Auto-IRA plan isn’t good in the long run, opponents say

Opposition to the Obama administration’s proposal to create automatic retirement plans in the workplace appears to be mounting — led in large part by both employers and financial advisers.

The U.S. Chamber of Commerce, which is the nation’s largest employer advocacy group, last week made it quite clear where it stands on President Obama’s proposal. Officials said the fundamental idea is sound but would do more harm than good in the long run.

Randy Johnson, vice president for labor and employee benefits at the Chamber of Commerce, said that while the president’s proposal could increase participation in retirement plans, it would create a number of complexities for small businesses in the process. Mr. Johnson made his comments last Monday at the American Society of Pension Professionals and Actuaries’ 401(k) summit in San Diego.

The ASPPA is based in Arlington, Va.

“We’re all for increasing [retirement plan] coverage,” Mr. Johnson said. “But these are new requirements imposed on employers, and we oppose them.”

Specifically, Mr. Obama’s proposal would require companies that did not offer workers access to a retirement plan to enroll their employees in direct-deposit individual retirement accounts automatically.

There has also been speculation that the Obama administration may look to require employers to enroll new hires in existing 401(k) plans automatically, something that financial advisers have staunchly opposed.

In fact, roughly 84% of advisers recently polled by Brinker Capital Inc. said that they were against the idea of the federal government’s requiring companies to invest a portion of their workers’ pay in a defined contribution plan such as a 401(k) automatically.

“Advisers see any kind of federal mandate as a slippery slope,” John Coyne, president of Brinker Capital, a Berwyn, Pa.-based investment management firm, said in an interview.

“They’re obviously not against the idea of increasing participation in retirement plans, which theoretically would help advisers earn more money,” he said. “But there’s just a tremendous resistance to further government intervention.”

Advisers at the ASPPA conference echoed these sentiments during and after Mr. Johnson’s remarks last week. Many nodded their heads in agreement with a comment from Roberta Bixhorn, vice president of compensation and benefits at Perrysburg, Ohio-based Owens-Illinois Inc., who joined Mr. Johnson on the panel.

“I agree with the philosophical direction [of the administration’s auto-retirement proposal], but I have never been a big fan of being told what to do,” said Ms. Bixhorn, who oversees her company’s 401(k) plan.

Employers and financial services providers are still waiting for formal details on how exactly the administration’s auto-IRA proposal would be implemented. Many, including both Ms. Bixhorn and Mr. Johnson, already believe that small businesses will be adversely affected by any such federal mandate.

OTHER PROPOSALS

At the moment, there are a number of other labor and benefits proposals coming out of Congress that are also targeting small businesses, Mr. Johnson said, adding that the auto-IRA mandate might overburden small companies that are already short on staff and resources.

“We’re looking at a number of small-business mandates coming down the pike at once,” he said. “Individually, this [auto-IRA proposal] might not seem like much, but you have to look at the totality.”

Of the 3 million employers that the U.S. Chamber of Commerce represents, roughly 96% are considered small businesses with fewer than 100 workers.

Many have argued that such a program has the potential to increase a small business’ administrative and compliance expenses, while also perhaps exposing small-business owners to some unwanted fiduciary liabilities.

Advisers would be opposed to this for a number of broader economic reasons, Mr. Coyne said, noting that it could dissuade employers from hiring new workers, in addition to eating away at a small business’s bottom line.

At the same time, of course, many financial advisers work for practices that have fewer than 100 employees — so they, too, could be subject to the new federal requirements if their firms do not offer a retirement plan.

“Financial advisers are about the most entrepreneurial, independent operators out there,” Mr. Coyne said. “Anything that threatens that will be met with tremendous opposition.”

E-mail Mark Bruno at [email protected].