Auto enrollment a slow-go for public plansNews added by Benefits Pro on July 3, 2014

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By Nick Thornton

Local governments with supplemental retirement savings plans are not doing much to encourage their public employees to utilize them, a study from the Center for State and Local Government Excellence said.

Specifically, local governments have been slow to adopt automatic enrollment practices, which are gaining increasing traction with plan sponsors in the private sector.

Supplemental savings plans can bolster benefits earned in a defined benefit pension. Underfunded pensions have forced states and municipalities throughout the country to reduce retirement benefits for new hires.

“We know from behavioral economics and the private sector that employees need encouragement to save,” said the paper’s authors.

The paper explores four main barriers to the enactment of auto enrollment in public defined contribution plans.

Legally, only 11 states permit automatic enrollment in public defined contribution plans.

The study also says many local leaders perceive auto enrollment as placing undue demands on workers, particularly those earning modest wages.

Labor unions around the country have also been reluctant to support automatic enrollment, as some labor leaders fear it could lead to an expedited phasing out of defined benefit plans.

And administrative challenges are also cited as a barrier, as public plan sponsors would have to assume new relationships with third parties in order to encourage more workers into supplemental savings plans.

“The most difficult of these challenges to overcome is the legal barrier,” says the report.

The brief examines the experiences of several local and state funds that have successfully negotiated automatic enrollment into collective bargaining agreements.

Cobb County, Georgia, Multnomah County, Oregon, the city of Los Angeles and the South Dakota Supplemental Retirement Plan have all successfully deployed automatic enrollment practices.

A federal law permitting automatic enrollment by local governments is not likely, given the politics of some stakeholder interests, according to the paper.

That means legal change will have to occur at the state level.

Five states have passed laws permitting automatic enrollment: Georgia, Missouri, South Dakota, Texas and Virginia.

In three of those states (Georgia, Missouri and Texas) the law only applies to the statewide retirement systems, meaning local governments that choose to operate a pension outside of state domain would have to enact local laws to accommodate automatic enrollment.

And that, the paper concludes, is easier said than done.

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