The idea that states will require that companies without an employer sponsored retirement plan will have to create one seems like a great idea. But dig deeper and there could be unforeseen consequences if various states with different requirements for companies that have employees in different jurisdictions which is common even for smaller employers.
People that have access to a retirement plan at work are 14 times more likely to save which will only grow with automatic enrollment. But the question of whether states that have limited experience in creating retirement plans or legislating retirement policy should get into the mix is raised by Minnesota StarTribune columnist Lee Shafer where that state is expected to follow Illinois’ lead in mandating retirement coverage by private employers.
Target’s assistant general counsel notes, “If we have a bunch of those Illinois-type plans, for a good Minnesota company like Target operating in a bunch of states, they are going to have to track all of these … to see if they have some obligation. It’s going to be a disaster.” But wouldn’t Target be immune because their workers are already covered? What if the company has a six month waiting period? Will those workers have to be placed into a state plan for a few months.
Along with a hodgepodge of state initiatives that may not work well with each other, just like with state healthcare before the ACA, the DOL has stated that state run plans will not be subject to scrutiny under ERISA which is the main protection for participants.
The irony of Illinois taking the lead on retirement policy is that the state faces an estimated $110 billion deficit for their state run pension plan. Which raises the obvious question of whether states are equipped and experienced enough to run state defined contribution plans compared to private national record keepers that have decades of experience, deep pockets and are not limited to one jurisdiction.
In other words, a “delightful mess”.
