Munnell calls for mandated auto-enrollment in 401(k)s, IRAsNews added by Benefits Pro on January 29, 2016

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By Nick Thornton

Congress must pass a law mandating that every worker in the country be automatically enrolled in a workplace retirement savings plan.

That recommendation, advanced by Alicia Munnell, the director at Boston College’s Center for Retirement Research, was perhaps the most aggressive policy proposal advanced during a Senate Finance Committee hearing on retirement policy Thursday.

Munnell was one of three experts summoned to give feedback on retirement policy suggestions made by a tax reform working group on savings and investment policy, convened last year at the behest of Sen. Orrin Hatch, R-Utah, chair of the Senate Finance Committee.

The bi-partisan working group’s proposals included several suggestions already familiar to the retirement policy debate.

Support for “open” Multiple Employer Plans, a policy recently endorsed by the Obama White House, is principal among the group’s recommendations.

So are several other policies structured to promote wider adoption of employer-provided plans among small businesses.

Also, the working group advanced ideas to address so-called plan leakage and savings portability issues, as well as ideas to create a more inclusive policy for long-term part-time employees.

While those policies would be a step in the right direction, they are too modest in Munnell’s assessment.

“We need bold changes,” said Munnell, who said the country’s current retirement landscape is “really rocky,” and that the challenges facing the retirement savings crisis are “enormous.”

Open MEPs would remove the “nexus” provision from existing policy that requires small businesses to have a common function, such as membership in a trade organization, in order to pool workers in one plan.

That would be a “useful tool,” said Munnell, so long as workers were protected from unnecessarily high investment fees.

Increasing small businesses tax incentives would be a positive, but ultimately would have a “modest” impact, she said.
And policies to extend coverage to long-time part-time employees, and enhancing the savers credit by increasing eligibility, are both good ideas, said Munnell in her statement to the committee.

But taken in the aggregate, the proposals fail to comprehensively address what Munnell thinks is human nature’s consequence of the savings crisis.

“People left on their own are not going to save,” said Munnell, a reality she reiterated several times throughout the two-hour hearing.

“Everyone has to have an automatic savings mechanism,” she added. “I would pass a law that says if you want to have a 401(k) plan you need to automatically enroll all employees at a 6 percent deferral rate.”

Munnell did not advocate for mandating that all employers offer a plan, but she insisted default rates need to be more “meaningful” than existing levels, and that deferrals should be increased until participants were directing a total of 12 percent of salary and employer contributions annually.

For the tens of millions of Americans, most of whom are employed by small businesses, without access to an employer-sponsored plan, Munnell suggested Congress pass a law mandating automatic enrollment in IRAs.

For however productive open MEPs and improved tax incentives may be to closing the access gap among small businesses, too many barriers would remain, she said.

Though she commended efforts to pass small employer mandates at the state level, she said the prospect of 50 separate state programs “seems like a crazy idea to me.”

“It makes more sense to have such legislation passed at the national level,” she said.

John Kalamarides, head of institutional investment solutions at Prudential Financial, limited most of his testimony to the support of open MEPs.

He was more bullish on what open MEPs, if structured correctly and in accord with employer tax incentives and expansion of the saver’s credit, could do to narrow the retirement plan access gap among small employers

More than 5.5 million businesses in the country employ less than 100 workers, and half of those businesses don’t offer retirement plans, said Kalamarides.

He said that take-up rate would increase by 250 percent, “if we can pass these changes.”

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