Though defined contribution (DC) plans like 401(k)s have been a huge success with over $6 trillion in assets (over $14 trillion if you count IRAs which grow mostly through rollovers from DC plan), there’s a sense that we still have a long way to go as half of all workers are not employed by companies that offer a retirement plan. On their own, 5% of people save for retirement but over 70% of workers covered by a DC plan are saving with that number increasing as a result of auto enrollment. Two powerful forces could greatly increase the coverage for another 80 million workers affecting almost 5 million small business – technology and government.
Over 25 states have either passed or introduced legislation making it easier for smaller companies to offer their workers a payroll deducted, employer sponsored retirement plan; some are proposing that companies of a certain size must offer a retirement plan. Just this week, the federal government announced its support of MEPs, or multiple employer plans, where employers can pool assets under one plan.
On the other hand, tech companies like Betterment are making low cost/high tech 401(k) plans leveraging ETFs, online advice and innovation in technology.
While the devil is always in the details with some critics of state plans alleging competitive issues because state sponsored MEPs, unlike private ones, will not have to comply with ERISA, with other industry experts wondering whether smaller employers will opt for high tech/low touch options, there’s no question that if these two powerful sectors (government and technology) focus on corporate retirement plans, something will happen. And thought the focus right now is on smaller plans where coverage is lower, larger companies may reap the benefits.
Stay tuned.
