The Biden administration earlier this year quietly killed a proposed mandate that would have required all employers to create a retirement plan or face a per-day tax, but executives of some of the largest retirement plan companies and state auto-enrollment plans want the mandate resurrected.
Ed Murphy, president and CEO of Empower, a full-service retirement plan firm with $1.2 trillion in assets, and Katie Selenski, executive director of CalSavers, the state’s required auto-enrollment plan for employers without one, both called for a nationwide employer mandate during a “Big Ideas” session at EBRI’s Retirement Summit 2022 today.
As many as 57 million Americans aren’t covered by workplace savings plans, Murphy said.
“I think we have the solution candidly and the solution is we need to mandate plans,” Murphy said. “Unfortunately, I don’t think Congress will go for that because there isn’t a level of support, particularly from the Republicans.
“We know there are some best practices out there around auto-features that work really well, but unless you mandate plan formation and provide the incentives and remove the impediments associated with that, I think we’ll continue to struggle,” he added.
The federal mandate for businesses that was struck from the Build Back Better plan earlier this year would have required that employers with five or more employees offer a retirement plan and automatically enroll employees, diverting 6% of their pay to a retirement account beginning in 2023.
Employers who failed to create a plan would have been fined $10 per employee per day.
“We were happy to see a mandate in the Build Back Better plan,” said Selenski.
Since CalSavers mandated that California employers create their own retirement plan or auto-enroll their employees in the state-run Roth IRA plan, the requirement has led about half of the 30,000 employers covered by the mandate to create their own plans, she said.
“We’re also having a positive effect of new plan formation. Plans are better than a Roth IRA, so if people have access to that we’re happy to see it,” Selenski added.
California is one of 12 states that have created employer mandates using a state-selected Roth IRA vehicle to give employees with no access to a workplace plan access to a retirement savings vehicle. The state has enrolled 600,000 participants in CalSavers, which was created in 2016.
There is no indication that the U.S. Department of Labor supports an employer mandate. Secretary of Labor Martin Walsh, who arrived at EBRI conference late and left early due to negotiations surrounding the looming railroad strike, was not asked about a mandate.
“Many small businesses don’t have the means or the understanding or the knowledge to set up plans. They’re going by on such small margins. So clearly there’s a lot of room for progress going forward,” Walsh said.
He also added that he is encouraging public-private partnerships, as he did when mayor of Boston.
Murphy said he thinks “we have to go back to the path of a mandate, and that is something as an industry we need to be prepared for and support.”
While plans costs may have been an impediment to employers in the past, “actual costs have come down quite a bit. You’re looking at $75 to $100 per participant per year in fully loaded costs. That’s not a lot for what companies likely Ensure provide,” Murphy noted.
The Empower CEO also said that while a lot of impediments and roadblocks regarding employer concerns about litigation and fiduciary requirements have been addressed, all paths should still lead to “going down the road to a mandate.”