The push to create a framework for states to establish their own retirement savings plans for private-sector employees that do not have access to workplace retirement savings is going to be at the forefront of regulatory battles in 2016, according to industry and government watchers. A guidance issued by the U.S. Department of Labor has set the stage for a battle that will pit federal and state legislators against financial industry groups, who are advocating for the enhancement of existing structures instead.

"We are going to see a lot of action [for state-sponsored plans] at state and federal levels," said Josh Cohen, head of institutional defined contribution at Russell Investments. "But there are also a lot of roadblocks. It is an area that will continue to evolve in the coming years, if not decades."

The DoL’s proposal follows on the heels of states like Washington and Oregon that moved forward with plans to have employers that do not offer a retirement savings plan to their employees sign their workers up to either a DC plan sponsored by the state or individual retirement account arrangements with automatic payment deductions, as was the case with Illinois.

Illinois was the first state to introduce and pass into law such a proposal (MMI, 1/16/15). A similar bill at the federal level failed (MMI, 1/26), and many at the state level felt there was insufficient guidance for such plans. Sensing a loss of momentum, the White House decided to intervene; President Barack Obama’s administration views retirement security as a critical issue.

In mid-November, the DoL unveiled a proposal seeking to preempt attempts to have such state-sponsored programs governed under the Employee Retirement Income Security Act of 1974 (ERISA). By removing the requirement to adhere to ERISA’s very particular standards, the federal regulators hope to encourage states to continue with their plans (MMI, 11/17).

The financial industry has been resistant to welcoming state sponsored plans that could potentially cut into the industry’s market share. "The contemplated state programs pose serious hazards for employers and workers, who could be forced to turn their savings over to the same state agencies that have created a $1.4 trillion shortfall in public-sector workers’ pensions," Paul Stevens, president and ceo of the Investment Company Institute, a trade group, stated in a release.

Other industry practitioners think it would be smarter, and less contentious, for the federal government to enable the private sector to make retirement savings plans more accessible to small businesses. "They should have made it easier to create multiple employer plans," said Robyn Credico, defined contribution consulting leader at Towers Watson. "It would be much more efficient this way."

Despite legislative efforts to enhance plans sponsored by multiple employers, little progress has been made on that front and not much should be expected either. "The Department of Labor is less favorable toward multiple employer plans," said Cohen, who between 2013-15 served on the ERISA Advisory Council, an independent advisory body composed of industry practitioners and members of the public.

Despite the Obama administration’s incentive to leave a strong legacy, some industry watchers doubt that 2016, an election year, will be ideal to push forward with substantial reforms. "People are going to be voting for a new president," Credico said. "Retirement is not a burning issue."

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