For Workers Without Retirement Plans, States Step In
Legal challenges loom as Oregon aims to auto-enroll up to one million residents who don’t have savings plan at work.
By Anne Tergesen
The Wall Street Journal
August 17, 2017
States are forging ahead with efforts to bring retirement-savings plans to residents who don’t have access to one through work, as debate intensifies over government’s role in ensuring people can support themselves in their later years.
Oregon this summer became the first state to start requiring employers that don’t offer a retirement plan of their own to give employees access to a state-run plan, by automatically enrolling them in individual retirement accounts invested in mutual funds.
Eight other states are designing similar programs, two of which—California and Illinois—are expected to launch initiatives next year.
Fans and foes alike say the endeavors will likely end up scrutinized in court, as detractors contend the programs violate federal pension laws.
Proponents of state-run retirement programs say they are concerned about the estimated 42% of private-sector workers who don’t have access to a workplace retirement-savings plan, many of whom don’t save at all. State legislators also are trying to save taxpayers money over the long term by reducing retirees’ reliance on public assistance programs, including Medicaid.
AARP, the advocacy group for older Americans and a supporter of state-run retirement savings programs, estimates that Oregon will save about $100 million on various public assistance programs between 2018 and 2032 if lower-income retirees save enough to increase their retirement income by $1,000 a year.
The Employee Benefit Research Institute pegs the nation’s retirement savings shortfall at $4.13 trillion.
Opponents—including some company owners, a trade group for small businesses and the main mutual-fund trade association—have lined up against the state initiatives. They argue that state-run programs may encourage companies to scrap 401(k) plans. They also say that lower-income workers who participate may wind up in worse financial shape if they run up debt to make up for the income they tuck away.
With several states considering legislation to authorize programs, “everybody is looking at how Oregon does,” said John Scott, director of the Pew Charitable Trusts’ retirement savings project. “If Oregon can get off to a good start, that will have a big impact” on confidence in these programs, he said.
By many accounts, Oregon’s program, called OregonSaves, has begun relatively smoothly. While only 160 employees are eligible to participate in the pilot program that launched July 1, the number is expected to surge by the Jan. 1 deadline for companies with 100 or more employees to enroll participants.
To provide access to a workplace retirement plan for many of the estimated one million Oregon residents who currently lack one, the state is requiring all employers with workers for whom they pay unemployment insurance—including one-person operations—to join the program by 2020. Employees are free to opt out.
The participation rate of the 160 eligible employees—77%—is slightly ahead of the 70% to 75% policy makers had forecast. That has fueled hope that the program will accumulate enough assets over the next decade to drive down participants’ fees from the current 1% and allow the private company providing administrative services, Ascensus Inc., to recoup its costs and turn a profit before its contract expires in 2027.
Business owners in the pilot program say OregonSaves has cost them little aside from the time it took—48 minutes, on average—to register and enroll employees.
Luke Huffstutter, owner of Annastasia Salon in Portland, who was referred to The Wall Street Journal by the state, said “retirement savings is essential to morale. This is a relationship business. When a hairdresser is in a good place in life, they provide a better experience for customers.”
But other employers say they worry about the burdens the program could impose on them. Gary Peck, owner of five greeting-card and gift stores, said he spends about four hours every other week on his payroll. He said the payroll process is labor-intensive because all but five of his 35 to 40 employees work hourly and change their hours each week.
“Now I’ll have to take another step and submit money to OregonSaves,” said Mr. Peck, who is a member of the National Federation of Independent Business, which represents small employers and opposes state-based retirement savings programs.
Aligning with the critics, Congress recently revoked an Obama-era regulation that states such as Oregon—with auto-enrollment in IRAs—cite in part to reassure employers that the plans are exempt from the federal law governing 401(k)-style plans. That law imposes fiduciary requirements on employers, making them potentially liable if something goes wrong and workers sue the plan.
Oregon and other states with auto-enroll IRAs have hired lawyers who have issued opinions saying the plans pose no legal risk to employers. But opponents aren’t so sure.
“That is a question that’s ultimately going to have to be decided by the courts,” said Gary Sanders, vice president of government relations at the National Association of Insurance and Financial Advisors. The group’s members, which include financial advisers who sell 401(k) plans, “don’t see the need for the state to compete with the private sector,” Mr. Sanders said. He said his association has no plans to file a lawsuit.
The Erisa Industry Committee, which lobbies for large companies on employee benefits policies, has “issues with the Oregon plan,” especially a requirement that companies with retirement plans file paperwork certifying that their employees are exempt from OregonSaves, said Will Hansen, an Erisa Industry Committee senior vice president.
“Our argument is that states cannot legally impose a reporting requirement on retirement plans that follow federal laws,” he said.
Lisa Massena, executive director of OregonSaves, said she “was told before I took the job that we will be sued.” She added: “We have tried to put all the best practices in place. If someone sues us for doing the right thing, we will work to defend ourselves vigorously.”
Last fall, Ms. Massena and her only full-time staff member conducted public hearings and focus groups with employers to gather feedback on the program’s rules. This year, they have made dozens of presentations before local chambers of commerce and business associations to publicize the program and answer employer questions.
“Our mission is to be super-light touch from an employer’s perspective,” said Ms. Massena, who said her employee sat with the owners of the 11 companies in the pilot program—including the hair salon, a preschool, and a lumber company—to observe the enrollment process and fix glitches.
Katie Selenski, executive director of California’s Secure Choice program, said she is closely monitoring Oregon’s rollout. “It looks promising so far,” she said.
