No matter on what side of the political spectrum you fall, we can agree more needs to be done to increase retirement savings and to make more people financially secure and retirement ready. Beyond that, the issue quickly becomes political.
When talking about the financial security of all Americans, playing politics is unfortunate. It brings out the ideologues whose my way or the highway mentality prevents meaningful dialogue and instead keeps kicking the can down the road. Those politics are very evident at the state level.
A brief history
In 2012, California passed Senate Bill 1234, creating a board to study the implementation of a state-run retirement plan for the private sector. California billed it as the first meaningful legislation since the idea began debate in several states in 2005 and 2006. Three years after passing the bill, California has struggled to fund its study and has made little progress. Other states have conducted similar studies, and Illinois has gone as far as to pass a bill that will implement a mandated, state-run IRA plan for the private sector.
There are several reasons this is problematic. Primarily, the proponents of these plans insist on mandates that businesses oppose and implicate ERISA (and all of the preemption issues). The fact is this would trigger significant compliance costs for employers in the various states, despite assertions to the contrary by mandate proponents.
So after 10 years of debate, where have we gotten?
Several states continue to study the issue, burning through dollars and resources along the way. Illinois passed legislation but likely wont have the funding to implement, and even if it did, the plan would be shut down due to its structure and resulting ERISA implication.
Little progress until now
On May 18, Gov. Jay Inslee signed Senate Bill 5826, creating the Washington small business retirement marketplace. The new law, which passed both chambers with bipartisan support, will provide education and promote low-cost, low-burden retirement savings vehicles.
The products and services will be provided by the private sector, as well as President Barack Obamas flagship MyRA, an important part of a balanced program to address the needs of beginning savers with small account balances. Since it isnt a plan, it doesnt have the problems with federal law encountered by proposals in other states. Its truly a first-of-its-kind public/private partnership geared to solve a societal concern.
This new law isnt a mandate, so its supported by businesses and business groups. It capitalizes on products and services from the private sector and therefore is supported within the retirement, insurance and financial services industries. And it helps educate and encourage people to save, so AARP supports it. It also recognizes the value that financial professionals bring in helping to educate and promote, so allows for commissions.
Best of all, employers and their employees have access to reasonably priced, low-burden entry level choices that can help alleviate retirement savings shortfalls. It can be a win for everybody.
Financial professionals can use this new law and educational materials as a conversation starter with small businesses that currently do not offer retirement savings plans.
With such a push from both the state marketplace and financial professionals, retirement plan sponsorship and ultimately retirement savings rates are sure to increase.
While other states continue to spin their wheels on ideas that are complicated, expensive, impractical and likely impossible under federal law, the state of Washington pushed the political ideology aside and got it done.
Also see: '7 questions to ask non-profit plan sponsors.'
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 more than 20 years and has been in the retirement plan business since 1986. A version of 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.
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