“IRAs have become the largest single vehicle for retirement assets in the United States,’ said Dallas Salisbury, president and CEO of the Employee Benefit Research Institute (EBRI), in testimony to a subcommittee of the Committee on Ways and Means in the House.
Speaking to the Subcommittee on Select Revenue Measures, Salisbury said 23% of workers age 21 to 64 owned an individual retirement account (IRA) at the end of 2005. However, he pointed out: “The goal that ERISA set for IRAs in 1974 as a way for all of those outside of an employer-based plan to save for retirement has not been realized.”
Salisbury said the EBRI agreed with a recent Government Accountability Office (GAO) study that concluded employer-sponsored IRAs may sound like a good idea for workers without traditional retirement savings programs, but federal regulators cannot evaluate the option effectively because of a virtual lack of data on workplace IRA trends (see GAO Finds Pressing Need for Workplace IRA Study).
The GAO asserted in its report that the U.S. Department of Labor (DoL) does not collect information on workplace IRAs and, while the Internal Revenue Service (IRS) gathers limited data as part of its tax reporting systems, the workplace IRA information is not routinely shared with the DoL because it is considered confidential. Therefore, neither the DoL nor the IRS can now effectively figure out whether payroll-deducted IRAs are bridging the retirement savings gap for workers without employer pension coverage, or whether regulators should be given workplace IRA oversight similar to what they now have with traditional retirement savings plans.
Salisbury agreed with these conclusions and added that the GAO report also points out the lack of success in encouraging automatic IRA plan development among small employers “due to lack of resources, unsteady revenues, and lack of knowledge and/or misconceptions in how plans operate.” Small employer surveys conducted by EBRI have also found the lack of employee demand for the retirement plans, where higher pay and/or health insurance were deemed to be more important.
In his testimony, Salisbury noted that previous EBRI research has suggested ways in which an automatic IRA could be made available to all workers if accessibility and accumulation are the primary objectives. “It could be done with lower administrative expense and lower business burden than proposals that are more limited in their scope, but rely on payroll deduction,’ Salisbury said.
He noted that EBRI is working on an IRA information database to help with decision-making and encouraged making IRS data more widely available in a timely fashion.
More information is at www.ebri.org.