Though many advocates for increased retirement savings coverage at work bemoaned the recent lifting of the DOL’s ERISA exemption for state auto IRA plans by Congress, others believe it creates a better scenario for private companies and their workers. Gary Kleinschmidt, head of retirement sales for Legg Mason who helped form NAPA (National Association of Plan Advisors) as well as assist the state of Maryland with their auto IRA plan, thinks the lifting of the ERISA exemption creates a level playing field for private options.
Because people are 15 times more likely to save for retirement at work than on their own, the role of employer sponsored, payroll deducted plans are more critical than ever. With 50% of the workforce not covered, almost 30 states have created or are considering auto-IRA plans to fill the gap.
Learning from failures of federal initiatives that made these plans optional, states have created a mandate and in so doing also offered a state sponsored plan alongside private options. The key component of these state plans is the mandate.
But Kleinschmidt believes that the lifting of the ERISA exemption by Congress opens the door for private options by creating a more level playing field. Pew Research shows that small employers much prefer private sector retirement plans over state or even federal ones and the lifting of the DOL exemption makes them even more attractive. The research also shows that 13% of companies with a plan would move to the state option especially if it did not inlcude ERISA liability.
The issues for employers with workers in multiple states is which jurisdiction prevails. Though a federal mandate would be preferable, that initiative got derailed by Obamacare in the late 2000’s. Leaving a gap and opportunity for state plans.
Without the help of an advisor, Kleinschmidt warns, these state mandates can seem burdensome to small businesses. Advisors can help streamline the plan limiting costs, work and liability while working with employees to maximize the benefits as we move from a defined benefit world to a 401k world where people are responsible for saving for their own retirement.
