Proposed changes to retirement rules in President Obama's 2017 budget could mean tens of millions of new IRA accounts may soon hit the market, though it's unclear if credit unions will get a piece of the action.
According to the proposed budget, all employers with more than 10 workers would have to automatically enroll employees in an IRA if the employer doesn't already offer a retirement plan — a move the White House said would send about 30 million workers into the IRA market. Employers would not be required to contribute to the accounts, and those with 100 or fewer employees would receive a tax credit of up to $4,500. Employees can opt out if they like.
“Approximately half of workers employed by firms with fewer than 50 workers and fewer than one quarter of part-time workers have access to workplace retirement plans,” the proposed budget said. “Workers without access to a plan at work rarely save for retirement: Fewer than 10% of workers without access to a workplace plan contribute to a retirement savings account on their own.”
But whether credit unions will be able to — or want to — participate is another story.
Some states may choose to administer their own programs, Tom Eckert, vice president for CUNA Mutual Retirement Solutions, said.
“It's a state by state issue,” he told CU Times. “You'd have to lobby the state legislature, say in your state [and say], 'We would like credit unions to play a role.'”
Several states have already created auto-IRAs or retirement marketplaces, and approximately 20 more may soon follow, according to the White House. The federal budget proposal follows an announcement by the Employee Benefit Security Administration in November that would provide an ERISA safe harbor for employers in states that mandate or sponsor IRA programs. The proposed budget sets aside $6.5 million for some states to do pilot programs.
“Obviously this is an interesting idea and NAFCU supports ideas that encourage savings, but we would want to see more details of the proposal to see how it could possibly impact credit unions,” said NAFCU Director of Public Relations Patty Briotta.
Eckert noted that the IRA accounts that emerge under the budget proposal would probably come from employees of small companies. That's an opportunity to establish relationships with new members, but there are risks.
“If you think about it, as soon as an employer gets larger, it probably will convert into a 401(k),” he said. “That's where I would be apprehensive about getting too excited about it.”
New employers can also have large failure rates, he added.
“Usually there's a reason that these employers haven't adopted a qualified plan,” he said.
Eckert said working with state legislatures is probably a good next step for credit unions, though there may not be many takers.
According to the latest NCUA data, IRA and Keogh accounts at credit unions totaled $76.71 billion or 7.73% of shares as of September 2015. That represents a $190 million drop from December 2014 and a negative growth rate of 0.33%.
“Globally, I think the amount of marketing and awareness on IRAs has been muted from credit unions,” he said. “The big money is in the rollover market at retirement. Credit unions usually aren't a big player there.”
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