The ERISA Advisory Council has released a 72-page summary report offering recommendations to address gaps in retirement savings based on race, ethnicity and gender.
As part of its 2021 study topics, the Council examined the underlying causes for gaps in retirement security experienced by people of color, ethnic minorities and women, and considered the challenges these groups face achieving retirement security and what actions might be taken to improve their situation.
In its report to Labor Secretary Marty Walsh, the Council has formulated specific recommendations that the Department of Labor could follow to reduce these gaps in retirement savings. The Council, which consists of 15 members representing employee organizations, employers, the public and industry representatives, provides support and advice to the DOL’s EBSA. Though not always the case, their recommendations, in various cases, can help form the basis for action by the DOL.
The Council notes that it received over 50 recommendations from more than 25 witnesses. In addressing the impact on retirement security, the report notes that the testimony and recommendations of some of the witnesses went beyond the purview of EBSA and the scope of the Council’s issue statement. As such, it reviewed and considered 25 that it felt were within the scope.
“The Council heard testimony from many witnesses who presented insights, diverse perspectives and survey results that all confirmed there are gaps in retirement security for people of color, ethnic minorities and women, and identified several reasons and underlying causes,” the report observes. As such, based on the Council’s key observations and recommendations from many of the witnesses, it recommends that the DOL look at all the facets of its authority and influence to address the gaps.
Recommendations
Since some of the recommendations were similar, the Council consolidated the recommendations into 16 recommendations organized into five primary categories, highlighted below.
Enhance coverage: The DOL should expand on prior guidance (EBSA Interpretive Bulletin 2015-02) to facilitate and encourage development of ERISA retirement plans, such as MEPs, PEPs and state-sponsored Master and Prototype defined contribution/401(k) plans to increase retirement plan access to underserved groups, with a glide path for plan creation and administration that makes the process simple for employers, including the sharing of fiduciary responsibility with sophisticated professional entities.
Address fragmentation: The Council also suggests that the DOL work with other federal agencies to establish an interagency working group to coordinate a federal approach to retirement policy among the disparate agencies addressing retirement issues of underserved populations. The report also recommends studying the feasibility of a national portability system to encourage and facilitate account consolidation and retirement savings preservation for individuals with small account balances in several plans.
In addition, the recommendations call for working with Treasury and IRS to:
- review penalties on involuntary small payments, hardship withdrawals, and relieve the penalty tax for early distributions of small amounts; and
- encourage employer match on employee contributions (pre-tax, after-tax and Roth) and permit match on contributions to emergency funds and student debt payments.
Enhance education and outreach: The DOL should update EBSA Interpretive Bulletin 96-1 and clarify the fine line between advice and education so that the goal of providing meaningful participant financial and retirement education to achieve financial wellness is not lost. The Council also recommends leveraging and amplifying EBSA education, tools and promotion efforts (including outreach and partnerships with underserved community and advocacy groups) on financial wellness and retirement security.
Address gaps in retirement security for women: The DOL should also leverage its resources to address QDRO issues by working with and educating state bars and the family court judiciary on the importance of QDROs to retirement security of women and reduce impediments to obtaining QDROs. The Council also suggests:
- developing simplified model QDRO templates for DC plans to help reduce the cost of interaction with the court system;
- addressing gaps in spousal rights with respect to communications, protection and access to information in DC plans; and
- encouraging plan sponsors to treat absences of up to 12 weeks for caregiving as continuous service to prevent a break in service.
Update regulations, technical bulletins and rules: Finally, the Council recommends reviewing safe harbors and providing guidance for enhancements including automatic enrollment, reenrollment, escalation features, nondiscrimination testing and QDIAs. In addition, it suggests:
- updating existing regulations to reflect the current workforce by specifically updating Year of Service/Hours of Service regulations under ERISA section 202(a)(3)(B) to provide plan eligibility for part-time, seasonal, and contingent workers; and
- providing guidance that the promotion of Diversity, Equity and Inclusion (DEI) initiatives is not at odds with ERISA fiduciary responsibilities and that recognizes the need for plan sponsors to be able to identify service providers that include DEI elements to provide underserved populations with relatable retirement professionals.
“The voluntary approach embedded in ERISA has not moved the needle to encourage the employers of half of the American workforce to sponsor a retirement plan for their employees. Our recommendations attempt to find ways within the existing voluntary system to expand retirement plan coverage and participation,” the Council concludes.
