February 26, 2015
- New Summary Available: State Retirement Plan Initiatives
- GAO Reports on Defined Benefit Plans Offering Lump Sum Payments
New Summary Available: State Retirement Plan Initiatives
In conjunction with a February 26 Benefits Briefing webinar, the Council has released a new Benefits Blueprint outlining the latest state retirement plan initiatives, including a summary of the Illinois Secure Choice program, the first state-mandated employer retirement plan signed into law.
Retirement plan coverage continues to be a concern for many legislators. Numerous legislative proposals have been introduced on both the federal and state levels and are driven by a desire to increase retirement plan coverage. A chart available on the Council website summarizes the leading proposals to expand retirement plan coverage (see the December 12, 2014, Benefits Byte).
On January 4, Illinois Governor Patrick Quinn (D) signed the Illinois Secure Choice Savings Program Act into law, a measure aimed at ensuring that private-sector employees whose employers do not offer a retirement plan have access to a state-run retirement savings arrangement through work (see the January 7 Benefits Byte). The Benefits Blueprint describes the program’s key features, including:
- The program applies only to private employers with 25 or more employees that have operated for two or more years and offer no retirement plan outside of Social Security.
- Employers must administer payroll deductions and deposits into “Secure Choice” Roth IRA accounts using their existing payroll systems.
- Employees are automatically enrolled, but may opt out at any time.
- Employee contributions are automatically set at three percent unless the worker designates a different amount.
- Employees will be able to retain their Secure Choice accounts when moving from job to job.
The mandate goes into effect in two years, assuming the board created to implement the new law overcomes a number of barriers also described in the Blueprint. The Blueprint also outlines some of the issues this program and others like it present concerning the responsibilities they might impose on employer plan sponsors, as well as possible concerns about the erosion of ERISA’s federal framework that preempts state laws.
For more information, contact Lynn Dudley, senior vice president, global retirement and compensation policy, at (202) 289-6700. If you would like a recording of the February 26 webinar the Council conducted on state retirement plan initiatives, contact Jason Hammersla, senior director of communications.
GAO Reports on Defined Benefit Plans Offering Lump Sum Payments
On February 26, the Government Accountability Office (GAO) released a report on the practice of giving pension plan participants a limited-time option of receiving their retirement benefits in the form of a lump sum to replace their lifetime annuities.
- The prevalence of lump sum offers (or “windows”) and sponsors’ incentives to use them.
- The implications for participants.
- The extent to which selected lump sum materials provided to participants include key information.
A number of defined benefit plan sponsors have offered participants immediate lump sums to replace their lifetime annuities, sometimes as part of a pension plan “de-risking” strategy. The GAO report notes that although the U.S. Department of Labor (DOL) has primary responsibility for overseeing pension sponsors’ de-risking reporting requirements, it does not require sponsors to report such offers, making it difficult to know the number of plan sponsors making these offers.
The report was requested by Representative Sander Levin (D-MI), ranking Democratic member of the House of Representatives Ways and Means Committee, (along with former House Education and the Workforce Ranking Democrat George Miller (D-CA)), who asked GAO to examine “what is spurring sponsors to make such offers and the potential effect these offers have on participants’ retirement security.” The report adds that “questions have been raised about participants’ understanding of the financial tradeoffs associated with their choice.”
The report includes a lengthy discussion of “Pension De-risking and Risk Transfers.” As part of A 2020 Vision, the Council’s public policy strategic plan, we recommend that the government “protect a pension plan sponsor’s ability, at the federal and state level, to determine how to reduce risk or transition out of the system.”
The GAO report’s conclusion that DOL should “improve oversight” and reassess or clarify existing regulations may encourage policymakers to further scrutinize pension plan administration, including de-risking activity.
The Council will continue to review the report for additional implications. For more information, contact Jan Jacobson, senior counsel, retirement policy, at (202) 289-6700.