Ever since ERISA was first promulgated, and notwithstanding consequential economic, societal and demographic changes, efforts at improving the nation’s employer-based retirement structure have had fits and starts mostly due to the failure of Congress and the Nation to revisit retirement policy in a meaningful way. A cynic (or maybe a pragmatist) would surely believe that Congress’ part in failing focuses primarily on using the retirement system as a tool to exact revenue for the federal treasury, contrary to policies that enhance tax advantages for retirement saving. The smoke and mirrors of Congressional budgeting lead to intentional ignorance of most of the impact of long-term revenue from the retirement system.(To say nothing of changes to the Social Security system, which is beyond the scope of this piece.)
ERISA was a wonderfully crafted and meaningful law when it passed more than forty years ago. Today, it still provides, in no small measure, the intended benefits and protections that were expected in 1974. But times change and so has the retirement system. When ERISA was passed, it focused on a system designed primarily to address defined benefit pension plans. Over the years, Congress has tweaked ERISA dozens of times, but taken together, the extent of changes and the voluminous regulations needed to give guidance to them do more to choke the system than to improve it.
Worst of all, a piecemeal effort at addressing the retirement system ignores the need to revisit and recreate a comprehensive national retirement policy. Periodic tweaking of nondiscrimination requirements and contribution limits does not portend sound retirement policy. Failing to address the demise of defined benefit plans and to adopt efforts (before it’s too late) to bring multiemployer plans back to solvency illustrates, in part, the failure to effect a comprehensive review and rededication to the retirement system.
When ERISA was promulgated, the Baby Boomers were just entering the workforce in large numbers. Today, they are leaving it in large numbers. The employer-based retirement system has moved from a predominantly defined benefit system to a predominantly 401(k) profit sharing system. For those employers who still maintain defined benefit plans, the common effort is to freeze the plans, terminate them or otherwise reduce the risk of having them. Employees who typically have little or no investment experience are left to invest their retirement savings essentially on their own. Small businesses are frequently shut out of the 401(k) profit sharing world due to cost and complexity. Retirees are living longer requiring a longer income stream. And, of course, complexity is rampant in the qualified plan world that may be more over-regulated than any other aspect of our government controlled structures.
In response to our failure to address sound retirement policy, many states have attempted to step into the breach. These states have adopted laws that would allow for some type of state-sponsored auto-enrollment IRA program so that employers could have their employees save on a tax-advantaged basis without incurring the cost and complexity of our refusal to revisit retirement policy. The current administration, recognizing that Congress will not address retirement policy in a meaningful way, has created the MyRA structure so that individuals can save and invest at least to a small extent. Of course, these piecemeal approaches to trying to do something that Congress won’t do will not reset a solid national retirement policy for the millennials, the Y generation, and for those that follow them.
The President directed the Department of Labor to figure out some way for the state-sponsored plans to avoid ERISA preemption, which the DOL has done. How’s that for a thoughtful, national effort to set retirement policy? Does it mean that the system, to get something done where Congress won’t, must turn to a place where participants and their savings are less protected than what a thoughtful Congress did in 1974? Probably so, unfortunately so. The states deserve a lot of credit for attempting to assist American workers, but it is not enough and points out the need to revisit national retirement policy. These additional programs will only contribute to a confusing and highly-regulated landscape making it even more difficult for employers and employees to properly decide on the best option for saving for retirement.
It’s time to convene a meaningful effort to re-establish a well-reasoned and beneficial retirement policy that will enhance and grow the employer-based system, protect the interests of employers and employees, incentivize savings, encourage employers to sponsor plans for their employees ( maybe even some sort of traditional defined benefit plan but where risk is shared), provide financial education to young Americans, limit the regulatory environment that undermines retirement savings, protect the treasuries of federal and state governments, and put our children and grandchildren on solid ground for their retirement futures. This would be a large undertaking, but so was the development of ERISA more than forty years ago. We have learned a lot about retirement in the intervening years, and surely the bright minds that work in this field every day can conjure up the foundation needed to establish a new and better national retirement policy for our children and grandchildren.