State-run retirement savings programs for workers without access to workplace 401(k) plans have hit a speed bump, according to a new paper from the Bipartisan Policy Center.
The state programs have run into problems enrolling workers due to overly aggressive customer identification program rules, the think tank said in the paper released Oct. 23.
The CIP rules, which were created by the USA PATRIOT Act of 2001 to prevent money laundering and the financing of terrorism, require state programs to run a CIP check on employees prior to enrolling them in the programs.
The BPC estimates that more than 2 million workers who were supposed to be enrolled in seven state programs failed the CIP check, often as a result of being unable to verify an address.
Overall, some 29% to 46% of potential program participants fail the CIP check and are not automatically enrolled, according to BPC research.
To correct the problem, the Washington think tank is pushing for an exemption from CIP rules that 401(k) and other federally qualified retirement plans enjoy.
“Regulators, recognizing that the CIP process can be burdensome for financial institutions, exempt from the CIP process a variety of customers and accounts that present a low risk of illicit activity,” authors Kim Olson and Emerson Sprick wrote in the paper.
As an alternative solution, the authors also proposed reducing or altering the information required to pass the CIP verification through legislation or regulation. The authors suggested requiring state programs to match only three pieces of information (name, date of birth, and Social Security or individual taxpayer identification numbers) rather than the required four (name, address, date of birth and Social Security or individual taxpayer identification numbers).
“With three new state auto-IRA programs in 2024 and an additional seven in the implementation process, the number of CIP failures — and workers prevented from accessing a valuable retirement-savings tool — will only increase in the coming years,” the authors wrote.
The eight states with automated retirement saving programs known as auto-IRAs — Illinois, California, Colorado, Connecticut, Maine, Maryland, Oregon and Virginia — had $1.8 billion in assets as of Sept. 30, according to Georgetown University’s Center for Retirement Initiatives.
