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Moderator:Sabrina Bailey, Senior Vice President, Northern Trust Asset Management
Speakers:Sarah M. Gill, Senior Legislative Representative, AARP
Angela M. Antonelli, Executive Director, Center for Retirement Initiatives, and Research Professor, Georgetown University
Marla Kreindler, Partner, Morgan, Lewis & BockiusChristina Elliott, Acting Director, California Secure Choice
How do State Programs Change the Retirement Landscape?
A Familiar Headline: Half of All Households At Risk
52 percent of households are at risk of not having
enough to maintain their living standards
in retirement, according to the
Center on Retirement Research.
Source: Center for Retirement Research, National Retirement Risk Index
Flipping the Script: Reaching Untapped Market
Source: ICI
Do Not Have IRA:
Untapped Market
33% of All US households
IRA only6%
IRA and Employer Sponsored Plan
32%
Employer Sponsored Plan Only
29%
Percent of US Households with Access to Savings
Access to Retirement Plans by Income- Not All Small Dollar Accounts
U.S. PRIVATE SECTOR WORKERS: Does your employer offer a pension or retirement plan? By Personal Annual Income
Source: NCPERS, Analysis of Current Population Survey, March 2011 Supplement
Chart1
< $20k< $20k
$20k to $50k$20k to $50k
$50k to $80k$50k to $80k
$80k or more$80k or more
Yes
No
0.2358278311
0.7641721689
0.5108837926
0.4891162074
0.6754829189
0.3245170811
0.7396623688
0.2603376312
Sheet1
< $20k$20k to $50k$50k to $80k$80k or more
Yes24%51%68%74%
No76%49%32%26%
Rethinking the Access Profile
Source: ICI
SolutionsThere are five essential ingredients that facilitate adequate retirement savings rates: availability, automatic enrollment, ease of investment, automatic escalation, and lifetime income streams.
Action steps: • Make retirement plans with payroll deduction available to all workers. Currently, 55 million US
employees have no way to save for retirement at work.
• Increase participation and savings rates by changing the choice architecture of retirement plans, utilizing the findings of behavioral economics
Workers are 15x More Likely to Save if Employer Offers Plan
Not covered by an Employer Plan -Deductible IRA Only
Covered by an Employer Plan
4.6%
71.5%Participation Rates
Data compiled by AARP’s Public Policy Institute from unpublished estimates from the Employee Benefit Research Institute of the 2004 Survey of income and Program Participation Wave 7 Topical Module (2006 data). See also Brookings' Retirement Security Project and WhiteHouse.gov
529 Plans: A Model for Retirement?
Source: College Savings Plan Network
All Boats Rise: 529 Plans
Source: The College Savings Plan Network
A National Movement Begins: 2013
National Movement: Half the Country Taking Action
If You Build It They Will ComeSmall business owners overwhelmingly agree that retirement benefits help recruit good employees
Data from NCPERS
82
73
64
62
50
Offering retirement benefits helps recruitment ofgood employees
I feel a responsibility to provide some kind ofretirement benefits
It would be nice to offer a retirement benefit but it'stoo expensive
Offering a retirement benefit helps my company'sbottom line
It would be nice to offer a retirement benefit but it'stoo complicated to administer
Percent Strongly or Somewhat Agree
If You Build It They Will Come
The AARP 2015 New Jersey Work and Save Survey was conducted as a telephone survey among registered voters age 35-64 in New Jersey.
