State retirement plans - Beat them or join them?
More than a third of Americans do not have any savings for retirement. Further, unless something changes, Social Security benefits will be reduced in a little over a decade. Something needs to be done. Kudos to the state governments for stepping up and providing solutions for their workers, but a Roth IRA isn’t going to mean that a saver is retirement ready and is certainly not going to benefit a business owner as much as a 401(k) plan. This is where we can work together to educate and capitalize on this opportunity to grow your 401(k) business. If you start planning now and play your cards right, you will have a huge opportunity to grow your retirement plan business.
The map below shows the progress each state has made with legislation for state retirement programs.
The state mandates are offering a Roth IRA that is essentially “free of charge” to the employer, but we know free isn’t always better. It’s also never truly “free.” With these Roth IRAs, many employees, and some business owners or other highly compensated employees, are prohibited from participating in the program due to income restrictions. This puts employers in a real pickle: if they choose the state plan, they may preclude themselves or other employees from participation.
While the state mandates move the needle forward in terms of coverage, there remains the need to push forward in retirement readiness. States are trying to develop cost-competitive programs to serve high numbers of participants in small employer groups, but they are leaving out engagement in outcomes and local representation. Driving engagement through designed disengagement has never been a strategy for success, and the state options are designed to cater to the disengaged.
Before your clients settle for a state compliant “free” Roth IRA savings option, you can help employers understand the differences between all of the options at their disposal and select the plan that will best enable them and their employees to meet their retirement goals. Taxation and contribution limits are just the tip of the iceberg. The path to retirement readiness requires beginning with the end in mind. Any by end, I mean participant outcomes, not the current political environment. If employers have to do something to comply with the state, why not do something that benefits them as a business owner and still provides a great benefit for their employees? Another selling point for you.
Take advantage of these mandates and include them in your retirement business growth strategy. A 401(k) service like CoPilot, allows you build relationships while providing retirement readiness to more participants than a retirement product. Smart plan design, thoughtful default features and access to different share classes can help improve coverage and close the retirement savings gaps.
CoPilot is a well-rounded solution that engages with participants on their retirement journey, making it easier to understand how many years of retirement they are projected to have saved and alerting them about any decisions that impact their retirement. CoPilot makes it easy for participants to own retirement readiness, and allows plan sponsors to easily and confidently provide a diverse and sound alternative to the state-run plans.
Let’s start the conversation about how CoPilot can help you navigate increasingly stringent retirement savings program legislation and meet participant needs while growing your retirement plan business. Contact us to learn more, or give us a call today: 800.236.7400.
Michael Kiley, Founder and CEO