Polling 1600 small to mid-sized business owners, some with and some without a defined contribution plan, research sponsored by the Pew Charitable Trust found that 13% of those with a plan would drop their current option for a state run plan. On the other hand, 50% of those without one would choose a private option over a government plan. A vast majority of business strongly prefer that state plans run by private companies compared to state or federal options.
Pew had previously conducted focus groups on the issue.
With 40% of full time workers not covered by a company sponsored payroll deducted retirement plan like a 401k or 403b, more and more states are offering or threatening to offer state run auto IRA plans, most requiring companies of a certain size to offer some type of plan. The question for businesses is whether the state option initiatives would be helpful and whether their employees would be better off. The Pew research is telling.
The main reasons companies don’t offer a retirement plan are costs, limited resources and lack of interest from employees with three-quarters not likely to offer one under current conditions. Greater profitability, financial incentives and employee demand would cause more companies to offer one.
Popular features of the auto IRA option include limited legal liability – the DOL has granted these state plan exemption from ERISA.
If states required all business of a certain size to offer employees of a certain size to offer a retirement plan, 86% favored a market place where they could easily shop for options with 82% favoring plans offered by mutual fund companies, 72% by insurance companies and just 44% and 41% for federal and state options respectively. Interestingly, the most popular feature would be employee discretion on choosing investments and the ability of companies to match contributions along with limited liability.
Clearly there is a need for company sponsored participant directed retirement plans where people are 15 times more likely to save for retirement at work than on their own. Making these plans more appealing to business owners and managers is key but real concerns exist about whether the government should run them. More to come, no doubt.
