In a post last year (“Quiz: How much do you know about the state-run retirement initiatives?”) I ended on the note that “these issues are very much in motion at present. What happens next is far from clear.” I was right about that: nowhere on the list of possibilities envisioned at that time was the seldom-used Congressional Review Act being invoked to block state-run auto-IRA programs (such as California’s and Illinois’ Secure Choice programs.) But that’s what just happened.
The retirement coverage gap is a real issue
This is an investment blog, not a politics blog, so I’ll limit my observations on this development to this: the retirement coverage gap – which is what states are trying to address with these programs – is a real issue. A large proportion of private sector workers don’t have access to a workplace-based retirement savings program, and that means that few of them save for retirement. And if state-run programs are not to be part of the answer to the retirement coverage gap, that will likely increase the focus on the most viable alternative: open multiple employer plans (MEPs).
Open MEPs would allow small employers to offer a 401(k) plan without having to set it up themselves. Compared to a program based on IRAs, there are significant benefits for employees under this approach. As I have noted previously: “As well as offering the convenience of payroll-deduction, an open MEP that operates within the 401(k) system offers a number of other advantages for workers, including the scope for employer contributions and higher contribution limits. What’s more, fees may well be lower than is possible within the retail IRA market. And it would offer the protection of ERISA, which gives (in the words of the DOL) ‘a well-established uniform regulatory structure with important consumer protections, including fiduciary obligations.1”
And – here’s an unusual thing in today’s world – the concept seems to have bipartisan appeal. So whatever your take on today’s vote in the House of Representatives, it seems to me that it may simply prove to be one more step toward open MEPs.