Legislators on both sides of the aisle at the national and state levels agree: More people in the U.S. need to save for retirement. The question is, What form should a new retirement plan take?
Whereas states such as California and Connecticut are working on retirement plans that improve upon the design of individual IRAs selected in Washington and Illinois, the clamor for one or more plans that could be rolled out nationally is getting louder. In response to those cries, the U.S. Senate Committee on Health, Education, Labor and Pensions (HELP) hosted a hearing October 28 on retirement plan options for small employers.
Although this Senate hearing was not the first to explore the best options for improving retirement income — and outcomes — for millions of workers, the lack of retirement plan options for small employers stubbornly persists. With 25 states in various stages of hammering out their own retirement plans, with the blessing of President Barack Obama, who in July directed the Department of Labor (DoL) “to provide a clear path for states to create retirement savings programs,” the call for action at the federal level has taken on greater urgency.
HELP committee members, with Senator Mike Enzi, Republican from Wyoming, presiding, were looking for answers to solve the escalating problem of 55 million full-time working Americans with no access to a workplace savings plan. Despite the best efforts of the financial services industry to offer a myriad of products, most small employers are not sponsoring retirement plans. A 2013 report from the U.S. Government Accountability Office found that only 14 percent of small employers, defined as those with fewer than 100 employees, offered some kind of retirement plan. Small employers surveyed by the GAO pointed to reasons that included the high cost of buying and maintaining a retirement plan, a shortage of staff to monitor it, the challenges of selecting a provider and investment options and a basic lack of understanding of the retirement plan market.
A theme quickly emerged at the hearing. Despite the diversity among the four pension and retirement industry leaders giving testimony, all four agreed that multiple-employer plans (MEP) have the potential to be an effective means to deliver retirement savings benefits, both for small employers and their employees. MEPs would mitigate the top small-employer objections — cost, administrative burden and fiduciary concerns — that surfaced in a poll of 850 small employers conducted by Prudential Retirement during March and April of this year.
Jamie Kalamarides, an institutional investment solutions manager at Prudential Retirement in Hartford, Connecticut, presented data from the survey and offered advantages and challenges of using MEPs. Not to be confused with similarly named Taft-Hartley union- and employer-sponsored multiemployer pension plans, the MEP is a single plan accessed by two or more employers that are typically trade associations, like the National Rural Electric Cooperative Association, or professional employee organizations, like the American Bar Association. When used by employers within the same profession or industry (referred to as a nexus), so-called closed MEPs have been sanctioned for years under ERISA law as well as by the U.S. tax code.
There is one big stumbling block, however: the need for MEPs to comply with ERISA and the tax code. MEP-believers hope that the DoL’s “clear path” mandate will lead the way for these plans to be used on a national basis, if they can be opened to employers from different industries or professions. They are also hoping the HELP committee can persuade their fellow senators to pass a bill to amend ERISA to broaden the definition of the MEP and enable its wider use.
“This concept is, from our point of view, one of the most bipartisan ideas to expand coverage and address this problem,” said Kalamarides. “The marketplace is really interested in us providing this solution.”
Lance Schoening, director of product management at the Principal Financial Group in Des Moines, Iowa, who also sits on the American Benefits Council board of directors, agreed. “We need a legislative package,” he told the Senate gathering. “I can go out to small business and get them excited about it.”
David Certner, the legislative counsel of Washington-based AARP, representing the viewpoint of more than 37 million Americans, including retirees and employees age 50 and older, cautioned at the hearing that any new MEP must come with all the ERISA protections, a point made this August by Phyllis Borzi, assistant secretary of labor for employee benefits at DoL, when she spoke to a group of state legislators at a national conference.
Consumer groups and retirement industry providers have expressed interest in using the MEP to sponsor plans through, for example, the U.S. Chamber of Commerce or on a statewide basis. Another hearing participant, Scott Anderson, a Jackson, Wyoming–based small-business owner and board member of the U.S. Chamber of Commerce, concurred.
Enzi, who is also the current chair of the Senate Budget Committee, asked if the MEP would be a better option than the current state-led efforts, adding, “What would be the impact on the state efforts?”
Kalamarides explained that states are looking at different models, including the MEP. But he — in concert with most consumer advocates, retirement plan vendors and policy wonks — believes that employers would be best served by a federal solution that would eliminate the need to comply with a potential patchwork of new state plan regulations.
He also pointed out that only 14 percent of small-business respondents to the Prudential survey said they are likely to consider offering a plan over the next five years. “The time is now,” he emphasized. “We need a federal solution beyond what the states are doing.”
Enzi was clearly moved by the testimony and the need to take action. “I’ll see how quietly I can slip this through,” he told the gathering.
As the retirement industry awaits word on MEPs from the DoL, an agency already burdened by the weight of its new fiduciary rule proposal, retirement savings advocates that vary from consumer groups to some of the biggest financial services companies hope that the HELP committee will live up to its name and approve a new national plan that would deliver the benefits envisioned by the October 28 testimony.
Follow Frances Denmark on Twitter at @francesdenmark.
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