Because only 50% of US workers have access to a retirement plan at work where they are 17 times more likely to save, state politicians have moved to create mandated, state run plans for smaller companies. So why has the industry reacted so strongly?
Smaller companies have a hard time with the complexity of ERISA plans like 401(k)s which carry lots of liability and costs. Almost 25 states are working towards creating a plan for their citizens which, under a recent DOL guidance, would be exempt from ERISA and could run as a cooperative or massive plan where all companies can join and enjoy economies of scale called a MEP (multiple empower plan). Sounds good, right?
But the industry has concerns, some legitimate according to a recent article in RIABiz. Privately run plans are not exempt from ERISA and cannot form a MEP unless the companies are affiliated like law firms part of the ABA. Governments competing with private industry, especially an industry that has managed to cover 50% of workers under a defined contribution plan with almost $6.5 trillion of assets, does not seem fair especially if the governments have a decided advantage.
Rather than get the government involved in an industry that seems to be working well, why not allow private companies exemptions from ERISA with the ability to create private MEPs including unaffiliated companies? There are many record keepers willing and able to serve small companies – one issue inhibiting broader coverage of smaller companies is the cost of sale as DC plans are sold not bought. If states mandate that all companies of a certain size create a workplace retirement plan, sales costs would be greatly reduced and economies of scale could be achieved through private MEPs exempt from ERISA.
But assuming that states want to be in the retirement business (and even though they have some economies of scale, it’s only one state compared to coverage of a national record keepers), why not at least create a level playing field? And as many companies, even small ones, have employees in different states, does it make sense to have different plans for different locations?
