What do state retirement plans mean for employers?
WASHINGTON — When states began developing their own retirement plans, many in the industry cried foul, warning that government-run programs would create an unhealthy competition between the public and private sectors.
But the head of what figures to be the largest of those plans, California's CalSavers program, has a decidedly different message.
"We are not here to compete with the industry," Katie Selenski, executive director of CalSavers, said during a panel discussion at a conference in Washington hosted by the National Institute on Retirement Security that was broadcast online.
California launched its retirement program in a trial phase last November. Selenski stresses that it is still in the early stages, with just 750 workers enrolled, but after the program takes full effect in July, it could, in time, create a savings vehicle for the roughly 7.5 million working Californians who don't have access to a plan through their employer.
The program, similar to those in development or the early phases of their rollout in other states, would require most employers to offer a savings plan for their employees. If California employers opt not to enroll in a private 401(k) or other plan, they would be required to participate in the state's CalSavers program.
But Selenski argues against the zero-sum notion that the government's involvement in the retirement sector will necessarily come at the detriment of the private plans that advisers counsel. She urges the industry to take the long view, suggesting that getting millions of workers who currently aren't saving anything for their retirement to begin with a basic program like CalSavers could pay dividends for the industry down the road.
"We're putting out a mandate for the product, so I think that it creates a real business opportunity, if the industry wants to innovate there," she said. "Ideally, our CalSavers participants will evolve in their financial lives and in their professional lives, and eventually have access to 401(k)s or other kinds of employer-sponsored plans and roll over their CalSavers accounts, so longer term, I think that we're creating billions of dollars of AUM that will get rolled over into the private sector."
But those plans are not without their opponents, including NAIFA, the trade group representing insurance advisers. Reached by email, NAIFA Vice President of Government Relations Gary Sanders rejected Selenski's contention that California's and other state plans are not competing with private offerings, and suggested that her prediction that state plans could eventually drive up AUM for private plan advisers is "at best speculative in nature."
"What is not speculative is that there is no need for a state-run or state-sponsored retirement plan that will, despite Ms. Selenski's comments, compete with private market retirement options," Sanders says.
Sanders also notes that the state plans come with a steep price tag, and raises the possibility that they could get struck down in court. He argues instead for a "marketplace-based approach" that would eschew state mandates but emphasize "greater outreach to and education of consumers about the need to save for retirement."
Selenski stresses that the state is taking action in pursuit of a policy goal — namely, to get more people better positioned to fund a comfortable retirement — and cites research finding that workers are far more likely to save for retirement if a plan is available through their employer. To that end, it makes no difference whether higher savings rates are achieved through CalSavers or a private alternative, she argues.
"If the result of our mandate is that the industry responds, creates better, cheaper more appealing plans for small business, and then small businesses choose those instead of CalSavers, that would be a great result," she said.
Oregon and Illinois have begun rolling out their own state-run plans, and legislators in scores of other states are considering various proposals for the government to get involved. But backers of those plans do not position them as a superior option to private plans, which typically carry higher contribution limits and often include an employer matching component.
Because of those features, Selenski is skeptical that an employer currently offering a private 401(k) with those features would drop that plan in favor of CalSavers.
"We don't expect that to happen," she said, "because that would be the equivalent of a reduction in compensation, really, and pose a retention problem for those employers."