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. While we all want to see greater participation and savings rates, it makes no sense to create tax-payer supported government-run plans when there is already a robust, readily available array of affordable retirement savings options in the private marketplace. Different financial professionals have different product preferences, but we all know that competitive options exist.
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.
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. Instead, proponents argue for state-run retirement plans based on assertions made by academic proponents. 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). There is also no indication that any of these states have considered the impact on the economic security of financial professionals and other retirement plan professionals who make their living trying to do the right thing for their clients. 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.
It is important that those who will cast the votes have the facts. 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. Does anyone truly believe the government can do a better job than financial professionals who have dedicated their careers to helping people attain financial security?
What can you do? Get active! After all, it’s your livelihood on the line. If you live in Connecticut or Oregon, write your state legislators and your local press. 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. Remember that silence is often seen as consent. Make sure your voice is heard and that legislators understand the valuable role you play with both plan sponsors and participants.
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
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.
