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Editorial

Retirement legislation just first step

Congress finally appears ready to tackle the issue of the millions of private-sector employees without access to an employer-sponsored retirement plan.

Bipartisan groups in both houses of Congress have developed retirement reform packages that attempt to make it easier for small employers to offer retirement plans to their employees. However, the packages differ in details.

Early this month the leaders of the Senate Finance Committee introduced a new version of the bipartisan Retirement Enhancement and Savings Act, a slightly modified version of the bill that was developed last year but did not make it out of the Senate.

The House Ways and Means Committee also has passed a bipartisan bill, the Setting Every Community up for Retirement Enhancement Act of 2019, or SECURE Act, which includes the key provisions of the Senate bill.

Both bills seek to make it easier for small employers to join multiple-employer plans, easing non-discrimination rules for frozen defined benefit plans and adding a safe harbor for selecting lifetime income providers in defined contribution plans.

Both bills would encourage employees to increase their retirement savings annually through automatic increases in contributions to defined contribution plans and require employers to provide estimates of how much retirement income an employee's account would provide if it were invested in an annuity.

Since both bills have bipartisan support, the chances are good that reform will make it through Congress this year, but they are unlikely to be enough to solve the problem of the millions without retirement income plans.

It is often said that life insurance policies are sold, not bought. The same must be said for retirement savings plans, at least for the segment of the population that is not now covered by an employer-sponsored plan.

The bills may make it easier for small employers to band together to start multiple-employer defined contribution plans or to join existing ones, but who is going to persuade those employers to take the necessary first steps? Who is going to sell the idea of starting or joining multiple-employer plans to the employers? What are the incentives for small employers to do so?

Are the potential income streams from hundreds or even thousands of small employers joining such plans enough to gain the attention of fund administrators and managers and prompt them to set up new marketing teams?

Who will sell to low-income employees the idea of setting aside a significant part of income today for retirement many years in the future? Will employers take on this responsibility after they have been persuaded to start a plan or have joined an existing plan?

Who will take on the responsibility for the continuing investment education of the employees who are enrolled in such plans by their employers?

Some institutions may step up, but it is likely that these bills will fall short of the goal of winning retirement plan coverage for all or most private-sector employees of small companies.

In short, even if these bills pass Congress and are signed by President Donald Trump, the job will not be done. If the new bills fail to significantly reduce the number of private-sector employees without an employer-supported retirement plan, additional steps may be necessary. The U.S. might have to consider requiring all employers to provide access to such a plan for their employees.

Perhaps the first step in what is likely to be a long march to something like Australia's mandatory defined contribution plan system was taken in recent weeks when Sens. Amy Klobuchar and Christopher Coons, and Reps. Lisa Blunt Rochester, Scott Peters and Lucy McBath introduced legislation that would require companies with 10 or more employees to contribute 50 cents per hour worked to a retirement account or a universal personal savings account modeled after the Thrift Savings Plan for federal workers.