Noting that it has been 10 years since the passage of the Pension Protection Act (PPA), State Street Global Advisors (SSGA) last week held meetings with key members of the Senate Finance and Health, Education, Labor & Pensions committees to discuss drafting a new bill to make retirement plans mandatory among all private sector businesses with 100 or more employees.
In the coming weeks, SSGA will be meeting with the Senators’ counterparts in the House.
“Pieces of the PPA had been circulating for a decade,” said Melissa Kahn, managing director of retirement policy for defined contribution at SSGA, speaking at a press conference in New York on Wednesday. “Remember, that was a standalone bill. We think we are ready for another standalone bill.”
The fact that so many states are in the process of creating their own mandatory retirement laws indicates that politicians are ready to take on this challenge, Kahn said. “Response from policymakers has been positive, from both sides of the aisle,” Kahn said.
The dual problems of longevity, which could increase even more in coming years, and today’s low-yield environment mean that people need to save 50% more than they did 10 years ago, said Fredrik Axsater, global head of defined contribution at SSGA. “Time is not on our side,” he said. “We need to act now. America faces a $4.13 trillion retirement savings shortfall, according to EBRI [Employee Benefit Research Institute] data. Deficits range from $19,304 a year for married couples to $62,734 for single women.”
This prompted SSGA to develop a policy proposal based on three key principals, Axsater said. “We wanted to make sure that it would be comprehensive, that it would be straightforward and built on the existing platforms, and that it would attract bipartisan support and instant buy-in.”
The proposal itself, which SSGA introduced in early June through its open letter to Congress and a white paper, calls for four key tenets. These include automatic enrollment at a 6% deferral rate for all workers in the private sector in companies with 100 employees or more, within the money routed into well-diversified, age-appropriate portfolios; auto escalation by 2% a year up to a threshold of 12%, or more, if the employer so chooses; tax credits for small employers; and eliminating barriers to multiple employer plans (MEPs).
Such coverage is critical, Axsater said, since
40% of people do not have access to a workplace retirement plan today. The
percentage of people who opt out of automatically enrolled plans is small, he
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In fact, employers that are currently not offering a retirement plan might be surprised by how enthusiastically their employees embrace it, noted Brigitte Madrian, professor of public policy at Harvard’s Kennedy School of Government. “Even the poor in developing countries want to save, and can save,” she said. And the cost of offering a plan might surprise small businesses. Madrian currently serves on the board of a 15-person start-up, which discovered that the cost of offering a basic plan is a mere $3,000, in addition to which, they can receive tax credits.
This is why SSGA is so enthusiastic about limiting the barriers to MEPs. “This would provide scale to small businesses,” Axsater said. Madrian added: “This is extremely complementary to automatic enrollment, because if a small company doesn’t have the expertise, they can piggyback on an existing structure—in addition to which the sponsor can assume the fiduciary responsibility. Madrian said that by eliminating the requirement that MEPs be managed by companies in the same industry, MEPs could be managed by a payroll processing firm, a local Chamber of Commerce or an industry organization.
“We think we are at a tipping point,” Kahn said. “We have a brewing crisis. We need to have this as part of the national conversation. Because MEPs, for example, are partially overseen by the Department of Labor and partially overseen by Treasury, it is easier to enable this through a legislative push. The senators we met with said they are getting bipartisan support on retirement.”