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Small Biz Owners Skeptical of State-Run Retirement Programs

A series of small and mid-sized employer focus groups finds a general skepticism regarding state-run retirement saving initiatives.

The Pew Charitable Trusts recently conducted focus groups in Philadelphia, Chicago, Dallas and Los Angeles to explore employers’ views on retirement programs and potential policy initiatives. The focus groups included 63 representatives of small (5 to 49 employees) and medium-size (50 to 249 employees) employers, and the eight sessions were largely split between employers that did and that did not offer retirement plans to their workers.

State-Run Plan Skeptics

Asked about state proposals to set up automatic payroll deposit IRAs for private sector workers, the majority of employers expressed concerns about states’ administrative capabilities and questioned the motives for such plans.

Many employers said they thought workers might opt out of state-based auto-IRAs because of distrust of state-affiliated savings programs, limited incomes or tight household budgets.

Initial reactions were largely negative. Participants who already offer a plan did not see any added value for their business. When pressed on the value to employers that did not have or could not afford to offer a plan, several said this would be a good “better-than-nothing” option.

Employers without a plan were skeptical but generally supportive. Such a program, they said, could help “level the playing field” with competitors that offer retirement benefits, and could help their employees save.

Participants found some individual features appealing, such as limiting the employer role to payroll deductions and disseminating information, as well as the lack of employer fiduciary responsibility. For most, these protections were still not enough to overcome an aversion to government involvement.

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However, most said they do not trust states’ abilities to manage these programs, with many considering such an approach government overreach. Most expressed an ideological objection to government involvement in private business, but several raised more specific objections:

  • Some questioned whether a state could effectively manage customer service for employees and business owners, pointing to perceptions that governments at all levels often do not manage budgets and other programs well.

  • Though the moderator noted that the government would not be involved in managing the investment funds, some raised concerns that the state would make claims on the funds.

  • Participants said creating a state-approved online marketplace for private firms to offer plans to small employers would be redundant because existing Internet-based tools are available.

However, employers that offer retirement benefits said they would not drop their plans if a state program were available to employees.

Policy Recommendations

As a result of the findings from the focus groups, Pew offered the following recommendations:

  • Initially negative reactions to automatic enrollment in general and state-sponsored plans in particular pose a communications and outreach challenge for policymakers.

  • Employers without plans were receptive to the idea that these tools would result in more savings, and policymakers might emphasize that employees would receive extensive and timely notification of the automatic processes. However, employers made clear the difficulty of persuading lower-income employees that it’s worth contributing from their limited income.

  • A retirement plan marketplace also faces skepticism. A marketplace should have a financial education component and increase competition among providers to lower costs.

See also "Will State-Run Retirement Options Be Good for Private Sector Plans?"