Though other states like Illinois and Maryland have already passed a similar Auto IRA Bill, California is making history with the passage of a law that would require companies with five or more employees to offer a portable retirement plan with 3% automatic contribution to their employees. The bill, sponsored by Senate President Pro Tempore Kevin de Leon, is expected to be signed by Governor Jerry Brown after the Senate passes the final amendments.
Not only was California a pioneer in exploring state mandated retirement plans at work, it has one of the largest economies and populations leading what is now 30 other states to either pass or consider a similar proposal. At stake is workers’ rights to retirement plans at work where people are 17 times more likely to save, just like the right to buy healthcare. With only 50% of workers with access to a retirement plan at work and the demise of pension plans, these state initiatives have captured the attention of state politicians. In fact, the DOL just released rules that would exempt these state plans from restrictions under ERISA which covers 401k and some 403b plans which may extend to large municipalities.
But some groups are concerned about these new plans, especially the ICI (Investment Company Institute) representing mutual fund companies citing California’s restrictions on fees above 1% of plan assets as well as the DOL’s restrictions on participant’s right to move assets out of these state plans into traditional IRAs. Others wonder whether the states have an unfair advantage not having to comply with ERISA rules as well as whether these entities, many of which have mismanaged the retirement plans for their own workers, are the best stewards for private company plans.
With so many states requiring retirement plans at work, many with different rules, companies that have employees in different states, common in an era of growing distant workers, may look to the Federal government to apply one standard.
No doubt that smaller companies have a hard time finding and managing plans on their own for a reasonable price which is why multiple employee plans (MEPs) are becoming more popular and perhaps why low cost robo record keepers are popping up. But the need for portable retirement plans at work in a “401k world” devoid of pension plans where younger workers are not counting on Social Security to be available when they retire will continue the wave spearheaded by California to require companies to offer workplace savings plans.
