Dive Brief:
- With the continuing disappearance of the defined benefit pension model, saving for retirement is a critical workplace issue that has not been easy for employers or their employees. In turn, the U.S. Labor Department released a rule that gives states more leeway in offering state-specific retirement plans for private-sector workers who don't have a savings accounts workplace option.
- According to the Washington Post, the rules provide a new, easy-to-follow road map for states who want to provide such plans but don't have enough federal guidance. Apart from states, the Labor Dept. also unveiled a related proposed rule that would give large cities the option to create their own IRA-based plans as well.
- In its most basic form, the new federal guidance will give states (and eventually cities) who create their own plans the ability to enroll workers automatically into individual retirement accounts (IRAs).
Dive Insight:
The Post reports that workers will be able to have their contributions automatically deducted from their paychecks, an option typically unavailable for people saving for retirement outside of an existing workplace plan. Research shows that having the workplace deduction makes it much more likely employees will save (rather than doing it on their own).
There is a difference between these new IRAs and typical 401(k) plans, as those saving through these new IRAs would not be eligible for employer-matching dollars and face lower caps than employees saving through 401(k)s. The rules outlined Thursday explain that plans will not be subject to the Employee Retirement Income Security Act (ERISA) if they meet certain criteria. However ,there is expected to be fierce opposition from financial professionals and conservatives that worry the move may increase costs for states and taxpayers or compete with plans that are already available. In fact, litigation is already underway in an attempt to block the rule from going into effect.
Above that, the White House and Labor Dept. rule does dovetail nicely with the emerging trend of employers looking to add financial wellness efforts and programs to their current benefits platform.