About one-third of American workers lack access to a retirement plan at work. While workers without access to a workplace plan can save on their own using an IRA, only a tiny fraction do so.
We’ve tried to address this problem at the federal level. Time and again, President Obama has proposed legislation that would automatically enroll new workers in an IRA if they lack access to a 401(k)-type plan through their employer. And time and again, Congress has failed to act. If the federal government can’t move the needle, then we have to do everything possible to encourage innovation that’s already happening at the state level.
So, the president announced today that he has directed the Labor Department to issue a rule that would clarify the path forward for state-based retirement savings initiatives, including with respect to requirements to automatically enroll employees and for employers to offer coverage, for workers who don’t currently have access to a 401(k) at work.
Many states have been active in this space, creating safe and secure savings opportunities for their workers. A number of states have passed laws requiring employers that do not offer workplace retirement plans to automatically enroll new employees into IRAs. Other states are looking at ways to encourage employers to provide coverage under state-administered 401(k) plans. Still others have favored approaches that combine several retirement alternatives, including IRAs, 401(k) plans and the Treasury’s starter savings program, myRA. But states have also expressed concern about a lack of clarity as to whether their efforts would be preempted or nullified by the federal Employee Retirement Income Security Act, or ERISA. Although the federal courts, not the Department of Labor, are the ultimate arbiter on that question, the department can try to help reduce the risk of litigation challenges to state retirement savings initiatives.
The forthcoming guidance will safeguard worker retirement savings and offer pathways for states to adopt retirement savings programs that are consistent with federal law. This is a true win-win — workers get to build and grow a nest egg, while employers in those states are better able to attract and retain top-notch talent.
The President’s announcement is yet another tool for strengthening retirement. We are in the middle of the public comment period on a separate proposed rule that would ensure that workers can trust the investment advice they are receiving, that they won’t have their retirement security undermined by harmful conflicts of interest. And our goal is to do it in a way that still gives advisers and brokers flexibility in how they are paid.
Making sure workers have savings options — whether at work, through other programs like myRA, or through state-based programs; and ensuring that Americans who have done the hard work of saving for retirement get advice in their best interest that helps them grow their nest egg. These are steps we can take right now to bolster retirement security and advance the president’s middle-class economics agenda. None offers insurmountable challenges. All must be addressed immediately.