Changes Ahead For Small-Business Retirement Plans

Ownership of various retirement plan accounts has been falling sharply. Just 40 percent of households owned any type of retirement account -- IRA, 401(k) or traditional pension -- in 2013, down from 48 percent in 2007, according to the Federal Reserve Board's triennial Survey of Consumer Finances released last September.

The Center for Retirement Research at Boston College estimates that at any given point, only half of U.S. private-sector workers participate in a retirement plan. The largest coverage gaps can be found at small employers, who don't want to deal with the cost or regulatory burden of administering 401(k) plans.

The states argue that fiduciary liability can be taken on by the boards governing the plans, and by third-party financial services companies that are hired to run them. California, the first state to pass Secure Choice Pension legislation, has been waiting for clarification on these issues for nearly three years now.

Labor Department officials have expressed concern about letting the plans proceed without the regulatory protections of ERISA, and the Obama administration preferred to focus on its own national auto-IRA plan.

"The (Department of Labor) has always viewed its job under ERISA as policing employers," says Joshua Gotbaum, a guest scholar at the Brookings Institution who is the former director of the Pension Benefit Guaranty Corporation, the federally sponsored agency that insures private sector pensions. "So they have resisted moving from policing employers to policing financial service providers. That's a necessary step in order to get to any Secure Choice plan."

The nature of the new Labor Department rule will be critical to the success of Secure Choice Pension plans. The regulators could simply state that a payroll deduction plan isn't subject to ERISA; a much better outcome would be a more expansive approval that gives states a range of options.

The Department of Labor declined to comment.

Says Gotbaum, "What I hope they'll do is declare that these are multi-employer 401(k) plans, that they can even be defined benefit plans and that the employers won't be considered fiduciaries just by participating."