Business Enhancement Associates Aha! Moments: Attention advisers: State-run retirement plans may put your livelihood at risk - Articles

Monday, June 3, 2013

Attention advisers: State-run retirement plans may put your livelihood at risk - Articles - Employee Benefit Adviser

Employee Benefit Adviser:
Posted May 31, 2013 by Aaron Friedman at 03:48PM

There is a movement afoot to put state governments in the business of offering retirement plans to private citizens, which would ultimately eliminate opportunities and siphon business away from financial professionals.

Lawmakers in several states have proposed that states create government-run plans for private sector workers. While the details differ from state to state, every proposal this year would require employers who do not currently offer a plan to adopt a state-run plan, either in direct competition with the private sector or, in some cases, squeezing out the private sector — including financial professionals — altogether. Proponents claim they are solving a crisis where people are not saving enough for retirement because there is a lack of access to affordable savings options. ...

In past years, states like Maryland, Tennessee and Washington have studied this concept and have each determined that barriers to savings have more to do with economic realities than lack of access to plans. People are concerned about making ends meet or paying for health care. Saving for long-term goals is a luxury that takes a back seat to current needs. Those states also outlined the significant up-front and ongoing costs to taxpayers if a state-run plan was put into place.

The Indiana State House (Photo credit: netmonkey)

But none of the proposals this year in Maryland, Maine, Illinois, Indiana, Connecticut or Oregon calls for a study to determine the actual need and, importantly, costs to tax payers. ... There is no indication these states understand the true economic drivers of inadequate savings or the true costs of establishing and operating retirement plans (think — complying with ERISA). ... Fortunately, nothing passed this year in Maryland, Maine, Illinois, or Indiana. However, the issue is still very hot in both the Connecticut and Oregon legislatures.

... Lawmakers need to understand that retirement saving requires more than providing access by mandating a state-run program. It requires better economic conditions so more people can afford to save for retirement and employers can afford to offer plans. It requires the guidance and expertise of financial professionals to help employers set up plans and employees to participate and save adequately. ...

... If you live in other states, you aren’t out of the woods. Each year more and more states are considering state-run plans. Keep watch and speak with your legislators proactively. You can also get involved with your trade organizations at a local and national level. ...

Friedman is the tax-exempt national practice leader with the Principal Financial Group, an investment management and retirement leader. A noted expert on 403(b) plan design, he has been consulting with tax-exempt organizations for over 20 years and has been in the retirement plan business since 1986. This blog originally ran on The Principal blog. Follow Aaron on Twitter @1AaronFriedman1

Principal Financial Group (Photo credit: Wikipedia)

Insurance products and plan administrative services are provided by Principal Life Insurance Company. Securities are offered through Princor Financial Services Corporation, 1-800-547-7754, Member SIPC and/or independent broker dealers. Securities sold by a Princor® Registered Representative are offered through Princor. Princor and Principal Life are members of the Principal Financial Group® (The Principal®), Des Moines, IA 50392.