We face a serious retirement security crisis. Fewer than one third of Americans aged 65 to 74 have any savings in a retirement account and the accounts that exist are inadequate to provide a secure retirement—the median balance is just $49,000. The situation for younger workers is even more dire. Too many millennial workers simply do not earn enough to save for retirement. According to a recent Pew study, 41 percent of millennials work for an employer who does not offer access to any retirement savings plan. Yet we know that offering savings opportunities at work is the best way to get people to actually save for retirement—fewer than 10 percent of workers without that on-the-job access find ways to save on their own. Thus, one thing is clear: We must make it easier for people to save for retirement through their work.
The retirement security crisis poses a classic public policy challenge: How can we encourage a positive behavior that the public has, so far, been reluctant to embrace? There are a few basic principles to keep in mind when taking on this challenge: (1) If you have an intractable problem, you shouldn’t expect the same old, tired policies to solve it—you need to spur and support policy innovation; (2) If you want to encourage a specific behavior, you should lower any barriers discouraging that behavior, for example, make it easier and/or cheaper; and (3) Explain clearly to the public how your policy will affect them so that they understand the fact that you are indeed solving a very real problem for them.
Our approach to attacking the retirement security crisis in the Obama Administration followed these three principles. Just look at the Department of Labor’s (DOL) final rules for facilitating state and local efforts aimed at creating new retirement savings programs. Eight states passed laws to create state-administered retirement savings programs that automatically enroll workers whose employers don’t offer retirement plans into government administered low-cost savings plans. The DOL rules clarified that these new state plans were consistent with the existing federal retirement security law, the Employee Retirement Income Security Act (ERISA), encouraging more states and cities to adopt this innovative approach or to come up with their own novel ideas.
Congressional Republicans, along with the Trump Administration, are poised to quash these new programs. The decision to use the Congressional Review Act to invalidate the DOL rules violates all three principles of good policy:
Undermining innovation: By blocking the DOL rule, Congressional Republicans and the Trump Administration are reversing the most promising innovation in retirement security policy in generations. Moreover, by using the blunt hammer of the CRA, which not only invalidates the rules currently on the books but also similar regulations, they will be precluding any future efforts to spur innovation at the state or local level. In light of the fact that they haven’t offered a single new idea to enhance retirement security, they are condemning American workers to the status quo; one that we already know doesn’t work.
Raising barriers: A key value of the new state retirement initiatives is that, by relying on an “opt out” model, workers are automatically enrolled, unless they explicitly ask not to be. This makes it much easier for workers to take advantage of the opportunity to save while on the job. In addition, these plans offer economies of scale in terms of administrative costs not available to workers who are currently trying to save on their own, meaning these new options are cheaper than those that currently exist. Congressional Republicans and the Trump Administration are forcing workers to do the hard work of navigating the world of the financial services industry on their own—an onerous and expensive proposition. When coupled with the added financial burden on seniors of the Affordable Care Act repeal bill, Republicans are making the barriers to retirement savings higher and higher, likely resulting in more and more insecurity.
Violating trust: The Trump Administration’s explanation for why it wants to gut these rules can be described, at best, as disingenuous. The Administration’s Statement of Administration Policy expresses concern that current rules don’t contain adequate consumer protections. Yet the Trump Administration has absolutely no credibility in this area, particularly after their efforts to undermine the Obama Administration’s fiduciary rule—a rule simply stating that financial advisors must do what’s in the best interest of their customers, and the most significant consumer protection for retirement savers since the passage of ERISA. They are poised to reverse the fiduciary rule and return more than $17 billion a year from retirement savers to big Wall Street firms. The only possible explanation for the Trump Administration’s position is a desire to again favor Wall Street rather than Main Street; the financial services industry is afraid that these state programs will offer lower-cost savings options for workers, who then will refuse to pay the higher fees the industry charges consumers when they have no other choice but to go it alone.
While fully solving the retirement security crisis is not easy, the Obama Administration started to make progress in moving innovative, promising policies. Worse than offering nothing at all to middle class Americans anxious about how they will manage, never mind actually enjoy, their golden years, Congressional Republicans and the Trump Administration are determined to undo any progress that has already been made.