Dear NAGDCA Members,

It was great seeing you all in Orlando! It was a busy month in the industry while we were together, so I’ll get right to it.

NAGDCA IN ACTION

Saver’s Match Comments

As I mentioned in our Washington Update at the conference, NAGDCA recently submitted comments to the IRS regarding Notice 2026-48. The Notice outlines the IRS’s initial guidance for implementing the Saver’s Match. I wrote a detailed explanation of the Match in last month’s Director’s Brief, but I do want to briefly discuss some of the primary points from our comment letter.

The first is the process for receiving the Match. For the first time, the Treasury is going to attempt to send money directly to a retirement account. The reason for this is obvious, the purpose of the policy was to provide government funding to retirement accounts, not bank accounts for current consumption. But it will be difficult to do.

To solve this problem, they proposed several paths. The most feasible in the near term is called the “registration path” and would require each plan or provider to register with the Treasury and receive a unique identifier. Each participant claiming the Match would need to provide that identifier when they file their taxes, and then the Treasury would use the information to connect the money to an account.

That simplifies the process, but you can imagine that the execution will be quite complex. We are in favor of this approach, but we also commented that automating the steps in the future will be essential. We have all seen the large corpus of behavioral economics research that shows how difficult it is for people to overcome logistical hurdles, even when they have an incentive to do so. The less manual steps in the process, the more likely the chances of success.

Another essential aspect of the process we mentioned in our letter is communication. The language you all use when talking about the Match with your participants needs to be clear and precise to prevent confusion. The IRS providing model language for communication will be the best outcome, and we encouraged them to release it quickly. Contributions in January of 2027 will be eligible for the Match, and that is less than three months away.

There is much more in the letter, so please read it, but I also wanted to mention that Sen. Wyden (D, OR) has already introduced legislation to double the matching rate from 50 to 100%, and increase the income threshold to broaden eligibility for the Match. This bill is unlikely to be passed this year but will serve as the foundation for conversations about government contributions to retirement plans in the future.

A major part of those conversations will be the cost to taxpayers. Two well-known economists from the Brookings Institute recently released a paper with proposals to make an increased match revenue neutral for the government. One proposal is to reduce the IRS maximum deferral limit for defined contribution plans. The intent of the proposal is to reduce the tax benefit for people with presumably higher incomes, which would increase tax receipts that could then be used to provide a match to low-income workers. Of course, this just a proposal, but we will be working with our Legislative Committee to develop a position on the issue as the conversation evolves.

MEMBER CORNER

Government Member Business Meeting

Please note that we moved our Government Member Business Meeting out of the conference and online two years ago to accommodate better attendance. The meeting is coming up on November 10th, and we would love to see you there. New Executive Board President Beth Conradson Cleary and I will be presenting information on the state of the association and our plans for 2027. I will also answer any questions you have about the organization or the work we are doing. Register today!

Fees Litigation Ruling

A member recently brought to my attention an interesting fee litigation case from the private sector. The case was primarily about forfeitures, which is a topic that has come up on our forum several times in the past. Interestingly, the judge in this case decided the firm was not liable for their use of forfeiture funds, but did find liability for “grossly excessive” recordkeeping fees. This was the finding even though the firm had conducted an RFP. The fees in this case were $48 per head.

This is just one judge’s opinion, and may not stand up to appeal, but both aspects of the case bear consideration. Fees are complex, and we created a Fees Guide to provide definitions and explanations for the different structures that will help you navigate the tradeoffs for available products and services. Forfeiture policy is also more complex in the public sector than in the private sector. We will continue to do more work on both in the future.

ACROSS THE INDUSTRY

Important Public Sector Compensation Research

The Federal Reserve and the Brookings Institute recently collaborated on a paper that analyzes changes in compensation for public sector workers since the Great Recession. I found this to be one of the most important papers I have read about our industry in the last few years.

I say this because I believe the researchers did an excellent job identifying a double bind for public employees that makes running a defined contribution plan an especially difficult job right now. Specifically, they found that both accrued benefits and real wages have declined in the public sector over the past fifteen years.

This research is novel because it identifies a flaw in the way that defined benefit (DB) plans are typically considered in statistical analysis. Historically, analysts have looked at benefits, especially DB plans, on a cash basis – meaning they look at the amount of money the government is spending. From that point of view, benefits have continued to increase enough over time to offset wage decreases and keep overall compensation for public employees level with the private sector. However, this research separates legacy costs for the amortization of unfunded liabilities from normal costs, or dollars that are accruing to current employees. In other words, they looked at the DB benefit employees are projected to receive, not the total cash governments are spending.

By making this change, the researchers discovered that both benefits and wages in the public sector have declined relative to private sector peers. I wrote a paper on the declining benefit formulas in lower pension tiers a few years ago, but this paper adds the crucial fact that relative wages are also declining. That is why I think this paper is so important. A fundamental point we talk about is that DC plan savings must make up for the gap in declining DB benefits. If relative real wages are also declining for public employees, where do we expect that money to come from?

One partial answer to that question could be in the data in the study. I have long sought, but never been able to find, data on marriage rates for public and private sector employees. This study shows that the marriage rate in the public sector (60%) is much higher than the private sector (51%). That makes it more likely that a public employee has a spouse with a 401(k) or the household has an extra income source that could facilitate savings in a public DC plan. It is a good reminder that money is a household project and just looking at the public employee may not give a full financial picture.

This is why I think our PRRL research with EBRI and JP Morgan is especially important. Not only can we analyze financial data outside the DC plan, but we can look at the entire household in a significant number of cases. We are working on projects to focus on outside assets, credit, debt, and many other topics in the coming year. Keep an eye out for them.

All the Best,

Matthew Petersen
Executive Director, NAGDCA