EBRI panelist: Retirement plan mandate needed now to solve crisis

Retirement saving is a big crisis in the U.S., experts say — An EBRI panel endorsed mandatory enrollment in retirement plans

By John Hilton

The solution to America's retirement savings crisis is an obvious as mandating all employers provide a retirement plan, said Ed Murphy, president and CEO of Empower Retirement.

Murphy joined a panel at the Employee Benefit Research Institute's 2022 Retirement Summit in Washington, D.C. Alluding to the railroad workers' dispute, Labor Secretary Marty Walsh arrived late and left before Murphy broached the mandate suggestion.

"There's this view that providing incentives, providing credits to small businesses comes at a cost," he said. "The cost is going to be far greater down the road if we don't address the issues that we've been talking about, the fact that 65% of people that work for a company with less than 30 employees is not is not enrolled in the system. So I just think we've got to go down this path of a mandate."

Murphy added that he does not see the political will to take that step.

"My personal view is that there is some resistance within the business community because it's perceived as a government overreach," he said. "And the word 'mandate' is a dirty word. Having said that, we have mandates all over the place. The biggest one is Social Security. It's a mandate."

Murphy was joined on the panel by Katie Selenski, executive director of CalSavers, a defined contribution plan for workers in the private sector in California who do not have access to a retirement plan sponsored by their employers.

'They won't have much in there'

Walsh, longtime union official and former mayor of Boston, spoke for about 15 minutes before apologetically leaving to take a call. He touted his long record of support for retirement plan options and education. He also endorsed the need for auto-enrollment and auto-escalation plans, both key features of SECURE 2.0 legislation currently before Congress.

"If the option to put [money] in a 401(k) is your option, then oftentimes Americans will say, 'Wait a second, I need the money now. I'll figure out when I retire when I retire,'" Walsh said. "And if they don't put the money in their retirement plan now in front of it, there's a good chance that on the back end of it, they won't have much in there."

As the days trickle toward the end of the 117th Congress, the financial services industry is trying hard to make sure members are aware of SECURE 2.0. It is the rare issue that enjoys bipartisan support, but whether the time exists to get it passed remains the unknown variable.

EBRI panelists called the retirement package a good step toward aiding Americans in saving more for retirement. But more is definitely needed, Murphy said. He cited consolidation within the industry as helping drive down plan management costs as companies seek scale.

"You're looking at $75 to $100 per participant, per year, in fully loaded costs," Murphy said. "That's not a lot for the services that companies like Empower, and others provide."

But obstacles remains, he added, around administrative expertise and fears of litigation and fiduciary responsibilities.

CalSavers the first

After more than a decade of work behind the scenes, CalSavers launched on July 1, 2019. Since then, several additional states have moved to adopt similar programs to fill gaps in retirement plan options, mainly for small employers.

The program is off to a strong start, Selenski said, with about 65% of employees remaining enrolled in CalSavers.

"We're incredibly proud of that, especially when you consider that they're really not getting any financial incentive," she noted. "The state is not providing any match. Employers, unfortunately, are not allowed to provide any match."

A big proportion of the CalSavers participant pool comes from the most vulnerable populations in California, Selenski explained. Two-thirds are people of color and half are Latino. The median income is $30,000, Selenski said, and many participants tend to work part-time jobs, shift work, seasonal work.

Ninety-eight percent of participants accept auto-escalation, Selenski said, which gives them an exponentially better chance of building some sort of retirement fund despite their modest earnings. A big key to the entire system of easier access to retirement plans is portability, Walsh said.

It came up frequently when Walsh tackled the issue as mayor of Boston.

"Over and over, we heard how hard it is to take savings from job to job with smaller amounts of people cashing out their savings rather than dealing with the red tape," he said. "EBRI has found through our research $92 billion lost out of the system in a single year. Ninety-two billion that should be in retirement savings accounts for people in our country. The lack of portability is a big reason."

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.