Monthly Archives: March 2016

NYC Proposes Their Own Private-sector Retirement Plan, Making a Bad Idea Even Worse

PUaRYiqNew York City’s mayor Bill de Blasio called for a city-run retirement system for private sector employees in his annual keynote “State of the City” address last week, following the lead of more than a dozen states across the country.

De Blasio revealed that he wants the city to become the first city in the country to offer a retirement system to private employees. Reuters reported last week that “some states have already started looking at introducing plans for private sector workers, leveraging the extensive infrastructure, know-how, and cost benefits they have acquired in running plans for public employees.”

I’m not sure how many states and cities could make such a statement and keep a straight face given their miserable history in “running plans for public employees”.

Apart from the clear track record that having municipality oversight of private sector employee retirement funds opens the door for corruption and abuse, the entire structure of such a program flies directly in the face of the very reasons why the Employee Retirement Income Security Act (ERISA) was signed into law over 40 years ago. ERISA exists to protect workers and provide a federal preemption in order to insure uniformity in retirement plan structure across the country.

The New York Times reported in August 2014 that the New York City overseen pension plan for general works was only 63 percent funded as of the end of 2012. This is a dramatic decrease from being in an “overfunded” situation back in 1999 of over 135 percent. In other words, this New York City Pension Fund doesn’t have anywhere near the amount of money that will be needed to cover retiree pension obligations with only a dangerously low 63% funding level.

The Times also reported that in 2013 Morningstar, the investment research firm, evaluated for the first time the strength of state and local pension systems across the country and rated New York City’s as “Poor”. Only a few major cities’ pension systems garnered such a low rating, said Rachel Barkley, a municipal credit analyst who wrote the report for Morningstar. And despite state laws calling for regular audits of the city pension system, the Times found that there has not been an audit performed on the New York City plans since 2003.

New York City might be the poster child for municipal pension plan mismanagement, Illinois and the City of Chicago notwithstanding.

Is this the “extensive infrastructure, know-how, and cost benefits” that the City has gained that should now be leveraged for private sector employees?

I don’t think so.

Recently, New Jersey Governor Chris Christie vetoed a proposed state-run private sector retirement plan citing his reluctance to create even more government bureaucracy when the resources to provide retirement plan coverage already exist in the private sector.

“I share the sponsors’ concerns for the financial future of the residents of New Jersey, but I believe that the approach taken by the Legislature — mandating participation under a threat of fines for not participating — is unnecessarily burdensome on small businesses in New Jersey,” Christie said in his veto statement. “The bill also requires the state to bear the initial cost of creating the program, subject only to reimbursement when funds become available.

“Finally, the bill creates yet another government bureaucracy to oversee and implement the program, while there are plenty of private-sector entities with particular expertise that can perform this function instead.”

Governor Christie is correct in his analysis and for issuing the provisional veto.

In late 2015, the U.S. Department of Labor issued guidance to the various states who were looking for an “ERISA solution” to oversee retirement plans for private sector employees. The DOL brought forth a recommendation that, among other options, a 413(c) Multiple Employer Plan structure be used.

AAEAAQAAAAAAAAbVAAAAJDM2ODNkMmZjLTY5OTUtNDY0Mi1iMWYyLThkOTNjYjY5OTQ2YQWe agree that open multiple employer plans, or “Open MEP’s” as they are known, are an efficient type of program to broaden retirement plan coverage for private sector employees who work for unrelated employers.

We strongly disagree with allowing individual states – or now, apparently, cities – to serve as the plan sponsor and run their own statewide multiple employer plan program for private sector employers. This will end up leading to a patchwork of different plan types across the country and create havoc for employers who have employees scattered or relocating between several different states.

In late January 2016, the White House finally brought forth a recommendation that existing ERISA multiple employer plans be expanded so as to eliminate the “commonality” or “nexus” requirement among employers. This was most welcome news and falls right in line with the bipartisan recommendations of the U.S. Senate Finance Committee under Chairman Orrin Hatch and Ranking Member Ron Wyden.

The Senate Finance Committee’s proposed legislation would eliminate much of the confusion created by an Advisory Opinion from the Department of Labor in 2012, which increased some of the barriers and eliminated some of the benefits associated with Open MEP’s.

Under the proposed legislative changes, unrelated employers within an Open MEP would finally be able to band together not only for operational efficiencies, but also for some dramatic cost savings. Individual adopters would no longer have to file individual Form 5500’s, nor be subject to an individual plan audit. There will still be ERISA safeguards in place to protect employees, and, as I recommended to the Department of Labor’s ERISA Advisory Council in 2014 in my testimony addressing Outsourcing Employee Benefit Plan Services, formal guidelines for establishing and operating an Open MEP should be put forth by the Department of Labor to help prevent abuses and to insure protection for plan participants.

The Senate Finance Committee, now with the approval of the White House, should advance their proposed legislation in a timely manner. The Department of Labor should take action and modify their position under Advisory Opinion 2012-04(a) given the broad bipartisan support for encouraging a private sector multiple employer plan solution for unaffiliated employers.

Depositphotos_8968157_original-940x446They also need to include in their bill language to eliminate the ability for state and local governments to intrude into the retirement plan management of America’s private sector workers with anything other than a voluntary payroll-deduct IRA or the new myRA program.

Given the self-interests of Mayor de Blasio and others who are certain to follow his lead into the cookie jar, time is of the essence. America’s workers need not only broader coverage, they also need competent, experienced professionals and the protection offered under federal law to insure the safety of their retirement nest eggs.

It’s time for Congress and the White House to take action on this important issue.