at 1 percent a year, up to 10 percent. Those that do opt out, or set a deferral rate lower than 6 percent, are re-enrolled after three years. The bill also allows small employers to pool assets under Multiple Employer Plans.

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

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

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

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

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

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

“We've changed our position, and hopefully that will be helpful in getting others in the business community to look more closely at the proposal as well,” she added. “But we shouldn't all retreat to our 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 Americans that work for an employer with fewer than 50 employees have access to a workplace savings plan; 33 percent of Americans employed by companies with 50 to 100 workers are without access; and nearly 20 percent employed at companies with 100 to 500 workers are without access.

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

For those that doubt the country is facing an impending retirement crisis—Neely calls the camp an “interesting, vocal minority”—she counters with her experience meeting with the National Association of Insurance Commissions. “They tell me that the retirement savings crisis is on the minds of regulators around the world,” she said.

Another vocal group–that may be less of a minority–is the progressive caucus on Capitol Hill, whose defiance of market-based benefits solutions can be seen in calls for a single-payer health care system and recent legislation that would levy new financial transaction taxes on retirement savers and other investors. It is not hard to imagine the progressive element of the Democratic party characterizing Chair Neal's bill as a giveaway to Wall Street and insurance companies.

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

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

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

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

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Legislation to mandate 401(k) sponsorship expected this summer

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