Public employees are the backbone of local communities, serving as teachers, firefighters, police, emergency medical technicians, park employees and in many other roles to benefit all of us. Without them, no town, city or county can function. But when it comes to retirement security, the playing field is not level for public employees.
Laws that apply to some public employee defined contribution retirement plans impede access to low-cost investment options and make it impossible for plan sponsors to implement auto-enrollment and auto-escalation, two very effective strategies for increasing participation and retirement plan contributions.
As one of the leading providers of public sector defined contribution plans, ICMA-RC has long sought to ease the burdens of local and state governments by helping their employees build retirement security. Angela Montez, ICMA-RC’s senior vice president, general counsel and chief legal officer, has advocated for changes at both the federal and state level to make it easier for public employees to save for retirement and bring them into parity with employees at private-sector companies. In this Q&A, she discusses this advocacy initiative.
P&I: How did ICMA-RC’s advocacy get started?
Angela Montez: ICMA-RC has always engaged in advocacy through participation in, and partnerships with, other organizations. We’ve found, however, that public sector retirement plan issues often get drowned out because the private-sector plan community is much larger and more vocal. We want to bring public sector issues into the conversation, providing the public plan perspective as members of Congress draft legislation and agencies develop regulations.
Our focus isn’t just on public sector retiree savings, but also their health, where we are furthering our mission. We also support issues pertinent to the larger retirement community to provide greater coverage and greater savings opportunities to all Americans.
P&I: You’re working to make collective investment trusts, or CITs, eligible as 403(b) plan investments. Tell us about that.
Montez: Historically, 403(b) plans, which are DC retirement plans for employees of public schools and certain other tax-exempt organizations, were almost entirely invested in annuities to provide a guaranteed income stream similar to a defined benefit plan. These plans couldn’t even include mutual funds until 1974.
Because of this history, you see significantly higher fee structures in 403(b) plans than in 401(k)s and 457 plans. CITs can help reduce expenses. They provide the same investment strategies as mutual funds with greater flexibility and at a significantly lower cost. It has been estimated that incorporating these vehicles into 403(b) plans could save teachers and other public employees as much as $10 billion per year* — a meaningful contribution to public employee retirement security.