State Street Global Advisors plans to start lobbying Congress to require universal access to workplace retirement plans in the private sector.
In an open letter to US lawmakers scheduled to be released Monday, the Boston investment giant will urge Congress to take steps such as requiring private employers to automatically enroll employees in 401(k)-type savings plans. They would also need to provide certain basic, default investments, such as target-date funds that own a mix of stock and bond funds, based on a person’s age and risk appetite.
In addition, the company is recommending tax credits for small employers to cover the administrative costs of the plans and is suggesting that businesses be allowed to band together to offer retirement plans.
“This is a problem that directly threatens the well-being of future generations and our overall society,” said State Street Global’s chief executive, Ron O’Hanley, in a statement. He said the company’s proposal “does not seek to reinvent the wheel or suggest a new expensive government program,’’ but to expand Americans’ access to workplace retirement plans.
As one of the world’s largest investment managers, overseeing $2 trillion, State Street stands to benefit from expanded retirement offerings. Together, the proposed changes could bring in $740 billion in additional savings, O’Hanley said, helping narrow a projected $4 trillion shortage in workers’ retirement savings.
O’Hanley said the company is reaching out to other investment managers to help push the concept with lawmakers. The effort would potentially go further than the Obama administration’s national IRA plan, launched last fall, which allows workers to save $5,500 a year in guaranteed accounts with relatively modest returns.
O’Hanley said State Street applauds past efforts by the White House and Congress to expand retirement saving opportunities, but said, “It’s time for a national, bipartisan solution that guarantees workplace coverage in a retirement savings plan.”
According to the Government Accountability Office’s latest report on retirement security, nearly 40 percent of working households have no access to an employer-sponsored defined-contribution plan like a 401(k).
State Street’s proposal appears aimed at preventing a patchwork of regulation across the 50 states. But other advocates for retirement savings agree with the approach.
Alicia Munnell, director of Boston College’s Center for Retirement Research, in a paper in March said that while a handful of states, including California, Illinois, and Connecticut, have adopted automatic enrollment in retirement plans, a single, federal plan would be better.
“A national auto-IRA plan would be a much more efficient way to close the coverage gap, offering substantial economies of scale and avoiding the laborious, time-consuming, and expensive process of setting up 50 different state plans,’’ Munnell, a former Federal Reserve Bank executive, wrote.
Separately, State Street has said it generally supports the US Labor Department’s new fiduciary rule, requiring investment advisers to act in clients’ best interest. But the company has expressed concerns to the government about any rules that would make it difficult for retirement plans to use the services of multiple managers.