Retirement and policy executives at asset management firm State Street Global Advisors expect Congress to pass comprehensive legislation overhauling the U.S. retirement savings system by the end of 2018.
The firm's expectation is that it will come in the form of a bill that in part mandates plan coverage and automatic enrollment as well as eases rules surrounding small-business plans.
“Our hope and view is that it will become law in 2017-18,” said Melissa Kahn, managing director of retirement policy strategy for State Street Global Advisors defined contribution team, Wednesday morning at a media briefing in New York.
Increased activity both at the state and federal levels around improving retirement security has promoted discussion and appeal for such legislation in the financial services industry and among lawmakers, executives said.
Although proposals to date differ in structure, the overarching idea is the same — namely, boosting employee access to retirement plans through the workplace, according to Fredrik Axsater, State Street Global Advisors global head of defined contribution.
“There's already a kind of groundswell of like-minded people” to increase access, Mr. Axsater said.
Ron O'Hanley, State Street Global Advisors president and chief executive, recently
proposed a framework in an open letter to Congress that would require employers to offer a 401(k) plan and automatically enroll employees, provide new tax credits for small employers and encourage the use of “open” multiple-employer plans (MEPs).
Open MEPs allow small businesses without any sort of affiliation — such as a car wash and a grocery store — to offer a common retirement plan overseen by the local Chamber of Commerce, for example. There's an affiliation requirement under current rules.
The Bipartisan Policy Center's Commission on Retirement Security and Personal Savings released a
report June 9 outlining policy recommendations for retirement security broadly in line with what State Street Global Advisors proposed.
Brigitte Madrian, a professor of public policy at Harvard University and a member of the commission that developed the Bipartisan Policy Center report, said the proposals aren't meant to be rigid, but rather a starting point with “wiggle room” for change and further development.
“I don't think they're proposals where it's, 'Take it or leave it Washington,'” Ms. Madrian said.
Of course, lack of bipartisan appeal of such legislation remains a potential roadblock. While there's “broad bipartisan support” for open MEPs, that support doesn't extend to any sort of mandated action around retirement savings, according to Judy Miller, the director of retirement policy for the American Retirement Association.
Indeed, in a Special Committee on Aging hearing Wednesday afternoon, committee chair Sen. Susan Collins (R-Maine) asked if open MEPs could help small employers deal with the administrative costs and complexity involved with sponsoring retirement plans.
“Any kind of requirement that employers do anything, Republicans have kind of been unwilling to take on,” Ms. Miller said.
For example, Rep. Richard Neal (D-Mass.) has introduced legislation that would require employers without workplace retirement plans to automatically enroll employees into an IRA, and President Obama has included a provision for such auto-IRAs in his budget proposals. However, there hasn't been Republican support, Ms. Miller said.
Other
recent legislation promoting universal retirement coverage, such as the American Savings Account Act in the House and the American Savings Act in the Senate (which are companion bills) are sponsored by Democrats.
“I'm not saying it won't change; I'm just saying it hasn't changed yet,” Ms. Miller said.
State Street's Ms. Kahn believes the nation is at a “tipping point,” however. A few states such as Illinois have passed legislation that will establish such auto-IRA programs, and others have passed legislation creating virtual marketplaces for businesses to shop for retirement plans. In all,
around 30 states have passed legislation or are considering similar bills, which some feel could prompt federal action.
Players in the financial services industry have begun growing more receptive to a national framework, which could lead Republican congressmen to warm to the idea as well, Ms. Kahn said.
For example, Tony James, president of asset manager Blackstone Group,
proposed a universal, mandatory retirement savings scheme earlier this year along with economist Teresa Ghilarducci.
State Street plans to lobby organizations this year, such as AARP and the Chamber of Commerce, as well as congressmen on both sides of the political aisle, in order to build a coalition and push the issue with a new administration and Congress in 2017.
“We believe next year we'll have congressmen on board ready to introduce legislation,” Ms. Kahn said, adding that her organization's framework builds on current infrastructure of the 401(k) system and therefore could prove more palatable politically than other schemes that would create new types of savings accounts.
State Street representatives have already met with a Democrat on the Senate Finance Committee, and has fielded a message from a Republican senator expressing interest in the idea, said Ms. Kahn, who declined to disclose their identities. She conceded, though, that a Democratic president coming into office next term would likely be more receptive to the idea than a Republican.
Although it's “way too early to speculate” on enactment of a bill, it's within the realm of possibility, Ms. Miller said.
Ultimately, the Senate's willingness to do something, however, is contingent on action first around union pension plans and helping avoid benefit cuts, Ms. Miller said.
“[Democrats] would be uncomfortable doing something else without addressing the multi-employer plans,” Ms. Miller said. “It's a really, really big deal right now.”
