What's the State of State Retirement Initiatives?

Earlier this spring on June 17th, Maine's House of Representatives and Senate approved legislation that would create a Payroll Deduct IRA plan for Maine-based workers whose companies did not otherwise offer a retirement plan.  Maine is only the latest state to enact such legislation, but almost certainly not the last. Initially, Maine's program will work similarly to other programs of this type in that it will be required to be adopted by any employer with 25 or more eligible employees starting April 1, 2023.  An interesting twist in the Maine program is that it is intended to also go to smaller employers once it is off the ground with 15-24 employee companies mandated in October, 2023 and then 5-14 employee companies that following April.  Of course, these smaller groups can participate ahead of the mandate if they choose.   

This is the most aggressive one's of these state programs that I've seen and is part of a broader overall idea that I agree with, which is that coverage is the primary retirement issue in the U.S. today.  The states and the federal government agree, with many states having enacted state mandates or in the process of doing so.   See this piece put out by Georgetown University with the latest information for each state.   

Georgetown's State Program Brief

The federal government is said to be similarly considering a uniform version of these types of programs (which would be very helpful so we don't all have to learn 50 different sets of rules) as well.  But even in lieu of that, with upwards of 50% of U.S. workers not having access to a workplace retirement plan, the need is there to expand opportunity.  With the recent creation of Pooled Employer Plans and many now up and running, the coverage gap is starting to get smaller and that's a good thing for everyone.  Once we get coverage and equity gaps narrowed or eliminated, new innovation in Retirement Income solutions, more sophisticated investment structures and better technology can start to evolve and make a dent in elderly poverty rates.

In short, I think that these types of state-run programs and new types of retirement plan offerings add complexity to the industries offerings, but more importantly address a real need and a problem that needs to be solved.  The challenge will be to the private sector in stepping up and ensuring that the public options don't become the standard.

- Jason Grantz, QPA, QKC, QKA, AIFA

 

Scary Times (not an October pun)

First, I'd like to apologize to those who regularly read this blog for delays between my last and this blog post.  It's been an extremely busy summer and often the first thing that gets pushed to the side when time is short are passion projects.  That said, while this is not a political blog and I'm not a political person, no post in mid-October of this particular election year couldn't ignore the scariness of our current presidential race and the potential ramifications.  

Earlier today, I read a blog post from 401(k)specialist.com, linked here called How a Hillary Win Means Government Run 401ks.  That's a pretty scary title!!  I'm not giving a presidential opinion, but rather opining on the....aghast.....thought of the government taking over and running (er...eliminating) the 401(k).  The ramifications of this are scary as well, complete elimination of an entire industry that's been helping people for over 30 years and despite what they tell you, an even WORSE result.  Despite the negative noise around the private sector system, the 401(k) helps more people financially then ANY other program out there with the exception of Social Security, and everyone acknowledges that Social Security falls far short for most and when supplemented with 401(k) can give people a financial chance.

In the article, it describes how Hillary Clinton is considering Tony James for Secretary of the Treasury.  Tony James is a co-promoter of Guaranteed Retirement Accounts, an idea that's been put forth by Teresa Ghilarducci, the professor of economic policy analysis at the New School for Social Research and a well known enemy of the 401(k) and the 401(k) industry.  She often makes glib disparaging commentary about the 401(k) referring to it as an 'immature child' and the like. 

Her  idea is to mandate a 3% of compensation contribution into a new retirement system run by the government.  This would be in addition to what folks already put into Social Security.  This "new" idea has been around since Carter was president!!!!  If anyone thought that 3% was enough to make retirement inadequacy a thing of the past, they would have passed it through already!!!  We're talking almost 40 years and 6 Presidents!  Don't get me wrong, I think we can all acknowledge that their are problems, coverage is certainly an issue and costs, while already compressing, still have room to go down.  But, most professionals in this space will tell you that a minimum of 10% of compensation is what people need to be saving to ensure financial security in retirement.  That's the FLOOR, so 3%.....REALLY???!!! 

It is alarming that this type of socialist reform is the main idea of the folks advising this future potential president.  However, if Hillary wins the presidency, there's no guarantee that she'll be re-elected and scrapping an entire retirement system in favor of this sort of reform is going to be highly resisted, four years won't be enough time, not to mention, Secretary's of Treasury don't make laws.  So, in my opinion, this won't be what actually occurs, but it is something that we should all be keeping an eye on as these types of ideas from powerful and influential people have a way of sticking around. 

- Jason Grantz