"The Government Does Not Do It Better" - Brian Graff, and he's dead on right about that!

Over the last few weeks I've been doing a bit of thinking regarding the state of the retirement plan industry, where it is now, where it's heading.  A lot of the noise that's out there right now seems to be centered around retirement plan litigation, mainly the spate of recent excessive fee lawsuits that have settled and the many more recently filed.  Further still is more negative energy and interest surrounding the forthcoming finalized rules for the Conflict of Interest Rule (aka the new fiduciary definition).  While these topics are important and certainly bear observation and reaction as they play out, to me, the biggest threat on the horizon is a bit closer to home, at the state level.

While the industry is looking left at all this fee and fiduciary stuff, the DOL was on the right, quietly creating a major threat to the private sector by giving a significant advantage to publicly offered (by the state.....so far) employer facilitated retirement plans.  This isn't new stuff, it's been percolating through the system for quite some time.  It gained steam, however, over the summer.  In May, Senate Democrats put pressure on the Obama administration to clarify some legal issues surrounding state run retirement programs.  In particular was whether or not these new programs would be covered by or run afoul of ERISA.  In July, the president responded directing the DOL to facilitate the implementation of state laws protecting the states.  Finally, on November 16th, the DOL released comprehensive guidance creating a road map to the creation of state-run private sector retirement programs that would have different (frankly better) rules than that of the private sector.  Many states have already started down the path to creating these.

These new rules have created a safe harbor for payroll deducted IRA programs run through the state without offering an equal safe harbor for the private sector.  It also allows for the states to proceed with creating an "Open MEP" type program while simultaneously not providing similar guidance for the private sector.  This will foster extreme competition to the private sector in the next few years from the states, and in my opinion, also opens the door for the federal government to follow suit with a national program similar to what was done with health care.  This is the real threat to the private sector retirement system, NOT the Conflict of Interest Rule which is mainly going to be an inconvenience that we'll all figure out how to work with. 

Brian Graff wrote a great piece on it in the latest Plan Consultant Magazine.  It's a MUST-READ for anyone in the industry.  It's linked here.

The Government Does Not Do It Better

- Jason Grantz