Government involvement in American workers retirement planning futures is proving to be a double-edged sword for advisers serving the market.
But in the case of a number of states now actively pursuing their own individual retirement systems to help supplement the 401(k) industry, the additional support could be a much-welcome incentive, particularly for smaller employers.
Speaking at this weeks NAPA 401(k) Summit in San Diego, NAPA executive director Brian Graff says that while his organization has many concerns about the federal governments newfound interest in retirement planning, the organization is happy about state-level efforts to offer new savings opportunities.
Its critical to get people better prepared [for retirement], and theres universal acknowledgment that workplace systems are the only option, Graff notes.
In recent years, a number of states began toying with the notion of creating their own retirement systems to help smaller employers provide their workers at least rudimentary retirement savings opportunities; what was once a blue state-heavy map (California, Oregon, Connecticut and Massachusetts) is now adding red states adopting their own plans, including Virginia, Kentucky and West Virginia.
Illinois State Senator Daniel Biss, a Democrat who represents Chicagos wealthier suburbs, recently sponsored legislation helping to create a state-supported IRA for Illinois workers with interestingly widespread political support.
We have accumulated a certain level of cynicism as we have been waiting for a federal solution to the retirement issue, but this is a real human problem, Biss notes. We face a very blunt fiscal issue in Illinois the huge cost of services for seniors, particularly long-term care, which has a huge impact on our Medicaid liability.
Also see: Illinois moves on retirement readiness
Moreover, Biss says the statistics paint a troubled future for workers who arent able to save for retirement, creating an overwhelming level of anxiety and confusion as 36% of the population has less than $1,000 in savings, and 52% have less than $10,000. Worst of all, he adds, some 20 million American workers have no access to any sort of savings plan through their job, and its an issue that is no longer confined to lower-income workers, either.
As a remedy, the new Illinois program, in a similar vein to other state-led efforts, would provide companies with 25 or more employers access to an automatic Roth IRA, fed by a 3% payroll deduction, and a lifecycle target-date fund as the default savings vehicle.
Biss says the offering is essentially free to employers and they are not required to make contributions to the plan. Citing the recent experience of the Affordable Care Acts various mandates, Biss notes that a less high-pressure directive to workers could still offer the beginnings of retirement savings, as well as being a bonus to small employers.
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