The Department of Labor debuted a proposed rule Monday intended to help expand state-run retirement plans, but critics fear new regulations could have a harmful affect on the private sector.
The rule allows states to enroll private-sector employees in government-run IRAs or 401Ks, setting up automatic deductions from workers’ paychecks. While they may be automatically placed in the programs, employees are given the option to opt out under the proposal.
The rule would change a current payroll deduction provision that guarantees protection and fiduciary oversight under the Employee Retirement Income Security Act (ERISA), according analysis from the American Retirement Association.
The Washington-based nonprofit also expressed concern over the allowance of states to sponsor retirement multiple employer plans (MPE), which they say contradicts the department’s former reluctance to condone open private-sector MEPs.
“Both pieces of guidance are misplaced attempts by the administration to promote coverage by giving marketplace advantages to states as retirement plan providers, with no reasonably apparent policy justification to suggest states are somehow going to do a better job providing retirement plan products,” ARA CEO Brian Graff said in a statement. “We believe this proposal creates an un-level playing field, and uses regulation to give state-run alternatives an unfair and unwarranted competitive advantage in the retirement plan marketplace.”
The Investment Company Institute also said it thinks the rule could be detrimental to investors, since it puts their savings in the hands of agencies that created over a trillion dollar shortfall for public-sector pensions.
“We certainly share the goal of extending access to retirement savings plans to more workers,” said ICI President and CEO Paul Schott Stevens in a statement. “But to be successful, that access should be provided through national legislation that builds on the current voluntary system, not through a confusing patchwork of state programs, and with the cooperation—not coercion—of employers who best know the demographics and needs of their workers.”
Labor Secretary Thomas Perez said he thinks the rule is necessary to help nearly 70 million people gain access to retirement plans they don’t currently have through their places of business.
“This is not only a potential financial crisis for these individuals and their families, but a critical economic issue for the nation,” Perez said at a press conference introducing the proposal. “Today’s guidance is another plank in the economic security platform that President Obama and this administration have been building to help create new savings options, ensure workers are getting sound retirement advice, and bolster bedrock programs such as Social Security.”
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