Moderator:Sabrina Bailey, Senior Vice President, Northern Trust Asset Management

Speakers:Sarah M. Gill, Senior Legislative Representative, AARP

Angela M. Antonelli, Executive Director, Center for Retirement Initiatives, and Research Professor, Georgetown University

Marla Kreindler, Partner, Morgan, Lewis & BockiusChristina Elliott, Acting Director, California Secure Choice

How do State Programs Change the Retirement Landscape?

A Familiar Headline: Half of All Households At Risk

52 percent of households are at risk of not having

enough to maintain their living standards

in retirement, according to the

Center on Retirement Research.

Source: Center for Retirement Research, National Retirement Risk Index

Flipping the Script: Reaching Untapped Market

Source: ICI

Do Not Have IRA:

Untapped Market

33% of All US households

IRA only6%

IRA and Employer Sponsored Plan

32%

Employer Sponsored Plan Only

29%

Percent of US Households with Access to Savings

Access to Retirement Plans by Income- Not All Small Dollar Accounts

U.S. PRIVATE SECTOR WORKERS: Does your employer offer a pension or retirement plan? By Personal Annual Income

Source: NCPERS, Analysis of Current Population Survey, March 2011 Supplement

Chart1

< $20k< $20k

$20k to $50k$20k to $50k

$50k to $80k$50k to $80k

$80k or more$80k or more

Yes

No

0.2358278311

0.7641721689

0.5108837926

0.4891162074

0.6754829189

0.3245170811

0.7396623688

0.2603376312

Sheet1

< $20k$20k to $50k$50k to $80k$80k or more

Yes24%51%68%74%

No76%49%32%26%

Rethinking the Access Profile

Source: ICI

SolutionsThere are five essential ingredients that facilitate adequate retirement savings rates: availability, automatic enrollment, ease of investment, automatic escalation, and lifetime income streams.

Action steps: • Make retirement plans with payroll deduction available to all workers. Currently, 55 million US

employees have no way to save for retirement at work.

• Increase participation and savings rates by changing the choice architecture of retirement plans, utilizing the findings of behavioral economics

Workers are 15x More Likely to Save if Employer Offers Plan

Not covered by an Employer Plan -Deductible IRA Only

Covered by an Employer Plan

4.6%

71.5%Participation Rates

Data compiled by AARP’s Public Policy Institute from unpublished estimates from the Employee Benefit Research Institute of the 2004 Survey of income and Program Participation Wave 7 Topical Module (2006 data). See also Brookings' Retirement Security Project and WhiteHouse.gov

529 Plans: A Model for Retirement?

Source: College Savings Plan Network

All Boats Rise: 529 Plans

Source: The College Savings Plan Network

A National Movement Begins: 2013

National Movement: Half the Country Taking Action

If You Build It They Will ComeSmall business owners overwhelmingly agree that retirement benefits help recruit good employees

Data from NCPERS

82

73

64

62

50

Offering retirement benefits helps recruitment ofgood employees

I feel a responsibility to provide some kind ofretirement benefits

It would be nice to offer a retirement benefit but it'stoo expensive

Offering a retirement benefit helps my company'sbottom line

It would be nice to offer a retirement benefit but it'stoo complicated to administer

Percent Strongly or Somewhat Agree

If You Build It They Will Come

The AARP 2015 New Jersey Work and Save Survey was conducted as a telephone survey among registered voters age 35-64 in New Jersey.

• For Innovation and Leadership Look to the States

• States Are Stepping Up To Address Retirement Security

• Goal To Design Simple, Low-Cost, Easily Accessible and Effective Savings Options

From Crisis to Opportunity

25 States Have Considered or Enacted Private Sector Retirement Initiatives

More than 20+ These States Acted in 2015 to Address Retirement Security

States – Program Enacted (5)

CALIFORNIA (2012)MASSACHUSETTS (2012)ILLINOIS (2015)OREGON (2015)WASHINGTON (2015)

States – Study in Progress (7)

CONNECTICUT (2014)MINNESOTA (2014)VERMONT (2014)MARYLAND (2015)NEW YORK CITY (2015)UTAH (2015)VIRGINIA (2015)

States/Metro – Legislation in 2015 (12)

COLORADO (S)INDIANAKENTUCKYMAINEMARYLAND*MASSACHUSETTS (2)NEW HAMPSHIRE (S)NEW JERSEYNEW YORK CITYNORTH DAKOTAWEST VIRGINIA (S)WISCONSIN (S)

