Sen. Tom Harkin's retirement plan proposal – released Jan. 30 — has some flaws, not the least of which is that employers who offer 401(k) plans would have to change their current plans to be more like defined benefit plans if they didn't want to be forced to adopt Harkin's USA Retirement Fund, according to the National Association of Plan Advisors.
Just offering any 401(k) is not enough to keep employers from having to provide a USA Retirement Fund account. Under the legislation, an employer-provided 401(k) must include automatic enrollment and a lifetime income option. If it does not, it must change its plan to do so.
"In order for employers to be exempt from the USA Retirement Fund requirement … they would have to alter their 401(k) plan to look more like a defined benefit plan, which may be a burden on the employer. Instead we should focus on expanding retirement savings opportunities rather than trying to change the current system," said Brian Graff, executive director and CEO of the American Society of Pension Professionals & Actuaries and NAPA.
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The legislation, which NAPA points out is a rehash of a 2012 Harkin proposal that never made it into an official bill, would take away an employer's fiduciary duty, instead assigning it to a board of trustees that would be pulled from private-sector investment firms and would be appointed by the Department of Labor.
The USA Retirement Funds would be managed like Social Security in that employers would have no decisions to make about it but would facilitate deferrals into the accounts via the payroll system.
The plan is designed to reach small and middle-income people who do not have access to an employer-sponsored retirement plan. Enrollment would be automatic at 6 percent of compensation, but employees could opt out if they wanted to. Employers with 10 or more employees would be required to offer the plan if they don't already offer a defined benefit pension or defined contribution plan.
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