• For Innovation and Leadership Look to the States
• States Are Stepping Up To Address Retirement Security
• Goal To Design Simple, Low-Cost, Easily Accessible and Effective Savings Options
From Crisis to Opportunity
25 States Have Considered or Enacted Private Sector Retirement Initiatives
More than 20+ These States Acted in 2015 to Address Retirement Security
States – Program Enacted (5)
CALIFORNIA (2012)MASSACHUSETTS (2012)ILLINOIS (2015)OREGON (2015)WASHINGTON (2015)
States – Study in Progress (7)
CONNECTICUT (2014)MINNESOTA (2014)VERMONT (2014)MARYLAND (2015)NEW YORK CITY (2015)UTAH (2015)VIRGINIA (2015)
States/Metro – Legislation in 2015 (12)
COLORADO (S)INDIANAKENTUCKYMAINEMARYLAND*MASSACHUSETTS (2)NEW HAMPSHIRE (S)NEW JERSEYNEW YORK CITYNORTH DAKOTAWEST VIRGINIA (S)WISCONSIN (S)
*Task Force Report Completed in 2015(S) – study bill
Mandatory, auto-enroll IRA (with opt-out) Default contribution Employer contributions generally not permitted Pooled and professionally managed funds Must keep fees “low” (.75%-1% range) Market analysis and legal analysis to guide design and
management issues
Some Common Design Features (CA, IL, OR)PLAN DESIGN
Retirement Board Management of trusts Limits of liability and fiduciary role for states and
employers explicit
Some Common Design Features (CA, IL, OR)ADMINISTRATIVE STUCTURE
• Managed by the State Treasurer• Voluntary participation by non-profit employers with
20 or fewer employees• Defined contribution 401(k) plans• Auto-enroll with opt-out• Default contribution at 6% or can choose 4% with
auto-escalation up to 10%• Fees estimated to be well under 1% (20-80 bps)
Massachusetts - 401(K) for Non-Profits
• Managed by State Department of Commerce• Voluntary participation for employers with less than 100
employees• SIMPLE IRA, myRA (Roth IRA), and payroll deduction
IRAs and others can be added• Employer contributions encouraged (ERISA plans
encouraged)• To be built and funded by private sector• Fees cannot exceed 1%
Washington State – Marketplace Model
x Federal Regulatory Oversight ERISA or non ERISA plan
x Account Structure IRA (traditional, Roth, or other options) 401(k) type plan
x Employer Participation Mandatory or voluntary Employee threshold (from 5 to 100) Employer contributions Penalties for non-compliance
Major Differences in Design Features Across All Plans
x State Management Board (CA, IL, & OR) vs. state agency (WA & MA)
x Implementation Study Requirements CA & OR must conduct analyses and go back to
LegislatureWA must have rules reviewed by Legislature IL & MA can implement as enacted Summer 2017 key target timeframe for launches
Major Differences in Design Features Across All Plans
• Funding Availability• Market & Feasibility Analyses Role in Plan
Design • ERISA Uncertainty• Outreach to Stakeholders • Building and Managing the Program
Implementation Issues & Challenges
Successful Reform Needs An Effective Sequencing Process
Merton-Muralidhar (working paper) examines this approach for uncovered workers’ voluntary defined contribution (DC) reforms
Understand Population Being
Served(Legislature/
Technical Teams)
Clearly State Objectives To Be Achieved(Legislature)
Work With Design Features to
Achieve Objective(Technical
Teams/Board)
Ongoing Evaluation and
Revisions(Technical
Teams/Board)
Understand Target Populations and Needs Sooner Rather Than Later
Engage Stakeholders Early and Often Define Overall Policy Goals and Objectives Design the Program to Meet Your Goals Be Prepared to Refine the Program Design Keep the Future in Mind – How Will Success Be
Measured?
State Lessons Learned…So Far
On July 31st, 2015, the President Directed DOL to Issue Rules to "Provide a Clear Path for States to Create Retirement Savings Programs.”
DOL to issue proposed policy changes by end of 2015 with goal to finalize by end of 2016. Rulemaking will address 2 approaches:
1. “Non-ERISA” - Mandatory, auto-enroll IRAs Proposed rules expected to provide updated guidance on safe harbors that avoid ERISA
preemption. 2. ERISA covered – 401(k) defined contribution plans Proposed guidance will look at the use of the Multiple Employer Plan (MEP) arrangement by
the state to facilitate plan formation and take burden off of employers, but maintain ERISA protections.
ERISA applicability does not allow program to be mandatory for employers (ERISA plan can be an option in a marketplace model)
DOL ERISA RULEMAKING:The $64,000 Question
Georgetown Center for Retirement Initiatives McCourt School of Public Policy
Website: cri.georgetown.edu
Follow us on social media for updates:@cri_states
Broad Coalitions Support ActionSupporters in Illinois:
TIAA- CREF
Cabrera Capital
Ariel Investments
American Society of Pension Professionals and Actuaries
Illinois Black Chamber of Commerce
National Association of Women Business Owners
AARP
Supporters in Washington:
American Council of Life Insurers
Securities Industry and Financial Markets Association
AARP
Trends in program design:401(k) plans vs. payroll deduction IRAs
401(k) Plans IRA StructureERISA-covered Yes - DOL ERISA rules provide a pre-existing
framework. Need to consider public entity’s role in
fiduciary governance or potential fiduciary outsourcing
No? - if designed to limit employer involvement. (Awaiting additional DOLguidance.) Need to consider alternative provisions
if ERISA does not apply, such as fiduciary standards and enforcement provisions.