*Task Force Report Completed in 2015(S) – study bill

Mandatory, auto-enroll IRA (with opt-out) Default contribution Employer contributions generally not permitted Pooled and professionally managed funds Must keep fees “low” (.75%-1% range) Market analysis and legal analysis to guide design and

management issues

Some Common Design Features (CA, IL, OR)PLAN DESIGN

Retirement Board Management of trusts Limits of liability and fiduciary role for states and

employers explicit

Some Common Design Features (CA, IL, OR)ADMINISTRATIVE STUCTURE

• Managed by the State Treasurer• Voluntary participation by non-profit employers with

20 or fewer employees• Defined contribution 401(k) plans• Auto-enroll with opt-out• Default contribution at 6% or can choose 4% with

auto-escalation up to 10%• Fees estimated to be well under 1% (20-80 bps)

Massachusetts - 401(K) for Non-Profits

• Managed by State Department of Commerce• Voluntary participation for employers with less than 100

employees• SIMPLE IRA, myRA (Roth IRA), and payroll deduction

IRAs and others can be added• Employer contributions encouraged (ERISA plans

encouraged)• To be built and funded by private sector• Fees cannot exceed 1%

Washington State – Marketplace Model

x Federal Regulatory Oversight ERISA or non ERISA plan

x Account Structure IRA (traditional, Roth, or other options) 401(k) type plan

x Employer Participation Mandatory or voluntary Employee threshold (from 5 to 100) Employer contributions Penalties for non-compliance

Major Differences in Design Features Across All Plans

x State Management Board (CA, IL, & OR) vs. state agency (WA & MA)

x Implementation Study Requirements CA & OR must conduct analyses and go back to

LegislatureWA must have rules reviewed by Legislature IL & MA can implement as enacted Summer 2017 key target timeframe for launches

Major Differences in Design Features Across All Plans

• Funding Availability• Market & Feasibility Analyses Role in Plan

Design • ERISA Uncertainty• Outreach to Stakeholders • Building and Managing the Program

Implementation Issues & Challenges

Successful Reform Needs An Effective Sequencing Process

Merton-Muralidhar (working paper) examines this approach for uncovered workers’ voluntary defined contribution (DC) reforms

Understand Population Being

Served(Legislature/

Technical Teams)

Clearly State Objectives To Be Achieved(Legislature)

Work With Design Features to

Achieve Objective(Technical

Teams/Board)

Ongoing Evaluation and

Revisions(Technical

Teams/Board)

Understand Target Populations and Needs Sooner Rather Than Later

Engage Stakeholders Early and Often Define Overall Policy Goals and Objectives Design the Program to Meet Your Goals Be Prepared to Refine the Program Design Keep the Future in Mind – How Will Success Be

Measured?

State Lessons Learned…So Far

On July 31st, 2015, the President Directed DOL to Issue Rules to "Provide a Clear Path for States to Create Retirement Savings Programs.”

DOL to issue proposed policy changes by end of 2015 with goal to finalize by end of 2016. Rulemaking will address 2 approaches:

1. “Non-ERISA” - Mandatory, auto-enroll IRAs Proposed rules expected to provide updated guidance on safe harbors that avoid ERISA

preemption. 2. ERISA covered – 401(k) defined contribution plans Proposed guidance will look at the use of the Multiple Employer Plan (MEP) arrangement by

the state to facilitate plan formation and take burden off of employers, but maintain ERISA protections.

ERISA applicability does not allow program to be mandatory for employers (ERISA plan can be an option in a marketplace model)

DOL ERISA RULEMAKING:The $64,000 Question

Georgetown Center for Retirement Initiatives McCourt School of Public Policy

Website: cri.georgetown.edu

Follow us on social media for updates:@cri_states

Broad Coalitions Support ActionSupporters in Illinois:

TIAA- CREF

Cabrera Capital

Ariel Investments

American Society of Pension Professionals and Actuaries

Illinois Black Chamber of Commerce

National Association of Women Business Owners

AARP

Supporters in Washington:

American Council of Life Insurers

Securities Industry and Financial Markets Association

AARP

Trends in program design:401(k) plans vs. payroll deduction IRAs

401(k) Plans IRA StructureERISA-covered Yes - DOL ERISA rules provide a pre-existing

framework. Need to consider public entity’s role in

fiduciary governance or potential fiduciary outsourcing

No? - if designed to limit employer involvement. (Awaiting additional DOLguidance.) Need to consider alternative provisions

if ERISA does not apply, such as fiduciary standards and enforcement provisions.

