Lawmakers eye mandatory auto-enrollment for retirement plans

Few issues draw more bipartisan support than the notion that it's good policy to encourage people to save more for retirement, and in a deeply divided Washington, House lawmakers hope to advance a bill to that end while eyeing other, more contentious changes to the retirement landscape.

In the coming weeks, backers of the Securing a Strong Retirement Act hope to bring the bill to a markup in the House Education and Labor Committee. That legislation, which has been dubbed the Secure Act 2.0 and follows on the heels of a bill of that name enacted in the last congress, could bring significant changes to employer-sponsored retirement plans.

Right at the top, the lead provision of Secure 2.0 would require employers offering 401(k) and 403(b) plans to automatically enroll new employees in those programs with a contribution rate of at least 3%. For employees that don't opt out, employers would be required to increase contribution rates by 1% each year until the employee's contribution rate reaches 10%.

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There are exemptions for the very smallest businesses and new startups, as well as some government and church organizations, but backers of the bill say it would go a long way toward getting more workers to begin saving — and saving early — for their retirement.

"The employee always has a choice to opt out, but most employees when they join up are not thinking about retirement, and it's good to have the system automatically putting them in the right direction," David Certner, legislative counsel at the AARP, said Wednesday at a subcommittee hearing on the bill and other retirement issues.

"If they want to make other choices, that's great, but it's better that we have an automatic system," Certner said. "This is putting people on the track to a better retirement."

Other provisions of the bill would expand the startup credit for small employers looking to offer a pension and relax the requirements for employers to pool together in multiple employer plans and offer a 403(b) retirement option.

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There was general support for the bill among witnesses and lawmakers who addressed the proposal at Wednesday's hearing, but considerably less agreement on the move to rescue multi-employer pension plans (MEPPs) that were facing insolvency in the American Rescue Plan, the most recent COVID-19 relief package that passed earlier this year with no Republican support.

Critics of that measure, which cost $86 billion, argue that it was a bailout for the union members and signatories that comprise many MEPPs, while most workers in other sectors don't have access to a defined-benefit plan. Further, those MEPPs have a "track record of mismanagement," according to Rep. Rick Allen (R-Georgia), and the bailout did nothing to tighten oversight of the plans, which are backed by the Pension Benefit Guaranty Corporation.

Andrew Biggs, resident scholar at the American Enterprise Institute, a conservative think tank, sees a larger problem coming down the pike, potentially carrying a much higher price tag. He looks at the mounting imbalance between promised benefits for public-sector workers and the funds to pay for them in states like Illinois, and sees no alternative outcome other than a wave of bankruptcies that would decimate the retirement savings of cops and firefighters and other state employees, or federal bailouts that could cost in the trillions.

"It is a very risky proposition," Biggs said at Wednesday's hearing. "At some point the plan is either self-funding and responsible for itself or it's not," he said. "And if we're going to socialize these, we need to regulate them much more carefully."

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Supporters of bailing out the MEPPs countered that letting them go bust would have driven waves of lower-middle-income workers into poverty, depressing their communities and putting a greater burden on government programs to help the poor, amounting to collective costs that would have far exceeded the bailout.

In the meantime, efforts in Congress to enact a nationwide mandate for employers to offer a retirement plan have failed to gain traction. That's left many states to pursue their own requirements for most or all employers to offer a plan of some form, driven in part out of concern for the long-term financial burden that will arise from legions of older workers who haven't saved enough for retirement, according to Nari Rhee, director of the Retirement Security Program at the University of California at Berkeley.

"The states are just desperate for a solution to this problem because it's going to hit them in the pocketbooks and they know it," said Rhee, who was involved with the development of California's CalSavers Program. But state plans have their limits, she said, particularly because federal law prohibits employers from making matching contributions. "There's need for federal leadership on this issue.”