Friday, February 14, 2014

Reasons to be wary of State Run Retirement Plans

The article linked above, published by Forbes, is an ACLI-funded rebuttal to the notion of a state-sponsored and run retirement plan like those that have been proposed in CA, CT, WA and MA.  The article does a nice job of rebutting the idea that the current private system is not working, which is often cited as the reason for the public sector to enter as a new alternative retirement plan.  It is a good pros/cons article on the topic.

What I’ve always found interesting about these types of articles, (both those that are positively or negatively slanted), is that when debating the merits of the existing privatized security system vs. a new state or Govt. option is that they always bring up coverage and point to perceived or real 401(k) shortfalls.  Costs, fiduciary risks and administrative burdens are always brought up as a barrier for employers and they always use the micro-market as the example, the very small employers.  With all of that, I’ve yet to see a SINGLE one of these types of articles that points out that these micro market companies already have a viable private sector option that is comparatively, extremely inexpensive and ,frankly, better than a lot of these public sector options, the SIMPLE IRA.  Given that it does require an employer contribution, it isn’t free, but it is still very inexpensive because it doesn’t have most of the administrative burdens or many of the risks of a Qualified Plan. 

I think that if the goal of the Govt. is coverage (which I’m highly skeptical is the real motivation), they could solve this whole thing by simply mandating that employers that don’t currently offer a qualified plan must offer an alternative retirement plan instead such as a SEP or a SIMPLE.  Obviously, I’m simplifying it a bit, there will be some employers that don’t qualify for those because of employee counts, but I think creation of new architectural structures like these state run or govt. run plans would be far more costly than simply mandating some type of offering from what’s already available within the law.

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