Senator Elizabeth Warren (D-MA) did good work with her writing on behalf of financial consumers, driving creation of the Consumer Financial Protection Bureau (CFPB).
But lately, you have to wonder if she hasn’t jumped the shark.
In July, Warren teamed with Steve Daines (R-MT) to introduce legislation called The Retirement Savings Lost and Found Act of 2016 (S. 3078). The law aims to address an obscure retirement planning problem that almost nobody complains about – namely: 1) a participant leaves a job with a 401(k) balance of $5,000 or less in a 401(k); 2) the employer chooses to “force out” the participant by transferring the balance to a Traditional IRA with a default investment choice; and 3) the IRA suffers from neglect and performs poorly. Apparently, some people forget they own these IRAs!
To remedy this problem, S.3078 would establish a federal Office of Retirement Savings Lost and Found to centralize the information participants need to track force-out IRAs. It also would require employers to report to the Office, via the IRS, information on all force-outs. Finally, it would require any force-outs of $1,000 or less to be sent to the federal government for investment in U.S. Treasuries.
While this bill would produce small benefits for retirement plan participants, it is another brick in a growing wall of federal government meddling in private retirement plans, their information and investments.
The U.S. government clearly wants to know as much as possible about where retirement plan money is held. It would eventually like a hefty share of it to be invested in U.S. Treasuries.
In initiatives such as S. 3078, what federal policymakers seem to fear most is the idea that plan participants will make their own proactive decisions based on professional advice.
There was an alternative route Warren-Daines could have taken to fix the problem – namely, require employers to offer participants education at the time of any force-out. Emphasize participants’ right to choose their own IRA with professional help. The CFPB has written a number of educational guides, in plain English, that are proving useful to consumers of mortgages, credit cards and other financial services. Why not one for force-out participants?
The answer is that the concept of financial consumerism is shifting in Washington. The federal government wants more of the $7.3 trillion in IRAs and $6.7 trillion in defined contribution plans to be invested long-term in U.S. Treasuries. On their own or with professional guidance, most consumers aren’t likely to choose Treasuries. So, financial consumerism is starting to mean: “Let the feds take care of you and make automatic investment decisions for you. It’s better than you can do on your own.”
There is a way you can help your small business clients avoid new federal reporting, provide a valuable service to participants, and protest against a new Department of Retirement Savings Lost and Found.
It is to offer plans in your market a free counseling session to any participant who may be facing a force-out. In many cases, potential force-out situations can be identified months before they happen, and that’s the best time to offer advice. If you currently deliver 401(k) enrollment education, emphasize the need to make proactive IRA rollover decisions to avoid force-outs.
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