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Coverage Vacuum + State Plans = Opportunity

John Iekel

That may seem an odd equation. And yet, a speaker at a retirement industry conference argues exactly that.

A handful of states have put in place plans intended to help make sure that retirement plan coverage and participation expands. But the fact that states are acting to fill the coverage gaps doesn’t spell the end of opportunity for the private sector. In fact, it may enhance its attractiveness.

“There’s an opportunity for you guys,” Mike DiCenso, senior vice president, sales and strategic partnerships at Inspira, told attendees at a June 1 session of the 2017 Spark National Conference held at National Harbor, MD just south of Washington, DC. DiCenso led the session, “The State-Run Retirement Opportunity: How Should Your Firm React?.”

DiCenso pointed out that there are nearly 29 million small businesses in the United States, employing 56 million people. He added that many do not offer retirement plans, with fiduciary liability and expense among the chief reasons. That poses a challenge to TPAs and recordkeepers, he said, in building new business with them.

DiCenso drilled down on what it costs for a small business to establish a retirement plan. He said that the average cost is $623 per participant, and that it costs more than $4,000 for a 100-person firm to set up a defined contribution plan.

DiCenso noted that the states are looking at ways to address retirement readiness and reminded attendees that while President Trump recently signed into law a measure repealing the Obama era ERISA safe harbor for state plans, that action did not do away with state programs themselves, nor state governments’ ability to put them in place.

And they are acting. “Every state is doing something different,” DiCenso said, adding, “I think we’ll see more of it in late 2017 as well as 2018 and 2019.”

So given the reasons small businesses may be reluctant to establish a plan, and the increasing willingness of the states to intervene, DiCenso asked, “How do we capture the market?.”

DiCenso observed that studies have found that 86% of small business owners somewhat or strongly support auto IRAs, and 82% prefer private-sector plan administration over state plans. Not only that, he said, 87% of employers with plans say they would not shift to a state plan.
DiCenso argued that the private sector can offer employers and the participants in their plans more than state plans can. For instance, he said, private-sector plans can offer:

  • greater personalization;

  • more flexibility;

  • more savings options;

  • portability;

  • a higher degree of participant control;

  • reduced liability; and

  • greater opportunity for interface.

When asked if he thought the federal government will offer a retirement plan that would obviate the state plans, DiCenso expressed skepticism and cited the example of laws concerning marijuana. The federal government has one position on marijuana possession and use, he observed, while a number of states are pursuing a different approach.