White House Pushing States to Require Automatic IRAs

DOL directed to help states expand retirement coverage, address ERISA issues

By Stephen Miller, CEBS Jul 15, 2015

President Barack Obama is proposing that employers who do not currently offer a retirement plan should be required to automatically enroll their workers in an individual retirement account (IRA).

The administration announced the proposal during its 2015 White House Conference on Aging, held on July 13. Officials also announced other initiatives intended to help safeguard the health and financial security of older Americans and provide information and support to their caregivers.

About a third of the U.S. workforce lacks access to a workplace retirement plan, such as a 401(k) or 403(b) plan, and many of these workers also lack IRAs, a White House statement noted. “The President has put forth proposals to provide access for 30 million Americans to workplace-based retirement savings by requiring employers not currently offering a retirement plan to automatically enroll their workers in an IRA,” according to the statement.

On the federal level, the administration’s proposal would require congressional approval. However, “Similar proposals have been passed by a few states and are under consideration in over 20 others. Other states are considering an approach that would encourage employers to create 401(k)-type plans,” the White House noted.

States have expressed concerns about a lack of clarity regarding whether their retirement plan initiatives are pre-empted by the federal Employee Retirement Income Security Act (ERISA). To address ERISA issues, “By the end of the year, the U.S. Department of Labor will publish a proposed rule clarifying how states can move forward, including with respect to requirements to automatically enroll employees and for employers to offer coverage,” the White House said.

“Although the federal courts, not the Department of Labor, are the ultimate arbiter on that question [of ERISA preemption], the department can try to help reduce the risk of litigation challenges to state retirement savings initiatives,” according to a July 13 post on the U.S. Department of Labor Blog.

“The forthcoming guidance will safeguard worker retirement savings and offer pathways for states to adopt retirement savings programs that are consistent with federal law,” the DOL said.

A separate DOL fact sheet stated that a proposed regulation should be ready by the end of 2015.

Josh Gotbaum, former director of the U.S. Pension Benefit Guaranty Corp., commented that regarding state-level auto IRA programs:

In order to obtain the assent of small businesses, states wanted to guarantee that the new programs would not involve businesses in ERISA’s fiduciary obligations; as a result, legislation in some states specifically provided that the plans could not be subject to ERISA. DOL for its part, took the view that…even if the state operated the plan and employers were required to participate, contributing employers would nonetheless remain fiduciaries. This interpretation by DOL has been criticized by some ERISA attorneys, but until today there was no evidence the Department would reconsider. The President’s announcement means that DOL will now be an ally of the state efforts….

The announcement, however, was not universally well received. The American Council of Life Insurers, a trade group, issued a statement that called the White House effort “misguided,” contending that “rather than drafting new regulations to support risky and costly state-managed programs like the one in Illinois, the administration should support efforts like the one passed this year in Washington state, where legislators worked cooperatively with the private sector to create a new retirement marketplace subject to ERISA's worker protections.”

Caregiver Initiative

Also in conjunction with the Conference on Aging, the U.S. Department of Health and Human Services (HHS) announced it is engaged in a governmentwide initiative to develop programs and provide funding and resources to help older adults live independent and fulfilling lives. For instance, the HHS Office of Women’s Health is developing training to help family caregivers maximize their own health and address specific care needs of people with dementia. The curriculum will be released next year.

Many caregivers include adult children who are caring for older parents while actively employed, leading to increased stress that can take a toll on their health and productivity.

Another initiative announced at the conference is Aging.gov, a new website that will provide “information on resources and topics to help older adults live independent and fulfilling lives such as healthy aging, elder justice, long-term care, and vital programs like Social Security and Medicare.”

HR and the ‘Longevity Revolution’

“Designing benefits programs and delivering financial advice to employees today requires a profound appreciation for the longevity revolution and a deeper understanding of issues associated with aging,” said Conference on Aging panelist Andy Sieg, head of global wealth and retirement solutions at Bank of America Merrill Lynch. “Providing HR professionals with greater access to this knowledge can help them connect better with employees as they progress through their careers and toward their later years.”

As an example of such training, Sieg said his firm is providing as part of its retirement and benefit plan services a five-hour online training course developed in partnership with the University of Southern California (USC) Leonard Davis School of Gerontology.

“Increasing longevity can bring longer retirements, changing health care choices, more housing transitions and many other challenges to financial security,” noted Pinchas Cohen, dean of the school. “As our society continues to rapidly age, there needs to be deeper knowledge inside every company about the realities of longevity in order to engage in relevant and supportive discussions with employees about their goals and concerns.”

Stephen Miller, CEBS, is an online editor/manager for SHRM. 

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