State-Run Retirement Plans: Not a Cookie Cutter

An increasing number of states are crafting and implementing retirement programs for employees whose employers do not offer one. All of them are new, but an industry insider discusses some of the states that have forged ahead on something newer than new. 

Chad Parks, Founder and CEO of Ubiquity Retirement + Savings, in a recent interview with ASPPA Connect/NTSA Advisor discussed innovations in Hawaii, Colorado, New Mexico and Arizona. 

The Hawaii Experiment

The Hawaii legislature is considering a bill that would establish a state program that would be unique among its counterparts—employees would have to opt-in, and a retiree would be among the members of the board administering the program. 

Parks indicated that he is somewhat skeptical about how effective Hawaii’s approach will be in increasing coverage if it is put in place and implemented. The problem, he suggested, is its reliance on employees to voluntarily take part through their own action. 

“What we currently have in the United States is more or less a voluntary retirement savings system when it comes to IRAs, 401(k)s and similar plans,” says Parks. “The exception here is Social Security and mandated and automatic enrollment plans. As good as these voluntary programs are, they have left too many individuals uncovered,” he continued.  

“While it’s understandable Hawaii doesn’t want to be ‘big brother,’” says Parks, “the fact of the matter is, whether or not individuals have access to an employer sponsored plan, they have always had the freedom to start a retirement fund at another institution—but they don’t. While noble in effort, this Hawaii legislature could result in very little traction, so they may want to reconsider a state-mandated, auto-enrollment plan.” 

Parks supports another innovation of the Hawaii legislation, however—the provision calling for having a retiree as a member of the board that would administer the plan. “In terms of having a retiree on the board, representation and multiple viewpoints in these situations is always welcome,” he says. 

Partners 

Parks was more positive about the groundbreaking arrangement that Colorado and New Mexico struck to form a partnership regarding the state-run retirement saving programs each operates. In 2021, the Colorado Secure Savings Program and the New Mexico Work and $ave programs signed a Memorandum of Cooperation to pursue a formalized partnership agreement for their auto-enroll IRA programs—the first such arrangement between states, and one that creates the first auto-enroll IRA multi-state program in the United States.

Officials from the adjoining states believe that the agreement will reduce fees by creating economies of scale, and Parks indicates that he thinks they may be right. “State-run programs can be expensive to bring to life,” says Parks, and they “need costly ongoing maintenance and oversight.” He says that “By cooperating at the state level, they can spread these costs out over multiple states, making it more manageable. Having 50 flavors of state programs with different approaches, rules and regulations make it harder for private providers to support the states in this effort. Economies of scale and streamlined processes will help the private industry efficiently support the states, making partnerships very welcome.”

And they may be only the first states to take such a step, Parks suggests. “Many states are considering this cost-effective option of absorbing another’s blueprint,” he says, continuing that Delaware “is a prime example of a smaller state looking to set up a state-mandated plan by utilizing the resources of a larger, more established offering.”