In focus groups conducted by the Pew Charitable Trusts with small and mid-sized employers, some with existing retirement plans like 401ks, people were asked their opinions of state run retirement plans now being offered or considered by over 30 states. Though generally negative, some companies saw the benefit, especially those without a plan.
At issue is whether government, especially states, should require companies to offer a retirement plan to employees. Though the private defined contribution system covers 60% of all full-time workers over 21 years old an accounts for over $6 trillion ($14 trillion if you include IRAs), politicians believe that more coverage is needed as people are 17 times more likely to save in a payroll deducted plan than on their own.
Concerns about state-run plans at the Pew focus groups included:
- Distrust about states running the plans and whether they ultimately make claims on the funds.
- Forcing people to save in auto plans is un-American.
- There are plans, tools and resources already available so what value would state plans bring?
- Additional work and costs.
- Negative reactions by employees.
- Loss of a competitive edge by companies that already offer a plan.
- Whether low income workers could afford it.
Not mentioned is the concern about a patchwork of disparate state-run retirement plans for companies with workers in multiple states. The whole idea of ceding jurisdiction to the federal government over interstate matters is meant to not impede interstate commerce.
But the real impact of state-run plans will only be felt if companies of a certain size are required to offer a retirement plan. Should retirement planning be like unemployment or disability payments? And could the states or even the federal government accomplish the same goals by requiring companies to use already existing retirement plans service providers rather than state-run plans? Do states have the necessary expertise, knowledge and people to oversee, never mind run, a private retirement system considering the current issues with severely under-funded state and local DB plans? The new DOL is meant to root out conflicts of interest – could the politics create conflicts for state-run plans?
More to come as more state run retirement plans come on line and more are considering it.
