“For 20 years retirement security in Oregon has been abysmal.”
That was the opening salvo from Oregon State Treasurer Ted Wheeler, delivered from his perch on the podium of the State Initiatives on Retirement Security Symposium (SIRS), held in Seattle on August 6. State legislators, staffers and asset managers attended the event, dedicated to finding new ways to help the U.S. workforce save for retirement. I was the only member of the press in the audience. I was there because I was participating on a different panel, interviewing Assistant Secretary of Labor Phyllis Borzi.
Wheeler knows a thing or two about retirement security. Before becoming state treasurer in 2010, he spent 25 years in financial services, designing and selling corporate retirement plans. On June 25 he was appointed chairman of the Oregon Retirement Savings Fund Board, which was created that same day when Oregon Governor Kate Brown signed a bill establishing a new retirement savings plan for private sector workers who are not offered one by their employers.
Joining Wheeler on the panel, organized by state employers’ advocacy organization the National Conference on Public Employee Retirement Systems, were California State Treasurer John Chiang, Washington state senator Mark Mullet and Julian Federle, who oversees policy and programs for the Illinois State Treasurer’s Office. All had gathered for an afternoon of sessions at the close of the National Conference of State Legislatures’ annual convo to address their states’ efforts to create many more savers among the estimated 50 million full-time workers nationally who are currently without access to a workplace retirement plan. California, Illinois and Oregon are the first states to have passed bills establishing new retirement plans.
To date, the road to creating these plans has been rocky. Financial services lobbying groups such as the Securities Industry and Financial Markets Association (SIFMA) have protested loudly and lobbied hard against the plans. The industry insists that a person earning $35,000 a year in a five-employee business can go online and choose from among 30,000 different retirement products if he wants to, negating the need for government intervention.
But many years of behavioral studies have shown that people are 15 times more likely to start saving for retirement if they are nudged into a workplace vehicle. And the fact remains that most employees toiling at small businesses do not have access to a workplace retirement plan.
“We’re a super-small-employer state,” said treasurer Wheeler, a sixth-generation Oregonian, noting that most businesses in his state have fewer than 25 employees. “They’re nobody’s clients, even though there are 30,000 products on the market.”
The new Oregon retirement board is tasked with setting standards for both public and private sector plan sponsors and the private investment firms that will invest the assets in vehicles created for the purpose. The resulting defined contribution plan will include automatic enrollment with the right to opt out. Neither the state nor Oregon-based small employers will be liable for any investment losses.
One of the key issues in establishing these private-public partnership plans is ensuring that they provide employee protections similar to those dictated by ERISA, the U.S. federal pension law, while operating outside it. The financial services industry has been using the ERISA issue as a means of preventing states from designing pooled investment vehicles with low-cost longevity pooling and professional investment management. So thorny is the issue of so-called ERISA preemption, or override, that one SIRS panel was titled “ERISA: It’s Not a Four-Letter Word” and one speaker referred to the law as “Ebola.”
Wheeler has anticipated the ERISA challenge. “We started with the assumption that it doesn’t matter what ERISA says — states are liable,” he told the audience. “The board is a fiduciary even if the courts later determine it’s not. We are a fiduciary, and we will hold to a high standard. “In Oregon all employers are subject to this,” Wheeler pointed out. “All are eligible if they don’t offer a plan.”
As for Illinois, Federle said, the board overseeing the state’s Secure Choice Savings Program has the final word on all decisions, including preventing plan vendors from attempts to convert plan participants to another of their products.
Washington, which was only able to legislate a voluntary IRA marketplace after an enormous lobbying campaign by SIFMA, has turned to the state’s Department of Commerce to approve any retirement plan vendor interested in signing on, said state senator Mullet. “The industry has strong motivation to scare everyone to death,” he explained. That’s because even if some of its members might manage potentially billions in new retirement money, it does not want new retirement plans disintermediating any of its constituents.
For its part, says Wheeler, the Oregon retirement board will implement its plan on July 1, 2017. To get the best result, he says, this is “a time for politics to go bye-bye.”
Follow Frances Denmark on Twitter at @francesdenmark.
Get more on pensions.
