Not that it needed the encouragement, but the Obama administration got some backing for its recent initiative on state-based retirement plans from the Government Accountability Office (GAO).
At the request of Senate Health, Education, Labor, and Pensions (HELP) Committee Ranking Member Patty Murray (D-Wash.), the GAO published a report aptly titled, “Federal Action Could Help State Efforts to Expand Private Sector Coverage.” The report validated the importance of workplace retirement plans, noting that those in employer-sponsored retirement plans save more than those who save on their own, and that while about half (46%) of private-sector workers do not participate in a workplace retirement savings program, most of those (84%) lacked access to a program.
Lacking Access
The GAO report noted that a majority of those who lack access to plans are workers who are lower income, work part-time, and work for firms with 50 or fewer employers. The report also shows that when offered the chance, a majority of these workers do participate in a retirement plan through their employers. The report went on to note that when eligible, 68% of workers in the lowest quartile of income participated, and 81% of part-time workers participated when they had access to savings plans through their employer.
In addition to reviewing data, GAO interviewed federal officials, national industry stakeholders and officials and stakeholders in six states (California, Illinois, Maryland, Massachusetts, Washington and West Virginia) and three countries (Canada, New Zealand and the United Kingdom) selected based on the range of strategies used in efforts to increase coverage and recommendations from knowledgeable stakeholders.
Key strategies to expand private sector coverage identified in the states and countries GAO reviewed include encouraging or requiring workplace access, automatic enrollment, financial incentives and program simplification. GAO noted that state and national stakeholders reported potential challenges with uncertainty created by the Employee Retirement Income Security Act of 1974 (ERISA) and agency regulations that could delay or deter state efforts to expand coverage.
For example, GAO noted that DOL’s regulation on payroll deduction IRAs was written before these state efforts were proposed and omits detail that, if included, could help reduce uncertainty. In view of those uncertainties, GAO noted that states may face litigation and stakeholders noted that state programs could lose tax preferences if they were ruled preempted by ERISA.
GAO Recommendations
GAO recommended that Congress should consider providing states limited flexibility to pursue efforts to increase coverage under workplace retirement savings programs. GAO noted that Congress could, for example, direct or authorize the Secretary of Labor, in consultation with the Secretary of the Treasury, to: (1) promulgate regulations prescribing a limited safe harbor under which state workplace retirement savings programs with sufficient safeguards would not be preempted and would receive tax treatment comparable to that provided to private sector workplace retirement savings programs; or (2) create a pilot program under which DOL could select a limited number of states to establish workplace retirement savings programs subject to DOL and Treasury oversight.
GAO also recommended that to facilitate state efforts to expand coverage in workplace retirement savings programs, the Secretary of Labor and Secretary of the Treasury should consider their authority and review and revise, if necessary, existing regulations and guidance causing uncertainty for state efforts. As examples, GAO noted that the Secretary of Labor could direct the Employee Benefits Security Administration's (EBSA) Assistant Secretary to revise Interpretive Bulletin 99-1 to clarify whether states can offer payroll deduction Individual Retirement Accounts (IRAs) and, if so, whether features in relevant enacted state legislation — such as automatic enrollment and/or a requirement that employers offer a payroll deduction — would cause these programs to be treated as employee benefit plans.
In July President Obama directed the Department of Labor to “provide a clear path forward for the states to create retirement savings programs” by the end of the year. Earlier this month the DOL took a big step on that path, sending a proposed rule to the Office of Management and Budget for review, although its contents remain a mystery at present.
