President Barack Obama is promoting two proposals that would deliver two more blows to the voluntary nature of the private retirement system.
In his 2010 budget blueprint unveiled Feb. 26, President Obama proposed requiring employers sponsoring 401(k) or similar defined contribution plans to offer automatic enrollment. A second proposal would require employers without existing retirement plans to enroll their employees in a direct-deposit individual retirement account.
The president's proposals follow one in the works by senior Democratic congressmen that would provide funding relief to companies with defined benefit plans that commit, for an undefined period, to keep their plans open (Pensions & Investments, Feb. 23).
All three are seen as steps toward changing the nation's retirement system from a voluntary one to a mandatory one. And the potential for a combined assault on the voluntary nature of retirement plans is giving some pension industry lobbyists the shudders.
Chief among their concerns is the possibility of additional requirements, such as a mandate that employers provide matching contributions to their defined contribution plans, something that has always been voluntary, said Ed Ferrigno, Washington vice president of the Profit Sharing/401(k) Council of America, Chicago.
“Where does this stop?” asked Mr. Ferrigno. “It's very ominous.”
Kathryn Ricard, vice president of retirement policy for the ERISA Industry Committee, Washington, agreed: “It's that slippery slope of what's next; that's what gives us pause.”
“Employers will be concerned that this is the first mandate in what has been a voluntary system,” said Jan Jacobson, senior counsel, retirement policy, American Benefits Council, Washington.
Despite those concerns, the concept of enrollment mandates has the support of the mutual fund industry's Investment Company Institute, Washington.
“We should consider requiring all 401(k) plans to use automatic enrollment and automatic savings escalation,” Paul Schott Stevens, ICI president and chief executive officer, said at a Feb. 24 hearing on strengthening retirement security before the House Education and Labor Committee.
In a follow-up interview, Rachel McTague, an ICI spokeswoman, said: “The institute is a strong supporter of using automatic enrollment and automatic escalation features because of their powerful positive impact on America's retirement savings habits. It is good public policy.”