Are State Sponsored Retirement Plans the Answer?

There has been a debate for several years as to whether or not the private sector retirement system provides adequate retirement benefits for employees employed by private sector companies.  Over 28 states are in the process of developing a state sponsored plan and 12 states have implemented a state sponsored plan.  As someone who has worked with private sector retirement plans for over 40 years, it is my opinion that the private sector retirement system does and will provide the best means for private sector employees to reach their retirement goals.  The Secure Act is the most recent legislation to be enacted which will provide a means to move closer to this goal.  Following are some key points which, in my opinion, give the private sector retirement system an advantage over any state sponsored plan.

Plan Design

State sponsored plans do not provide consulting to assist a business owner in designing a plan to meet their specific goals and objectives for their company or employees.  A plan in a box cannot meet the needs of every employer or, more importantly, the needs of the individual employees.  Professionals working in the private sector provide consulting to the business owner assisting them in understanding all the options available and employee needs in order to implement a plan to benefit the employer and employees.

Participant Outcomes

State sponsored plans provide no resources for the participants, other than a website.  State sponsored plans do not offer employee education meetings, financial wellness programs, investment advice, or resources to assist a participant in managing their retirement assets.  Qualified plan professionals providing services to private sector retirement plans offer and provide all of these tools and resources to inspire participants to save for retirement.  The Secure Act began the process of requiring Plan Sponsors to provide information to participants regarding the amount of monthly income to expect at the Plan’s designated retirement age, as well as a fiduciary safe harbor for Plan Sponsors who desire to provide annuity benefits to the Plan participants when they reach retirement.

Governance

For the most part, state sponsored plans are non-ERISA plans and, as a result, eliminate the regulatory responsibility of adhering to ERISA regulations required by an ERISA private sector retirement plan.  One might ask the question: is not being subject to ERISA really in the best interest of the participants and beneficiaries covered by the plan?  In a state sponsored plan, the employer still retains the responsibility of submitting timely and accurate participant contributions to the state retirement plan.  Will a state protect the rights of participants and beneficiaries to the same level the Department of Labor, EBSA, has protected participants for decades?  Retirement plan professionals provide the resources for private sector plan sponsors to meet their fiduciary responsibilities required by ERISA, as well as the regulatory requirements of the Internal Revenue Code and the Plan Documents.  The Secure Act, with the implementation of Pooled Employer Plans, effective January 1, 2021, will provide a private sector business owner a means of sponsoring a plan for their employees without a lot of the complexities associated with a stand-alone retirement plan.  Thus, it will be easier for a business owner to offer a retirement plan for their employees, and, more importantly, it will be easier to have a plan designed around their specific goals and objectives and participant demographics.

In Conclusion

Private sector retirements will continue to be the best resource for private sector employers to provide retirement benefits for their employees.  With continued favorable legislation, such as the Secure Act, and ongoing innovation, the future success of the private sector plan system is bright.

By Jeff Atwell, AIF, C(k)P, CPFA , Principal, TRG Fiduciary Services, LLC