Incentives Eyed

We don’t have a large yard, but it’s big enough to be “unruly.” Despite my best efforts to ignore the unruliness (winter’s coming, after all), my wife—who thinks about things like having a yard that looks like we were in Cabo for the summer—was of a different mind.

While there are three teenagers living under our roof at present, we long ago realized that we couldn’t rely on them to see that something needs doing, much less to, on their own initiative, undertake to do something about it (dads can be pretty oblivious as well, but teenagers give a whole new meaning to the notion). They CAN, however, be bribed—er, “motivated”—and their mother made them an offer it would be hard to refuse; cold, hard cash. And while it was a sum well short of what we’d have to pay one of the ubiquitous yard services that swarm through our neighborhood, it was a lot of money to cash-starved teenagers. And it appears to be working.

What's In It For Them?

I was talking to an investment analyst this past week, and after a long conversation about automatic enrollment, QDIA prospects, discrimination testing, and how many working Americans were (and weren’t) covered by a workplace retirement plan (even today, less than half are, incredibly), he posed a simple question: “So, what’s in the Pension Protection Act that would encourage an employer to set up a 401(k) plan?”

I pondered that question for a moment before I finally—and somewhat hesitantly—offered, “Nothing, really.” Now, I went on to talk about the things that were in the PPA that might make it easier for plan sponsors who currently offer a program to continue doing so: how design “sanctions” like the automatic enrollment safe harbor could surely help on troublesome aspects like participation rates and discrimination tests; how the emergence of a true, clear definition of a qualified default investment alternative (QDIA) could remove some of the uncertainty behind some of the toughest decisions for plan sponsors; how access to professional help via the new financial adviser role might make it easier for participants to make better decisions. Still, when I stopped to think about it, I couldn’t imagine that any of those “new” approaches would have any sway in convincing an employer who didn’t already offer such a program to do so.

That’s a real problem for the retirement security of this country, of course. As I noted above, the Bureau of Labor Statistics says that only about 43% of working Americans are covered by a workplace retirement program today. While we rightly spend much time and energy worrying about the savings habits of those 43%, we are literally missing the big picture if we ignore the reality that a majority of working Americans lack the support of the kind of retirement programs many of us take for granted.

Why Knots?

There are reasons for employers to offer these programs, of course—potential workers care about them, and current workers often stick around for these benefits. Employers do receive some tax benefits for offering them as well, though in many cases, perhaps not enough benefit to counter the costs associated with sponsoring the program, not to mention the fiduciary risks attendant with choosing to do so.

IMHO, we tend to take for granted that employers will “do the right thing”; that they will simply care enough about their workers to take on these additional costs and risks. Fortunately, many do—but just as obviously, while they can clearly see the need, like my teenagers, they have other priorities (in fairness, those priorities frequently include “little” things like meeting a payroll). There are those in Washington who already are taking a hard look at the numbers of working Americans not covered by a workplace program and looking for ways to balance that out, to “level the field.”

Unfortunately, for some, that doesn’t involve encouraging more employers to get in, it means developing alternatives that don’t require the involvement of an employer; and some, I’m sure, would be perfectly content to take the existing enticements, such as they are, away altogether and—in an ironic display of nonpartisanship—rely solely on individual initiative or the support of the federal government. Either direction would, IMHO, serve only to encourage employers who are currently providing such programs to rethink that commitment, and the rumblings certainly do nothing to engender interest on the part of employers who aren’t currently doing so from changing that position.

Still, we can all attest to the tremendous impact of workplace retirement plans in helping ensure individual retirement security, whether it is through workplace education, the employer match, and even “peer pressure” in terms of encouraging participation. What we seem to have lost along the way is a sense that we need to provide incentives to employers to make that commitment.

Failing those incentives, is it any wonder that so many are still on the sidelines?

- Nevin E. Adams, JD