First the Health Care Mandate, Next a Retirement Benefit Mandate?

Sep 20, 2012

Aliya Wong, executive director of Retirement Policy, U.S. Chamber of Commerce

Businesses already feeling burdened by the weight of being required to offer employee health insurance beginning in 2014 under the Affordable Care Act now could have another government mandate to worry about.

Over the summer, Sen. Harkin (D-IA), chairman of Senate Health, Education, Labor, and Pensions Committee, issued a white paper about a new proposal to require employers that do not offer a workplace retirement plan with automatic enrollment and a minimum level of employer contributions to automatically withhold a portion of their employees' pay and send such amounts to a USA Retirement Fund. In addition, these employers would be required to make "modest" contributions. 

That’s the wrong approach. Workers’ retirement security must be protected, and employers’ ability to provide flexible and comprehensive compensation packages preserved. To achieve these goals, the private system must remain voluntary, flexible, and include incentives for saving. Any changes to the current system should focus on simplicity and innovation—not more heavy-handed government mandates.

The key element of the private retirement system is its voluntary nature. While there is widespread agreement on the importance of retirement savings and programs, not every employer is able to offer a retirement program. Employers with extremely small profit margins cannot afford mandatory benefits without losing employees. Concerns about liability and administrative burdens associated with retirement plans present additional obstacles.

The best way to bring these businesses into the fold is to encourage innovation in plan design that accommodates changing demographics and evolving workforce needs. No single plan design is perfect for every company or every worker. The freedom to innovate has enabled many employers to continue participating in the private retirement system and even offer more than one type of plan.

Moreover, a proposed overhaul of the current retirement system ignores its success. Today, 82 million households have defined benefit plans, defined contribution plans, or individual retirement accounts. These households have a combined $17.9 trillion earmarked for retirement. Income from defined benefit and defined contribution plans represented 19% of retiree income in 1975; by 2009, it accounted for 26% of retiree income. The number of retirees receiving retirement income from employment-based plans has also grown, from 20% of retirees in 1975 to 31% in 2009.

Let’s build on the success of private retirement system – not scrap it - by reducing unnecessary regulatory requirements, liability, and administrative burdens and requiring more predictability and consistency among the regulatory agencies.

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In April 2012, the Chamber issued a white paper titled Private Retirement Benefits in the 21st Century: A Path Forward in response to concerns about retirement security.

On September 20, 2012, Aliya Wong participated in the Senate HELP Committee Roundtable Discussion: Pension Modernization for a 21st Century Workforce, where she defended the voluntary nature of the private retirement system. You can read her written testimony here.

 

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