Facilitating State-Level Action to Support a Secure Retirement

Ed. note: This is cross-posted on the U.S. Department of Labor's blog here.

Today, we took an important step forward in the Obama Administration’s push to provide a secure retirement for more of America’s workers – building on efforts to increase retirement savings options, reduce conflicts of interest in retirement advice, and open doors to more investments for retirement plans. As directed by the President this summer, the Department proposed a rule to set the stage for more states to create retirement savings options that help their workers save for retirement at work.

We care about states creating safe and secure savings... The flexibility allowed for in our rules will help foster innovation.

Thomas E. Perez, Secretary of Labor

Too many Americans reach retirement age with insufficient savings to supplement their Social Security and enjoy a secure retirement, even after a lifetime of hard work. In fact, less than one-third of individuals aged 65–74 have any savings in a retirement account, and those that do have a median savings balance of just $49,000. Fortunately, we know how to increase retirement savings: the data show that workers, especially lower-income workers, are most likely to save for retirement if they have access to a workplace savings plan and are automatically enrolled in that plan. Automatic enrollment removes the inertia against savings by defaulting workers into retirement accounts, but still allows them to opt out if they so choose. But right now, approximately 68 million workers do not have the opportunity to save for retirement through their employer.  While workers without access to a workplace plan can save on their own using an Individual Retirement Accounts (IRA), fewer than 10 percent do so.

That is why, in every budget since taking office, the President has proposed to automatically enroll in an IRA approximately 30 million employees without access to a workplace retirement savings plan. Congress has failed to act on this proposal, but the good news is that individual states have moved ahead, with states including Illinois, Oregon, Washington and California passing legislation to create payroll-based retirement savings vehicles.

But concerns that such programs may run afoul of federal pension law have hindered efforts at the state level.  The rule that the Department of Labor is proposing today gives states the best possible path forward consistent with federal law.

It’s important to note that we care much more about states creating safe and secure savings opportunities than we do about exactly what the programs look like.  We know that there is no one-size-fits-all approach to this, and that good ideas are going to spawn even better ones. That’s why we’ve released two different pieces of guidance today: a proposed rule that will facilitate states moving forward with the automatic IRA approach and an Interpretive Bulletin for states that are interested in a 401(k) approach.  The flexibility allowed for in our rules will help foster innovation.

The proposed rule will be published for public comment in an upcoming edition of the Federal Register, and we encourage you to give us your feedback.