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EZ IRA: Poised to Meet ‘Now More than Ever’ Need

We hear a lot about how well Americans are saving — or not — for their retirement. Legg Mason Global Asset Management has unveiled EZ IRA, a payroll deduction IRA program intended to provide a way to build that savings rate.

“Hopefully — and I truly believe this — this is just the beginning. Remember this day. This is a big deal,” said NAPA Executive Director and CEO Brian Graff at EZ IRA’s unveiling Nov. 3 at Legg Mason’s Baltimore, Md. headquarters.

EZ IRA is a team effort — Legg Mason’s partners in developing it are Cennairus Financial and Aspire Retirement Solutions. Cennairus oversees the distribution channel partners and payroll company approval process for EZ IRA, and Aspire provides recordkeeping and account processing capabilities. The EZ IRA program:

  • is available for businesses with five or more employees and that do not currently offer a retirement plan
  • is intended to facilitate expanded retirement plan participation in a way that maximizes ease of participation and minimizes burdens on employers
  • involves no cost to an employer, and makes it easy for employees to participate as well because they contribute to their accounts through payroll deductions
  • gives participating employees the opportunity to meet with a financial advisor
  • is intended to be made available to employers through payroll and benefit providers

Before making EZ IRA available nationwide, Legg Mason, based in Baltimore, is releasing the pilot of the program in Maryland. The target audience is payroll providers in that state, focusing on businesses with five or more employees and that currently do not offer a 401(k) to their employees.

Timing Is Everything

The timing for EZ IRA appears to be excellent. “The market is ready for this now more than ever,” said Graff at the Nov. 3 event.

“The numbers are grim for retirement savings,” Graff noted. Angela Antonelli, executive director of the Center for Retirement Initiatives at Georgetown, agreed, adding, “The demographic tide is not a pretty picture.”

But there’s a bigger reason than raw statistics, Graff asserted: “What’s more important is that this is now a major concern for the American people. It’s by far American families’ number one financial concern.” And it’s a broad concern, he argued: “A lot of people think this is a lower-income problem, but it’s not.”

Of EZ IRA, Graff said, “We’re doing this because there is a need. Small business’ interest is increasing because people’s interest is growing.”

Selling the Plan

EZ IRA may stress ease of participation and administration, but making it available and building participation is not a passive effort. “These are sold, not bought,” said Legg Mason Global Investment Management Director of Retirement Sales Gary Kleinschmidt, who is a member of ASPPA and NAPA, at the Nov. 3 meeting.

The fact that participation in EZ IRA does not cost an employer anything is seen as a major selling point. “The fact that you can offer it at no cost is huge,” said former Maryland Lt. Gov. Kathleen Kennedy Townsend at the Nov. 3 meeting. Graff called that “a paradigm shift.”

Graff noted that EZ IRA’s low-impact features make it attractive to employees as well. “It’s a great training ground — a great way for individuals to be introduced to saving.”

Cennairus Insurance President and founder Jeff Harris noted that a test run of EZ IRA conducted with a small group of employees at a stylist business who rolled over their accounts from previous employers’ plans in which they had participated showed very positive results. And he cited the fact that it’s more than a conventional IRA as another reason EZ IRA is attractive: “It’s not just that it’s an IRA, it’s also the payroll deduction component and investment advice.”

Technology is a key component of EZ IRA. “Technology has an important role in making this possible now. It allows connectivity,” noted Legg Mason Managing Director and Co-Head of U.S. Sales Jeff Masom. Aspire Chief Operating Officer Mark Agustin agreed, and added that technology also allows access, lead generation and targeting of an audience. “The connectivity and technology are what drives this,” said Agustin.

In Tandem

The EZ IRA rollout comes as both houses of the Maryland legislature consider how to increase retirement readiness. Legislation is before the Senate and House that would require nearly all private-sector employers in the state to provide a workplace retirement savings plan for their employees. It also would establish the Maryland Secure Choice Retirement Savings Trust, which would be a state-run IRA program through which businesses with more than five employees that do not offer employees a pension or retirement plan would contribute through automatic payroll deductions so that their employees can participate in it. Employers would have no ongoing responsibilities related to the program’s administration, and would not be liable for benefits payable by the trust.

The Senate version, SB 921, was introduced on Jan. 31, 2014 by Sen. James Rosapepe (D-Laurel) and is before two committees: Budget and Taxation, and Finance. The version before the House of Delegates, HB 1251, was introduced by Del. Tom Hucker (D-Silver Spring) on Feb. 7, 2014, and is before the Economic Matters and Appropriations Committees. 

Rosapepe’s legislation led to the formation of a task force by Gov. Martin O’Malley (D). In May, O’Malley announced the establishment of the Governor’s Task Force to Ensure Retirement Security for All Marylanders to examine how to improve retirement security for private-sector employees in Maryland. The group is to develop recommendations to expand workplace savings for private-sector employees. It plans to issue a report by Dec. 4.

The task force, which began meeting on Aug. 7, 2014, is headed by Townsend. It is comprised of members of the General Assembly, the state treasurer, labor unions, and members of the financial services industry and small business community, including Kleinschmidt. 

At the Nov. 3 meeting, Kleinschmidt stressed that EZ IRA is a private-sector option that works in tandem with anything the state government may put in place, noting that EZ IRA “is not in place of the state plan.” To emphasize the importance of this point, he cited a recent event at which attendees expressed great concern at the thought that the government would take over retirement plans and planning.

Graff agrees that such confusion exists, and noted that “a lot of people see it as a government-mandated program — but it’s not.”

Graff also stressed the role of the private sector in retirement readiness. “No one argues this point,” he said, regarding the importance of employer-based retirement plans.

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