A Legislative Framework for Universal Retirement or Paid Family Medical Leave

With the introduction by Representative Richard Neal, D-Massachusetts, of the Automatic IRA Act and the separate work of the bipartisan Paid Leave Working Group, federal legislators are starting substantial conversations to find a viable bipartisan approach that expands retirement or paid family medical leave to cover all U.S. workers. These federal discussions build on the work happening in more than a dozen states, yet the players are not always talking to and learning from each other.

With more than 20 years of experience advocating for policy solutions to expand benefits coverage, here’s a framework of the seven essential elements to enact sustainable public-private partnerships that create universal retirement and/or paid family medical leave. Moreover, I have identified two elements to leave out of legislation to avoid insolvency, unnecessary constraints and the potential for partisanship.

The Need for Universal Coverage

But first, a summary of the societal challenges that need solutions. Large and medium-sized employers voluntarily provide many workers with defined contribution retirement plans and paid family medical leave benefits. They do this to compete for talent, increase productivity, improve workers’ financial wellness and/or for moral and paternalistic reasons. Large and medium-sized employers have the scale, sophistication and knowledge to assemble a robust benefits package.

Yet small business workers, independent contractors, self-employed and part-time workers rarely have access to company-provided retirement plans or paid family medical leave benefits. Regulations, lack of purchasing power, inability to pool risk and commercial viability can all contribute to the coverage gap. Who suffers from this lack of coverage? Women, Blacks, Latinos and Native Americans are a disproportionate percentage of the part-time, independent contractor and small business workers who lack coverage.

The fundamental policy question is: How to provide coverage to everyone so that all workers can voluntarily choose to participate?

7 Essential Elements

Public-private partnerships are a sustainable, effective, bipartisan solution to expand coverage. At its most basic, such legislation would have seven essential elements:

1. Enable a robust, competitive, voluntary commercial market. Why is a strong commercial market required? To attract capital, encourage innovation and promote price and quality competition, legislation should enable a spectrum of value propositions and avoid disruptions to existing employer benefits that are working well. Congress has passed a tax credit for employers to enable more voluntary paid family medical leave, and states can pass the National Council of Insurance Legislators’ model insurance law. Congress has taken steps to expand retirement coverage by passing the Setting Every Community Up for Retirement Enhancement Act of 2019 and the SECURE 2.0 Act of 2022, which, among other provisions, expanded start-up tax credits and enabled businesses and not-for-profits to pool their retirement purchasing power through pooled employer plans.
2. Reduce employer start-up costs, liability and hassle. We can overcome the concerns of employers about starting to offer these benefits by (1) having employees pay for most or all the benefits from wages; (2) providing tax credits to reduce administrative costs; and (3) reducing employers’ liability and administrative hassle.
3. Set a meaningful minimum benefit standard. In the case of retirement, this may involve issuing a model plan design that includes automatic enrollment, automatic escalation, investment in target-date funds, etc. In the case of paid leave, the standard may consist of a meaningful set of minimum paid leave offerings for maternity, paternity and care for dependents and self. I get it: Mandates are never popular in the business world. Yet, the most frequently voiced objection to universal coverage is the employers’ cost and hassle, which we’ve already addressed above.
4. Establish a provider of last resort. If every employer must offer a solution, there must be at least one solution for every employer. State or federal governments may have to establish a provider of last resort, through a government department or by outsourcing to a commercial provider. The provider should have a two-part mandate: (1) deliver the statutory benefit on time, all the time, at the minimum-required competitive quality standards at the lowest possible cost, and (2) maintain solvency and competitiveness.
5. Include, explicitly, independent contractors and the self-employed. Independent contractors and self-employed workers are both employers and workers. They have unique needs and challenges that should be addressed in the legislation. Like all workers, they should have access but the choice to opt out.
6. Establish enforcement mechanisms. The appropriate regulators must have the tools to monitor and enforce the minimum standard.
7. Publish results regularly and transparently. To maintain solvency and competitiveness, the provider of last resort should be required to publish an annual report of its results, the benefits it delivers and a summary of its outlook, successes and challenges.

2 Areas of Caution

Legislating the markets and providers of last resort can produce unintended consequences. In my opinion, legislators and advocates should tread carefully when including price and client experience elements in public-private partnership legislation.

• Price: Price may be a helpful part of the legislative process if it sparks conversations on the scope and value of benefits. Yet setting absolute or relative prices for the provider of last resort may create challenges to achieving bipartisan support, moral hazard in underwriting and, in extreme scenarios, insolvency risks. Instead, legislation can enable the appropriate executive authority to set prices based on experience, environment and outlook. This approach would enable responsiveness, competitiveness and solvency to unseen opportunities and challenges.
• Employer and Worker Client Experience: Legislators and advocates often want to discuss and set minimum client experience standards. Yet if legislation establishes too many or too strict service standards or thresholds, the provider of last resort may become constrained or uncompetitive. Instead, legislation can enable the authority to develop service quality and standards based on the competitive and market environment.

These nine elements—seven to include and two to avoid—form the basis of a framework to expand retirement and paid family medical leave benefits to all workers. This framework is the essence of how public-private partnerships can be a bipartisan solution that meets the needs of employers and workers.

While leading retirement and benefit providers, Kalamarides testified on benefit coverage issues to the U.S. Senate Finance, HELP and Aging committees. Kalamarides is currently the CEO of Bear North LLC and a fellow at the Bipartisan Policy Center, focusing on retirement, financial wellness and employee benefits.

All opinions expressed are his own and do not necessarily represent the views of the organizations with which he is affiliated.

This feature is to provide general information only, does not constitute legal or tax advice and cannot be used or substituted for legal or tax advice. Any opinions of the author do not necessarily reflect the stance of ISS Stoxx or its affiliates.