For the last two decades, employers across the country have watched pensions go the way of VHS cassettes and tube televisions. Even many state governments are now doing away with bloated pensions and instead offering self-managed 403(b) accounts that allow employees to invest their own money in retirement. The argument often says you can take control of your money, be in charge of how your money is spent, maximize growth potential, and transfer your earnings time and again throughout your career, no matter how many times you change employers. But what of the millions of Americans who have neither – no pension nor 401(k) or 403(b) options?
White House Support
Recently, the Obama administration released its plan to support a new Secure Choice Pension Initiative. This plan, which is being spearheaded by California and Illinois, promotes employees of small businesses being offered a self-managed IRA that allows for payroll deduction. Notwithstanding several concerns about employer compliance with ERISA, it sounds like states may be moving toward making this a reality, and with the White House claiming it wants to see this in place by 2017, it may be coming to a state near you soon.
Death of the Pension
Although the initiative is a good move for millions of employees at small businesses, one cannot help but wonder if this is just one more step closer to eliminating pensions. As more businesses move toward self-contribution plans, such as 401(k) and 403(b) plans, and now these auto-IRAs will add one more option for businesses. Not all that long ago workers routinely had pensions. These defined benefit plans offered a predetermined amount of monthly income that was payable for life. The amount depended on the number of years served and age at retirement. Though huge gains were not possible, the certainty and security of a pension was a large part of the incentive for labor, manufacturing, and government service.
As we see teacher pensions and large employer pensions disappearing, workers are being steered toward self-managed investments. The stock market has not really done all that well for over a decade. Therefore, one may question whether forcing people to invest in retirement accounts that grow at 2-3% rates is still a wise direction. However, for millions who have no other options, this may be the next best thing. Ultimately, it will be interesting to see whether this Initiative is successful. Elder law attorneys and estate-planning professionals will begin investigating how these auto-IRAs compare to other retirement investments and how they can be worked into overall estate planning goals.