States are forging ahead with efforts to bring retirement-savings plans to residents who don’t have access to one through work, as debate intensifies over government’s role in ensuring people can support themselves in their later years.
Oregon this summer became the first state to start requiring employers that don’t offer a retirement plan of their own to give employees access to a state-run plan, by automatically enrolling them in individual retirement accounts invested in mutual funds.
Eight other states are designing similar programs, two of which—California and Illinois—are expected to launch initiatives next year.
Fans and foes alike say the endeavors will likely end up scrutinized in court, as detractors contend the programs violate federal pension laws.
Proponents of state-run retirement programs say they are concerned about the estimated 42% of private-sector workers who don’t have access to a workplace retirement-savings plan, many of whom don’t save at all. State legislators also are trying to save taxpayers money over the long term by reducing retirees’ reliance on public assistance programs, including Medicaid.
AARP, the advocacy group for older Americans and a supporter of state-run retirement savings programs, estimates that Oregon will save about $100 million on various public assistance programs between 2018 and 2032 if lower-income retirees save enough to increase their retirement income by $1,000 a year.
The Employee Benefit Research Institute pegs the nation’s retirement savings shortfall at $4.13 trillion.
Opponents—including some company owners, a trade group for small businesses and the main mutual-fund trade association—have lined up against the state initiatives. They argue that state-run programs may encourage companies to scrap 401(k) plans. They also say that lower-income workers who participate may wind up in worse financial shape if they run up debt to make up for the income they tuck away.
With several states considering legislation to authorize programs, “everybody is looking at how Oregon does,” said John Scott, director of the Pew Charitable Trusts’ retirement savings project. “If Oregon can get off to a good start, that will have a big impact” on confidence in these programs, he said.
By many accounts, Oregon’s program, called OregonSaves, has begun relatively smoothly. While only 160 employees are eligible to participate in the pilot program that launched July 1, the number is expected to surge by the Jan. 1 deadline for companies with 100 or more employees to enroll participants.
To provide access to a workplace retirement plan for many of the estimated one million Oregon residents who currently lack one, the state is requiring all employers with workers for whom they pay unemployment insurance—including one-person operations—to join the program by 2020. Employees are free to opt out.
The participation rate of the 160 eligible employees—77%—is slightly ahead of the 70% to 75% policy makers had forecast. That has fueled hope that the program will accumulate enough assets over the next decade to drive down participants’ fees from the current 1% and allow the private company providing administrative services, Ascensus Inc., to recoup its costs and turn a profit before its contract expires in 2027.
Business owners in the pilot program say OregonSaves has cost them little aside from the time it took—48 minutes, on average—to register and enroll employees.
Luke Huffstutter, owner of Annastasia Salon in Portland, who was referred to The Wall Street Journal by the state, said “retirement savings is essential to morale. This is a relationship business. When a hairdresser is in a good place in life, they provide a better experience for customers.”
But other employers say they worry about the burdens the program could impose on them. Gary Peck, owner of five greeting-card and gift stores, said he spends about four hours every other week on his payroll. He said the payroll process is labor-intensive because all but five of his 35 to 40 employees work hourly and change their hours each week.
“Now I’ll have to take another step and submit money to OregonSaves,” said Mr. Peck, who is a member of the National Federation of Independent Business, which represents small employers and opposes state-based retirement savings programs.
Aligning with the critics, Congress recently revoked an Obama-era regulation that states such as Oregon—with auto-enrollment in IRAs—cite in part to reassure employers that the plans are exempt from the federal law governing 401(k)-style plans. That law imposes fiduciary requirements on employers, making them potentially liable if something goes wrong and workers sue the plan.
Oregon and other states with auto-enroll IRAs have hired lawyers who have issued opinions saying the plans pose no legal risk to employers. But opponents aren’t so sure.
“That is a question that’s ultimately going to have to be decided by the courts,” said Gary Sanders, vice president of government relations at the National Association of Insurance and Financial Advisors. The group’s members, which include financial advisers who sell 401(k) plans, “don’t see the need for the state to compete with the private sector,” Mr. Sanders said. He said his association has no plans to file a lawsuit.
The Erisa Industry Committee, which lobbies for large companies on employee benefits policies, has “issues with the Oregon plan,” especially a requirement that companies with retirement plans file paperwork certifying that their employees are exempt from OregonSaves, said Will Hansen, an Erisa Industry Committee senior vice president.
“Our argument is that states cannot legally impose a reporting requirement on retirement plans that follow federal laws,” he said.
Lisa Massena, executive director of OregonSaves, said she “was told before I took the job that we will be sued.” She added: “We have tried to put all the best practices in place. If someone sues us for doing the right thing, we will work to defend ourselves vigorously.”
Last fall, Ms. Massena and her only full-time staff member conducted public hearings and focus groups with employers to gather feedback on the program’s rules. This year, they have made dozens of presentations before local chambers of commerce and business associations to publicize the program and answer employer questions.
“Our mission is to be super-light touch from an employer’s perspective,” said Ms. Massena, who said her employee sat with the owners of the 11 companies in the pilot program—including the hair salon, a preschool, and a lumber company—to observe the enrollment process and fix glitches.
Katie Selenski, executive director of California’s Secure Choice program, said she is closely monitoring Oregon’s rollout. “It looks promising so far,” she said.
Article Link To The WSJ:
0 Response to "For Workers Without Retirement Plans, States Step In"
Post a Comment