National Association of Insurance and Financial Advisors

Retirement Security and State-Run Retirement Plans

By Gary Sanders
Gary Sanders is Counsel and Vice President of Government Relations at NAIFA.

Retired Americans are often living 20 years or more after they stop working, which has attracted the attention of the media and lawmakers interested in helping people better prepare financially. As a result, state legislatures continue to look at ways that states can increase consumer retirement savings. All told, legislation on retirement planning has been introduced in roughly 40 states over the past five years or so. Legislative activity has tailed off in some of these states during the past couple of years, but remains strong in others.
In 2018, 21 states considered retirement security legislation of some type, ranging from so-called “Secure Choice” plans (which set up a state sponsored plan and include an employer mandate as well as auto-enrollment of employees) to bills calling for studies of the issue to open multiple employer plan (MEP) legislation that would improve the ability of unrelated businesses to combine their benefits plans to take advantage of economies of scale. Interest in Secure Choice-type plans has dropped off, due in part to the repeal of a Department of Labor safe-harbor rule that would have clarified the status of such plans as being exempt from the federal Employee Retirement Income Security Act (ERISA). Without the DOL rule, serious questions remain about whether ERISA pre-empts or applies to state Secure Choice plans and therefore whether the plans will impose significant responsibilities on participating employers.
The current focus in this area is on efforts to get those Secure Choice plans that have been enacted—in California, Oregon, Illinois, Maryland, and Connecticut—up and running. So far, Oregon is the only state that has actually launched its program and begun enrolling employees of participating employers. Results have been mixed. About 45,000 employees of the 1,160 employers that have registered with the program under the employer mandate have enrolled in the program, and the plan’s assets now exceed $9.0 million. But the Oregon plan has also borrowed $5.05 million from the state to cover start-up costs. It remains unknown if or when these start-up costs will be recovered from the plan. The California plan expects to begin enrolling participants soon, while the Maryland and Connecticut plans have delayed implementation. Estimates of start-up costs range from around $18 million in Illinois to over $150 million for California’s plan, and questions remain about how to ensure that these plans will be financially self-sustaining.
NAIFA opposes the enactment of Secure Choice-type legislation. These plans address access to and affordability of retirement plans. However, the private market already offers a wide range of retirement planning vehicles that advisors can easily acquire and tailor to consumers’ specific needs. There is no need to set up costly state programs that needlessly compete with readily available private market options. It would be more efficient to use public funds to educate consumers on the need to save for retirement and to set up clearinghouses to bring plan sponsors and employers or individuals together. NAIFA supports this type of private-market approach, which has been signed into law in New Jersey and Washington State.

Note: An earlier version of this post stated "the Oregon plan has also borrowed almost $6 million from the state to cover start-up costs." The actual figure is $5.05 million. The earlier version also said "another funding request will likely be made soon." An official with OregonSaves tells us there are no plans to request further funding.
  • Posted December 6, 2018 IN

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