Will the emergence of state-run retirement plans (and retirement plan mandates) heighten interest in private sector alternatives, or will employers just adhere to the mandate? NAPA Net readers weigh in.
Most of this week’s respondents – just over 50%, in fact, said that the impact would depend on the provisions of the respective mandates. Note that at least two states (Washington State and New Jersey) haven’t relied on coverage mandates, but have merely moved to establish marketplaces where employers could shop for plan alternatives, while others that have (or will have) coverage mandates (e.g., Illinois, Connecticut, California and Maryland) have applied it to different employer size minimums.
That said, only 1 out of 10 respondents thought that such programs would spur a large number of employers to explore private sector alternatives. (A study considering the option in Connecticut estimated that as many as 50% of those covered by the mandate would opt for a private sector option to satisfy the requirement.) Another 10% said they had no idea about the outcome, while the rest were in a “some impact, but probably not large numbers” category.
As one reader explained, “I believe some small employers without retirement plans will look at alternatives to the state programs for employees of private employers by offering a better program for their employees which would include some employer contribution as a recruiting tool. I do not know whether this would be a large number but I do believe it is likely that some employers will consider alternatives.”
There were concerns about the ability of the respective states to effectively administer these programs. As one reader noted, “I think the smart ones that don’t want to give another dime to government will set up their own plan through the private sector to meet the minimum requirements. Many, however, will simply do what the law requires, not researching how badly their state government has mismanaged their public retirement plan.”
There were some concerns that the mandates might actually serve to pull programs out of the private sector. “I tend to believe we may see sponsors who really don't want the exposure of managing a plan, wash their hands of the responsibility and simply join the state plan,” wrote one. “I think we could see existing small plan sponsors move to state plans.”
It should be noted, however, that most (62%) of this week’s respondents haven’t (yet) spoken with plan sponsors about these programs or their potential impact.
Those who have spoken with plan sponsors found that, in a plurality of cases (43%), the plan sponsors were unaware of the state initiatives, and that another 23% were aware, but not focused on the impact since implementation was so far in the future. However, the rest said that those plan sponsors were interested in private sector alternatives.
As for a shift in attitudes as implementation approaches, 56% expected a change, with the rest split between those who expected no change in sentiment and those who weren’t sure what would happen.
We got some interesting reader comments/observations on the issues – and issues raised – but these state-run alternatives and their ability to help close the coverage gap. Here’s a sampling:
- “The Illinois plan which looks like a template for many plans, simply allows for too low a level of savings. They've got to find a way for the participants being covered by these plans to save at a higher rate.”
- “I would love to see a side-by-side on state-run vs. private sector plans covering all facets: cost, investment options, reporting for both employer and employee. We do have a coverage gap, but is state-run the correct answer when all of the above is factored in?”
- “We have a real retirement problem in the United States which gets worse every day. The state retirement programs are an attempt at a solution to this problem. They may not be a perfect solution but if they prod employees who are not saving for retirement into commencing saving and more employers into adding retirement plans they will have accomplished their purpose.”
- “Provided that the private sector has a level playing field with state run programs and providers adapt offering with similarly situated arrangements, this could increase plan formation in the sub 5m market in a large way. Asset pooling is becoming more ubiquitous in the small market and that trend is likely to continue albeit at a brisker pace with state plan formation.”
- “I believe the proposed legislation in Congress to expand the availability of ‘open multiple employer plans’ will have a dramatic impact on the retirement gap once the bipartisan bill gets signed into law. The flexibility afforded in an ‘open MEP’ should be much more appealing to employers than the limited options available under any of the state-run plans that I've seen being proposed.”
- “I think this could be an impetus for employers to adopt private-sector plans. Why not choose an integrated or cross-tested plan and put in a little something extra for yourself (assuming demographics permit) if you're going to have to have a plan anyway? Yes, there is some expense involved but the contribution difference could be well worth it.”
Thanks to everyone who participated in this week’s NAPA Net reader poll!
Got a burning question on your mind? Something you’d like to run past the NAPA Net readership? Post it in the comments below, or email me (anonymously) at [email protected].
