A Joker is taking over Gotham City. Known as the New York City Nest Egg Plan, it is an ambitious attempt to close the retirement plan coverage gap for residents of the largest city in the United States. But instead of focusing squarely on the coverage issue — which remains a legitimate concern for policymakers — New York City Comptroller Scott Stringer wants the city government to get involved in the 401(k) business.
The city sponsored plan — called the Empire City 401(k) — is being billed as a “cost-effective” 401(k) product that “takes advantage of recent changes in federal law allowing multiple employers who are unaffiliated to join a single, publicly sponsored 401(k) plan.” In fact, there have been no changes in federal law. The only change is the Department of Labor perversely interpreting ERISA in a nakedly political way to facilitate a government takeover of the retirement plan business.
What do I mean specifically? In November 2015, the DOL issued an ERISA interpretative guidance bulletin — in an extrajudicial manner that does not require public notice or comment — in order to facilitate ERISA-covered state savings programs. Within this guidance the DOL expressly blessed the ability of a state to sponsor a multiple employer plan for any unrelated in-state employer.
What was the legal rationale? “In the Department’s view, a state has a unique representational interest in the health and welfare of its citizens that connects it to the in-state employers that choose to participate in the state MEP.” Apparently, New York City and its lawyers have concluded that the DOL will extend this rationale to cities. And why not? New York City has been the first governmental entity to take up the DOL’s offer to compete with private sector retirement plan providers on DOL’s uneven playing field.
To be fair, the New York City Nest Egg Plan does have some positive policy components that the American Retirement Association has long supported. For instance, the proposal requires every employer in the city — including even sole proprietors and freelance workers — to provide access to a payroll deduction savings arrangement to its employees. We think that this requirement is critical to moving the needle on coverage since the data shows that moderate income earners are 15 times more likely to save for retirement when they have access to a plan through work.
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And if there is such a requirement on private employers, we think it is also reasonable that there be a publicly sponsored payroll deduction IRA program that businesses can use as a default option. The NYC Nest Egg Plan does create such an option, called the NYC Roth IRA. But then, the NYC Nest Egg Plan goes too far. The proposal creates a new retirement plan product exchange — the “NYC 401(k) Marketplace” — which would empower a new bureaucratic board to regulate retirement plan products of all stripes at the city level. And, of course, the Empire City 401(k) would be the crown jewel of the marketplace.
What is most scary about the Empire City 401(k) is that it will have a critical advantage in the marketplace since it will be the only multiple employer plan available to unrelated employers on the marketplace. In other words, whilst DOL giveth to government, it taketh from the private sector. As many are probably aware, the DOL just a few short years ago interpreted the same ERISA statute as disallowing private providers from offering a multiple employer plan to unrelated employers.
If you are scratching your heads — so are we. We must fight back against the DOL stacking the deck against our industry while at the same time inviting unfair competition from government at every level.
This column appeared in the Winter 2016 issue of NAPA Net the Magazine.