/ Future Focus

Chris Lu, Former Deputy Secretary of Labor, on Expanding Access to Retirement

Chris Lu served in senior positions in the Obama Administration, including: Executive Director of the Obama presidential transition; White House Cabinet Secretary; and Deputy Secretary of Labor. He is now one of Guideline’s outside advisors. Chris was in San Francisco recently, and we had a chance to sit down with him and discuss his perspective on the current state of retirement in the U.S.

Question: The Department of Labor (DOL) oversees employer sponsored retirement plans, including 401(k) plans. During your time at the DOL, what did you learn about the state of the U.S. retirement system?

Answer: In the private sector, 55 million Americans lack access to an employer sponsored retirement plan according to the AARP Public Policy Institute. Most of these uncovered workers are employed by small businesses with fewer than 100 employees or they’re self-employed, including workers in the “gig” economy. One reason for this access gap is that historically, 401(k) plans have been expensive to set up and administer. What Guideline is doing to increase access and reduce costs is exciting, and it’s one of the reasons why I chose to serve as an outside advisor to the company.

Question: What do you think about the recent policy developments in the retirement space since you have left government? I’m thinking specifically about the state auto-IRA programs like CalSavers, OregonSaves and Illinois Secure Choice, along with the recent DOL ruling on Open MEPs?

Answer: State programs should reach scale quickly because they come with a mandate for small businesses to either sign up for an employer sponsored plan or use the auto-IRAs offered by the states. Right now, states are generally focused on the most vulnerable workers in the private sector and are leading with Roth IRAs, which have the nice feature of being an emergency fund vehicle where you can withdraw your contributions if needed. Guideline’s work nicely complements these state initiatives, and I would expect that within five years, millions more Americans will have retirement accounts. That’s a good development.

Regarding the recent Open MEP ruling, it’s certainly positive. But in many ways, the market has largely passed the notion of MEPs by. Companies like Guideline are using technology to make single employer 401(k) plans more accessible by grouping them together and getting economies of scale, while preserving their ability to design their plans to meet their individual needs. So there could be some positive impact from Open MEPs, but it probably won’t be as much as policymakers thought.

Question: You’ve consulted with a number of Democratic presidential candidates on workforce and employee benefit related issues, in addition to other topics. What are you seeing in terms of policy proposals related to improving the state of U.S. retirement?

Answer: Even though we’re in a period of historically low unemployment, there are still too many people in this country who lack sufficient retirement savings. We also have a changing economy where people are increasingly working for more employers -- at the same time and over the course of their lifetimes. Combined with longer lifespans, this is creating a retirement crisis that needs to be addressed.

We need to continue making it easier to save for retirement. That means creating incentives for small business owners to use auto enrollment in their plans. One idea is an additional tax credit for new 401(k) plans that have auto enrollment. We also should consider increasing pre-tax contribution limits for 401(k) plans. Lastly, we have to make it easier for workers to move and consolidate their retirement assets. For anyone who has had to move an old 401(k) account over to a new employer’s 401(k), it can be a challenging process.

Question: Sen. Cory Booker has an interesting “baby bond” proposal, where the U.S. government would provide every child born in the U.S. with a $1,000 savings account, adding to it every year until the child turns 18. The money would be limited to purposes like buying a house, paying for college, or retirement savings. How do you feel about this proposal?

Answer: I think Booker’s proposal is a creative idea and speaks to the fact that there is a sizable gap in income equality that makes it difficult for lower to middle-income people to save for their retirements. Sensible proposals that help more Americans invest and think about their futures are a good thing. That could translate to lower student loan debt, earlier retirement planning, a greater ability to purchase a home, or simply a larger rainy day fund.

Question: People talk about Social Security running out by 2034. How do you feel this is going to impact our country’s retirement? Is the government working on any fixes for this?

Answer: Social Security funding seems to be on the back burner right now from a policy standpoint, but will need to be addressed soon. Right now, Social Security is paid for through payroll taxes and capped at $132,900 in income, meaning workers earning more than that do not pay more into the fund.

There are a number of potential ways to shore up the program including some ideas I don’t like including raising the eligibility age for drawing benefits. I am on the side of favoring more vulnerable workers in how we adjust Social Security. So I would support raising or eliminating the income tax cap to bring in more tax revenue to help cover the shortfall. On the outlay side, I would support applying a means-test at a relatively high income level. For example, if you earn over $300,000 then we would start phasing out your eligibility. Workers earning that level of income should be saving for their retirement and have the income potential to do so effectively. Another policy option is to raise the lowest level of benefits to ensure that seniors receiving benefits are not living below the poverty level.