A Vision for National Retirement Reform

State and federal lawmakers first started kicking around the idea of requiring private employers to offer some type of tax-advantaged retirement savings program nearly a decade ago, but they have made little substantial progress (see “Bridging the Retirement Savings Gap”). In recent years, the effort has been channeled largely into so-called “auto-IRA bills” that seek to force employers to offer workers, at a minimum, the chance to fund an individual retirement account (IRA) with pre-tax payroll deductions.

Proponents of auto-IRA bills point to plan access as the most important factor in determining whether the typical worker will be able to approach retirement confidently, explains Brian Graff, executive director and CEO of the Association of Pension Professionals and Actuaries (ASPPA). Supporters of auto-IRAs feel their proposals are the most pragmatic way to expand retirement plan access for American workers, he says, as a workplace IRA does not require matching contributions or burdensome testing associated with 401(k)s and other prevalent employer-sponsored options.

And the vast majority of employers, who already use a payroll service provider, would be able to quickly and affordably develop the necessary payroll deduction capabilities, Graff says, making auto-IRAs a sort of win-win where few easy answers exist. 

There are currently 16 legislatures in predominantly blue states considering some type of mandatory workplace IRA bill, Graff says. Similar bills have been introduced on multiple occasions at the federal level, but ASPPA anticipates it will be one or more of these states that ultimately determines the future of such legislation. Many West Coast states are on the list, including California and Oregon, as well as a number of states in the Great Lakes region and New England—including Illinois, Ohio, West Virginia and Maine. Louisiana and Arizona are the only southern states considering an auto-IRA proposal. 

“It has really become a grassroots legislative movement in recent years,” Graff tells PLANADVISER. “State officials are aware that this is now the number one concern identified by American workers, not being able to save enough to retire comfortably. And one of the principal concerns driving the discussion, more and more, is the lack of coverage.”

Graff likens the collective effort around auto-IRAs to the decades of state-level work that occurred on health care reform before the Patient Protection and Affordable Care Act (or ACA) was actually made law. During that debate, states like Massachusetts forced the federal government’s hand by passing their own sweeping health care reforms that put increasing amounts of daylight between some states and others on health care delivery, pricing and insurance practices, Graff says.

“For the auto-IRA, it’s very much the same conversation that we were seeing in health care a decade ago, the language is the same,” Graff says. “It’s a discussion about improving ‘coverage,’ ‘access’ and ‘cost,’ just as it was with health care, and it’s picking up steam in a similar way.”

Graff says his work with ASPPA has brought him to nearly all these state legislatures in recent years, and he has heard strikingly similar debates and arguments regarding the auto-IRA in each state. He says this is in part because workers across the U.S. face a very similar retirement savings issue, and also in part because advocacy groups and lobbyists have had success getting state officials and their bills on the same page.  

He says all 16 states have introduced proposals that would require employers to offer a workplace IRA, but a smaller subset of states is also pushing a state-sponsored retirement plan option, much in the spirit of President Obama’s “myRA” proposal (see “Industry Divides Over Obama Proposals”).

“One of the misunderstandings that we consistently see has to do with these state options,” Graff explains. “We often see it reported that employers not currently offering a plan would be required to offer the state option, and they call this Obamacare 2.0, but that’s just flat out wrong. The state option would be just that, another option, and the auto-IRA is something separate.”

Graff says ASPPA is actually somewhat ambivalent on the idea of a state plan option, as it’s unclear that simply offering another choice would impact the original participation problem. What matters far more is developing mandatory and automatic workplace access to some form of retirement savings program, he says.

“If they simply create another financial services product, it’s just going to sit there like the myriad of products that already exist and there’s little reason to think it would cause a big pick up in retirement savings,” he says. “That’s the problem with the president’s proposal as well, we feel. It’s going to just sit there, the myRA. That’s not accomplishing anything.”

Graff says ASPPA is operating under the assumption that one or more of these states “will get something done on this in the relatively near future,” which should in turn reinvigorate the federal discussion and precipitate wider action.

“It’s more of a 'when' proposition as opposed to an 'if' proposition,” he says. “And once that happens, once one of the states makes its move, I think the federal conversation becomes much more real and necessary. So tactically, the most likely scenario is that we’ll have a state or two do this, and then the federal government will feel the need to step in. We’re not going to go through this state by state.”

As for why the federal government would feel motivated to step in, Graff says the answer has a lot to do with simplicity. Just like a private company operating across dozens of states, the more sets of rules that exist, the more difficult it all is to oversee.