Employer contributions Can be included in the design Not under current DOL regs if seeking to exempt from ERISA coverage
Subject to 4975 prohibited transaction rules Yes – need to consider impact of proposed DOL fiduciary investment advice regs
Institutional investment vehicles Same as 401(k) plans generally IRAs may not have the same range of investment structures.Based on current securities law exemptions No CITs? No stable value option
Protected from employee insolvency Yes State by state analysis
Additional legal considerations:
• Consider leveraging economies of scale – such as 457 or 529 programs – to providing for institutional pricing and use of existing administrative structure
• Need to weigh the pros and cons of using form documents vs. custom legal documents
• How will principles of governmental immunity apply to the program? State law remedies?√ Remember that this is new ground and existing legal principles
may not always fit in the same way
•
California’s Retirement Landscape• Over 7 million California workers lack access to workplace
retirement savings plans.– Non-white workers and women are disproportionately
represented – 64.7% are age 34 or younger– 68.4% are Hispanic– More than half work for employers with fewer than 100
employees.– Median income is $25,000 annually
California Secure Choice Retirement Savings Trust Act of 2012
• State administered payroll deduction savings program• Mandatory for employers with 5 or more employees who
offer no retirement savings plan• Voluntary for employees – automatic enrollment with opt
out• Portable, low cost, low risk
California Secure Choice Retirement Savings Trust Act of 2012
• Market analysis and feasibility study required (to be conducted with donated funds)
• No implementation if:– “the IRA arrangements offered fail to qualify for
favorable federal income tax treatment”– “if it is determined the program is an employee benefit
plan under ERISA”– If it is determined the plan will not be “self-sustaining”
Secure Choice Retirement Savings Investment Board
John Chiang State Treasurer,
Chair
Betty Yee State Controller
Michael Cohen Director of
Finance
Ed De La Rosa CA State Senate
Appointee
Yvonne Walker CA State Assembly Appointee
Cindy Pollard Governor Appointee
Bill Sokol Governor Appointee
Marty Morgenstern
Governor Appointee
Heather Hooper Governor Appointee
Fundraising
2013-2014 Fundraising and Procurement
Executed Contracts for the work:• K&L Gates – tax and ERISA legal work• Overture Financial – Market Analysis, Feasibility, Program Design.
The team includes:– Segal Consulting– Greenwald and Associates– UC Berkeley Center for Labor Research and Education– Bridgepoint Group
2015 – Market Analysis, Feasibility Study, DOL Proposed Rulemaking, etc.
• Conversations with the U.S. Department of Labor• The study approach• Secure Choice “listening tour”• Engagement efforts with Office of Management and
Budget• Capitol Hill Policy Staff meetings (Oct 7th)• IRS Tax Treatment
Research Findings
• Population behavior• Two-prong approach• Access to funds• Contribution rates
Questions?
• http://www.treasurer.ca.gov/scib/• Christina Elliott, Acting Executive Director
(916) 653-4046
http://www.treasurer.ca.gov/scib/
Moderator:Sabrina Bailey, Senior Vice President, Northern Trust Asset Management
Speakers:Sarah M. Gill, Senior Legislative Representative, AARP
Angela M. Antonelli, Executive Director, Center for Retirement Initiatives, and Research Professor, Georgetown University
Marla Kreindler, Partner, Morgan, Lewis & BockiusChristina Elliott, Acting Director, California Secure Choice
How do State Programs Change the Retirement Landscape?
Slide Number 1Slide Number 2A Familiar Headline: Half of All Households At Risk�Flipping the Script: Reaching Untapped Market�Access to Retirement Plans by Income- Not All Small Dollar Accounts �Rethinking the Access Profile �SolutionsWorkers are 15x More Likely to Save if Employer Offers Plan �529 Plans: A Model for Retirement?All Boats Rise: 529 PlansA National Movement Begins: 2013National Movement: Half the Country Taking ActionIf You Build It They Will ComeIf You Build It They Will ComeFrom Crisis to Opportunity25 States Have Considered or Enacted �Private Sector Retirement InitiativesMore than 20+ These States Acted in 2015 to Address Retirement SecuritySome Common Design Features (CA, IL, OR)�PLAN DESIGNSome Common Design Features (CA, IL, OR)�ADMINISTRATIVE STUCTUREMassachusetts - 401(K) for Non-ProfitsWashington State – Marketplace ModelMajor Differences in Design Features Across All PlansMajor Differences in Design Features �Across All PlansImplementation Issues & Challenges��Successful Reform Needs �An Effective Sequencing Process�Merton-Muralidhar (working paper) examines this approach for uncovered workers’ voluntary �defined contribution (DC) reforms���State Lessons Learned…So FarDOL ERISA RULEMAKING:�The $64,000 QuestionSlide Number 28Broad Coalitions Support ActionTrends in program design: �401(k) plans vs. payroll deduction IRAsAdditional legal considerations:California’s Retirement LandscapeCalifornia Secure Choice Retirement Savings Trust Act of 2012California Secure Choice Retirement Savings Trust Act of 2012Secure Choice Retirement Savings Investment BoardFundraising2013-2014 Fundraising and Procurement2015 – Market Analysis, Feasibility Study, DOL Proposed Rulemaking, etc.Research FindingsQuestions?Slide Number 41Slide Number 42