Employer contributions Can be included in the design Not under current DOL regs if seeking to exempt from ERISA coverage

Subject to 4975 prohibited transaction rules Yes – need to consider impact of proposed DOL fiduciary investment advice regs

Institutional investment vehicles Same as 401(k) plans generally IRAs may not have the same range of investment structures.Based on current securities law exemptions No CITs? No stable value option

Protected from employee insolvency Yes State by state analysis

Additional legal considerations:

• Consider leveraging economies of scale – such as 457 or 529 programs – to providing for institutional pricing and use of existing administrative structure

• Need to weigh the pros and cons of using form documents vs. custom legal documents

• How will principles of governmental immunity apply to the program? State law remedies?√ Remember that this is new ground and existing legal principles

may not always fit in the same way

•

California’s Retirement Landscape• Over 7 million California workers lack access to workplace

retirement savings plans.– Non-white workers and women are disproportionately

represented – 64.7% are age 34 or younger– 68.4% are Hispanic– More than half work for employers with fewer than 100

employees.– Median income is $25,000 annually

California Secure Choice Retirement Savings Trust Act of 2012

• State administered payroll deduction savings program• Mandatory for employers with 5 or more employees who

offer no retirement savings plan• Voluntary for employees – automatic enrollment with opt

out• Portable, low cost, low risk

California Secure Choice Retirement Savings Trust Act of 2012

• Market analysis and feasibility study required (to be conducted with donated funds)

• No implementation if:– “the IRA arrangements offered fail to qualify for

favorable federal income tax treatment”– “if it is determined the program is an employee benefit

plan under ERISA”– If it is determined the plan will not be “self-sustaining”

Secure Choice Retirement Savings Investment Board

John Chiang State Treasurer,

Chair

Betty Yee State Controller

Michael Cohen Director of

Finance

Ed De La Rosa CA State Senate

Appointee

Yvonne Walker CA State Assembly Appointee

Cindy Pollard Governor Appointee

Bill Sokol Governor Appointee

Marty Morgenstern

Governor Appointee

Heather Hooper Governor Appointee

Fundraising

2013-2014 Fundraising and Procurement

Executed Contracts for the work:• K&L Gates – tax and ERISA legal work• Overture Financial – Market Analysis, Feasibility, Program Design.

The team includes:– Segal Consulting– Greenwald and Associates– UC Berkeley Center for Labor Research and Education– Bridgepoint Group

2015 – Market Analysis, Feasibility Study, DOL Proposed Rulemaking, etc.

• Conversations with the U.S. Department of Labor• The study approach• Secure Choice “listening tour”• Engagement efforts with Office of Management and

Budget• Capitol Hill Policy Staff meetings (Oct 7th)• IRS Tax Treatment

Research Findings

• Population behavior• Two-prong approach• Access to funds• Contribution rates

Questions?

• http://www.treasurer.ca.gov/scib/• Christina Elliott, Acting Executive Director

(916) 653-4046

http://www.treasurer.ca.gov/scib/

Moderator:Sabrina Bailey, Senior Vice President, Northern Trust Asset Management

Speakers:Sarah M. Gill, Senior Legislative Representative, AARP

Angela M. Antonelli, Executive Director, Center for Retirement Initiatives, and Research Professor, Georgetown University

Marla Kreindler, Partner, Morgan, Lewis & BockiusChristina Elliott, Acting Director, California Secure Choice

How do State Programs Change the Retirement Landscape?

Slide Number 1Slide Number 2A Familiar Headline: Half of All Households At Risk�Flipping the Script: Reaching Untapped Market�Access to Retirement Plans by Income- Not All Small Dollar Accounts �Rethinking the Access Profile �SolutionsWorkers are 15x More Likely to Save if Employer Offers Plan �529 Plans: A Model for Retirement?All Boats Rise: 529 PlansA National Movement Begins: 2013National Movement: Half the Country Taking ActionIf You Build It They Will ComeIf You Build It They Will ComeFrom Crisis to Opportunity25 States Have Considered or Enacted �Private Sector Retirement InitiativesMore than 20+ These States Acted in 2015 to Address Retirement SecuritySome Common Design Features (CA, IL, OR)�PLAN DESIGNSome Common Design Features (CA, IL, OR)�ADMINISTRATIVE STUCTUREMassachusetts - 401(K) for Non-ProfitsWashington State – Marketplace ModelMajor Differences in Design Features Across All PlansMajor Differences in Design Features �Across All PlansImplementation Issues & Challenges��Successful Reform Needs �An Effective Sequencing Process�Merton-Muralidhar (working paper) examines this approach for uncovered workers’ voluntary �defined contribution (DC) reforms���State Lessons Learned…So FarDOL ERISA RULEMAKING:�The $64,000 QuestionSlide Number 28Broad Coalitions Support ActionTrends in program design:  �401(k) plans vs. payroll deduction IRAsAdditional legal considerations:California’s Retirement LandscapeCalifornia Secure Choice Retirement Savings Trust Act of 2012California Secure Choice Retirement Savings Trust Act of 2012Secure Choice Retirement Savings Investment BoardFundraising2013-2014 Fundraising and Procurement2015 – Market Analysis, Feasibility Study, DOL Proposed Rulemaking, etc.Research FindingsQuestions?Slide Number 41Slide Number 42