Making retirement security a bipartisan reality

When government relations expert Nicole Petrosino was hired in 2014 to take charge of LPL Financial’s lobbying efforts on the federal level, its then-CEO was quoted saying “as the regulatory environment continues to evolve, it is crucial that independent advisors and the millions of investors they serve have a voice in the policy discussion at the federal and state level.”

It would be an understatement to say that a lot has changed in the regulatory environment, the financial industry, and the world, since 2014. Yet it’s even more true today that the financial industry desires to be part of the policy discussion around retirement saving.

An important piece of the policy discussion centers around small business owners and their ability to offer retirement plans to their employees. Petrosino is uniquely positioned to offer perspective, having held positions in the private sector at MasterCard and TIAA, and in the public sector as a member of President George W. Bush’s administration.

As LPL’s SVP of Federal Government Relations, Petrosino discussed via email the work being done to help small business owners and what is left to do.

BenefitsPRO: After the beating small business owners have taken in 2020, is there still interest in (and ability to?) help employees with retirement saving? What policy changes and tax incentives would encourage more employers to do so?

Nicole Petrosino: No one can argue the disparate negative effect that this pandemic has had on Main Street. Members of Congress are seeing the results every day back home in their districts and states.

Even before the COVID-19 crisis, many small businesses did not offer their employees a retirement savings vehicle. For example, only 28% of businesses with fewer than 10 employees offer retirement plans for employees. The participation rate gets a little better as the size of the business increases with 51% of businesses with 10 to 24 employees offering retirement plans and 63% of businesses with 25 to 49 employees offering retirement plans, according to a report by SCORE.org. The reasoning for these results vary; many small business owners cite lack of time to explore such an option, in addition to the perceived cost, as well as the administrative burdens.

Our financial service professionals, who also are small business owners that offer plans, are some of the best advocates that we can have for retirement savings. They tell their colleagues and small business clients to look at it as a tool to help build a strong, thriving, and secure business because it helps them attract and retain top talent.

In an effort to help Americans save for retirement, House Committee on Ways and Means Chairman Neal and Ranking Member Brady introduced the Setting Every Community Up for Retirement Enhancement (SECURE) Act, which had bipartisan, bicameral support, including from Senate Finance Chairman Grassley and Ranking Member Wyden, Reps. Kind and Kelly, and Senators Portman and Cardin.

We supported the bill and advocated for its passage because we recognized the unique challenges and costs that small businesses face when offering a retirement plan. The SECURE Act included provisions for enhancing the tax credit for putting a 401(k) in place with the goal of dramatically reducing the out-of-pocket expense for many small businesses.

In addition, it also offered tax incentives for automatic enrollments and automatic increases in contribution rates, which are shown to have an extremely positive impact on overall participation and average contribution rates.

As we look forward to next steps, we believe that there is a need for further assistance in rebuilding Americans’ retirement security.

We strongly support the bipartisan broad retirement reform introduced by Senators Portman and Cardin in 2019, which would significantly help in this rebuilding process, such as by further enhancing the small business start-up credit, and by further improving automatic enrollment and automatic escalation of contribution rates.

In addition, we are very much looking forward to the introduction of “SECURE 2.0” by Chairman Neal and Ranking Member Brady.

Also, in response to the economic crisis, Reps. Brad Schneider and Mike Kelly introduced the Preserving Employee Retirement Savings Act of 2020, which would establish a temporary tax credit for small employers that, despite facing economic challenges, maintain retirement benefits during the COVID-19 pandemic. We sent a letter of support for the bill earlier this year and continues to advocate for its enactment into law.

What is the effect of state-sponsored plans such as CalSavers and OregonSaves?

We understand the importance of having access to a safe and secure retirement. For a number of reasons, however, we strongly believe in a federal solution to our retirement security challenges.

First, we are concerned about the viability of many inconsistent and possibly conflicting state laws that may make the retirement system daunting for both employers and employees.

Second, the state programs do not provide either employers or employees with the fiduciary and other protections of the federal law, ERISA, which have ensured the safety of private retirement plans for over 45 years.

Third, the opportunities for savings in these state programs are extremely limited, so that in many cases, employees who spend a lifetime saving in such an arrangement may still be unprepared for retirement.

We applaud the states for taking this initiative, but in our view, real retirement security needs to be based on a fully protected and robust retirement plan.

Are there ways governments, employers and the financial services industry can better educate Americans about the importance of saving?

This is a complicated question. I think most Americans do recognize that saving for retirement is critical. It’s just a matter of Americans prioritizing saving and also having access to a retirement plan. Most Americans save through a retirement savings plan that is offered through their employer.

Many Americans work at small businesses that may not offer retirement benefits to their employees. In addition, prior to the pandemic, an increasing number of Americans were part of the gig economy, meaning they worked as independent contractors and were not offered retirement benefits through an employer. Therefore, these Americans are left to save on their own, which many find to be complicated, confusing, as well as intimidating.

In our discussions on Capitol Hill, most members of Congress recognize that there is a retirement savings challenge in America. That is the reason there are several bipartisanship efforts underway to try to alleviate the crisis. Strengthening retirement security for Americans continues to be one of the few issues that remain bipartisan in Congress.

For example, as noted, the Setting Every Community Up for Retirement Enhancement (SECURE) Act had Republican and Democratic co-sponsors. It passed the House Committee on Ways and Means unanimously and was enacted into law in December of 2019. We supported the bill and advocated for its enactment.

In addition to the SECURE Act, also as noted, Senators Rob Portman (R-PA) and Ben Cardin (D-MD) continue to prove that bipartisanship isn’t dead. They have worked on retirement savings legislation together for over two decades, starting back when they were in the House.

Last year, they introduced the Retirement Security and Savings Act of 2019, which also included many provisions that will help Americans save for retirement and will provide employees with the educational and savings tools they need.

Also, we are very much looking forward to the introduction of “SECURE 2.0” by Chairman Neal and Ranking Member Brady.

Regardless of your politics, I think everyone can agree that opportunities do exist to improve the process of saving for retirement, as well as how to spend those savings in retirement. The goal of our advocacy work is to share our financial professionals’ expertise with policymakers and to help these bipartisan retirement security proposals become a reality.