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403(b) Summit Panel Examines Auto-Enrollment

America’s growing retirement crisis has been gaining attention in the past few years at both the state and federal levels. One commonly suggested remedy has been automatic enrollment, a trend that is now affecting state-sponsored plans across the country.

Speaking at a session held on the first day of the 2015 NTSA 403(b) Summit in Nashville, Robert Young of PRO Financial Investment Coaching said that 22 states allow advisors to promote auto-enrollment options to plan sponsors, and the trends favor more expansion in the near future. According to Jessica Kovachik of the Legend Group, another panelist, just 32% of all Americans save for retirement through a plan at work.  

Both private and public employers are seeking to bridge the savings gap, and a popular solution is offering auto-enrollment in retirement plans. Young said the trend lines are clear: Compulsory contribution plans are growing, and it’s up to advisors to make a compelling case for their inclusion in the states they are allowed to do so.

First and foremost, Young said, advisors must bolster their relationships with their TPAs, who generally have more influence among likely plan sponsors, so they can enlist their help in promoting automatic enrollment options to plan sponsors.

“If you don’t have good relationships with your TPAs, you have to start there,” Young said. “A lot of advisors think of auto-enrollment as a bad thing, but we think it can be a good thing if we can market it well, and sell it accurately and convincingly as something that takes care of the end user, the employee.”

The panelists, who included Ray Harmon, Government Affairs Counsel for NTSA, and Matt Spina of AdminPartners, made sure to emphasize that while automatic enrollment is growing, it’s not for everyone. Spina suggested that advisors factor in four key metrics when deciding whether an auto-enroll option is right for a particular employer:

  • Age
  • Nature of the work
  • Employees’ likely retirement age
  • Income

The panelists mentioned the two major types of auto-enrollment plans: the standard version and an eligible automatic enrollment feature. In the former, every employee is enrolled upon hire; any money contributed remains in the plan no matter when the employee opts out. In the latter, plan sponsors determine eligibility criteria for auto-enrollment, and new hires have a 90-day grace period to withdraw funds upon entry into the plan. If an employee terminates their participation in that timeframe, all the money they have deferred to that point will be refunded.

Harmon also suggested that 403(b) advisors pay attention to the growth of state-sponsored IRA plans for non-covered employees. With 20 million workers earning between $30,000 and $100,000 not enrolled in any retirement plan, eight states have now passed legislation to deal with the coverage crisis. Some of these bills would set up dedicated commissions to study potential solutions, including state-run auto-IRAs, and some would make the leap to begin requiring that employers of a certain size either offer a retirement plan to their employees or facilitate employee payroll deductions into a state-run IRA.

Harmon recommended that advisors leverage the state plans in places like Illinois, whose Secure Choice Savings Program he says is the “model to watch,” by approaching employers that may now be entering the retirement plan market for the first time, and only because of a legislative mandate.

“You can make the case to those employers that they can go into the state plan, but since they’re already entering the market, they would be best served with something robust,” Harmon said.

Young returned to his point that the growth of auto-enrollment is a good thing for advisors. It “creates a captive audience,” he said, where advisors who are looking for one-on-one clients will almost certainly have a larger market of active employees to choose from, and those potential clients will have more money to manage.

“Would you rather meet with people and they have no money, as is often the case now, or would you rather see them have $15,000 or $20,000 in there?” Young said. “At the end of the day, if we help employees, we help ourselves.”