Legislators Introduce Bicameral Auto Re-Enroll Legislation

The bill would prompt employees who initially opt out of a retirement savings plan to reconsider every three years.

U.S. Senator Tim Kaine, D-Virginia, a member of the Senate Health, Education, Labor and Pensions Committee, and U.S. Representative Kathy Manning, D-North Carolina, have introduced the bicameral Auto Re-enroll Act of 2022.

The legislation seeks to increase workers’ participation in employer-sponsored retirement plans by encouraging retirement plans to automatically re-enroll workers, while giving employees the ability to opt out of the plans. Many employers automatically enroll their employees in retirement savings plans when they start a job, but employees may initially decide to opt out. The bill would prompt those who opt out of a retirement savings plan to reconsider their choice every three years as their careers progress and their financial situations change. This would lead to more workers benefiting from employer matches during their careers, the legislators explain.

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Specifically, the Auto Re-enroll Act of 2022 would enhance automatic enrollment plans by amending safe harbors in the Employee Retirement Income Security Act and the Internal Revenue Code to encourage plan sponsors to re-enroll nonparticipants at least once every three years, unless the individual affirmatively opts out again.

A press release about the bill says only 51% of private-sector workers participate in employer-sponsored retirement plans. By not participating, they are leaving employer matching contributions on the table—not only saving less than they could, but also not receiving the full compensation they are entitled to.

“Nearly half of all private-sector workers are missing out on the benefits of their employer-sponsored retirement plan and employer matching contributions. The years that employees are working without earning these savings could have a large impact on their retirement,” Manning said in the release. “I introduced this bill with Senator Kaine to ensure that all Americans are getting their earned benefits while saving for their futures.”

Kaine and Manning also say many Americans who do not sign up for retirement plans when they start with their employer never reconsider that decision, even if their financial situation changes, contributing to an estimated 17.5 million Americans leaving free retirement funds on the table. By encouraging automatic re-enrollment, the legislation would help address that issue.

“Employer-sponsored retirement plans are an important part of retirement for millions of Americans,” Kaine says. “However, far too many workers are missing out on money that can go a long way toward financial stability in their retirement years by failing to participate in their employer matching contribution. This commonsense legislation will build on the success of auto-enrollment and help put families in Virginia and across the nation on a safer financial footing for the future.”

Council Recommends More Research About ‘Brokerage Window Only’ Plans

The ERISA Advisory Council declined to recommend additional regulations for brokerage windows in general, saying the costs outweigh the benefits.

The ERISA Advisory Council has revisited the topic of brokerage windows in self-directed retirement plans in a recent report to Department of Labor Secretary Marty Walsh.

In 2012, as part of its Employee Retirement Income Security Act Section 404(a)(5) participant fee disclosure regulations, the DOL clarified in Field Assistance Bulletin 2012-02 what information related to a brokerage window needs to be disclosed under participant-level fee disclosures. In FAB 2012-02R, the DOL clarified that a brokerage window is not in and of itself a designated investment alternative.

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The Advisory Council report notes that the guidance did not deal with ERISA’s fiduciary standards, and there is no additional DOL guidance on this issue. To increase its understanding of the prevalence and role of brokerage windows in participant-directed individual account plans, the DOL issued a request for information in 2014. Responding to that RFI, industry groups urged the agency not to issue further rules for brokerage windows, saying very few plans offer them and, in plans that do offer them, few participants use them.

Data and testimony from providers and others showed that brokerage windows are now used by only a small proportion of eligible plan participants and that brokerage window users tend to be longer-tenure employees having higher than average plan balances, the ERISA Advisory Council report noted. The majority of council members were convinced that the cost of disclosures outweighed the benefit of disclosing the risk of brokerage windows, the lack of fiduciary oversight or the possible lack of adequate diversification.

However, the council recommended that the DOL should consider further fact-finding related to “brokerage window only,” or BWO plans—i.e., plans that have no designated investment alternatives and in which brokerage accounts are the sole investment option. The council expressed concern that financially inexperienced employees might be disadvantaged with a suboptimal experience as these types of plans may have limited features available to them as contrasted to the features available to participants in plans serviced through institutional recordkeepers and other plan service providers.

“The council members agreed that those types of plans may not incorporate the spirit of ERISA’s intent and protections for financially inexperienced employees and may need the department’s attention in the form of further fact finding,” the report says.

The council also expressed concern about when a BWO plan does not have a default brokerage window provider, saying this could be another barrier for financially inexperienced employees when deciding whether to participate in the plan. Employees may not have the ability or comfort level to select a brokerage provider to begin participating.

“The council believes that by focusing its fact finding in the BWO market, the department could obtain the necessary data to determine whether any further action is necessary,” the report says.

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