How State Mandates Can Open New Retirement-Plan Conversations

Michael Doshier

State retirement mandates may arrive as new requirements for business owners, but I believe they are triggering something much more meaningful: a fresh examination of how employers attract talent, retain employees and support long-term growth.

For many business owners, a notice from the state is the first time retirement plans move from a “someday” consideration to an immediate business decision. That is why I view state mandates as one of the most significant retirement-plan conversation starters advisers have encountered in years.

The most valuable conversations often begin after employers receive a state notice and start evaluating their options. While a state-facilitated program may be the right fit for some, others use the moment to take a broader look at their retirement benefit strategy.

A Strategic Decision

Greg Bailey, associate general counsel at LPL Financial, experienced this firsthand while serving on the board of an assisted living facility in Maryland. When board members learned about a state retirement requirement, the discussion quickly shifted from how to comply to whether a retirement plan could help attract and retain employees. Although a state-facilitated program would have satisfied the mandate, the board ultimately chose an employer-sponsored plan that better aligned with the organization’s workforce goals.

That progression is likely to become increasingly common as more employers evaluate retirement benefits through a broader business lens.

I have seen similar conversations emerge across a range of employer types. What begins as a discussion about compliance often evolves into a broader conversation about workforce goals, business growth and the role benefits can play in supporting both.

More Forces Drive Plan Adoption

I have long believed that the impact of state mandates would extend beyond expanding access to retirement savings. They would prompt employers to take a fresh look at their broader benefits strategy. Early research from the Center for Retirement Research at Boston College appears to support that view, suggesting employers subject to state auto-IRA mandates are more likely to adopt employer-sponsored retirement plans than similar firms in states without mandates.

For advisers, state mandates are arriving at a time when expanded tax incentives under SECURE and SECURE 2.0, the upcoming Saver’s Match and growing workforce pressures are making plan sponsorship more attractive. Together, these forces are prompting many employers to reevaluate their retirement benefit strategy.

Finding the Right Help

Advisers sometimes assume they need deep retirement-plan expertise before engaging clients. I disagree. Their responsibility is not to serve as the recordkeeper, attorney or plan administrator. It is to identify a need, help clients understand their options and connect them with the right specialists.

Employers often overestimate the complexity of retirement plans. By bringing together recordkeepers, third-party administrators, fiduciary specialists and legal professionals, advisers can help clients move forward with greater confidence.

That collaborative approach is becoming increasingly important as policymakers and industry leaders continue to recognize the role advisers play in supporting plan sponsors. As Brian Graff, CEO of the American Retirement Association, observed during a recent conference, the Department of Labor’s proposed investment selection rule repeatedly highlights the role fiduciary advisers can play in helping plan sponsors make prudent decisions. That recognition reinforces an important point: employers do not have to navigate retirement-plan responsibilities on their own.

An adviser’s value often comes from helping clients evaluate their options and coordinating the professionals needed to move forward.

Clients May Be Already Talking About It

One misconception I encounter is the belief that retirement-plan growth requires an entirely new prospecting strategy. In many cases, the opportunity is already sitting within an adviser’s existing client base.

Business-owner clients often trust their advisers on a wide range of financial matters, yet retirement plans may never have been part of the discussion. A new state retirement savings requirement can provide a timely reason to revisit that conversation.

Advisers do not need to wait for clients to raise the issue. A practical starting point is reviewing business-owner relationships in states with active retirement savings mandates, particularly clients without a retirement plan, growing employee populations or ongoing hiring challenges.

A simple outreach can help determine whether a broader conversation is warranted. Clients who have received a state notice are evaluating benefit offerings or are facing workforce challenges may benefit from a discussion about their retirement-plan options.

For advisers, helping clients navigate those decisions can address an important business need while strengthening the relationship.

Three Starting Questions

For advisers looking to begin these discussions, the first conversation does not need to focus on plan design or provider selection. Often, the most productive starting point is understanding how the employer views retirement benefits and what they hope to accomplish.

Consider asking:

• Have you received a notice related to a state retirement savings requirement?
• What role do retirement benefits play in attracting and retaining employees?
• If you were designing a retirement program today, what outcomes would matter most for your employees and business?

The answers can help advisers identify employers who may benefit from a deeper evaluation of their options and determine whether a state-facilitated program or an employer-sponsored plan may be a better fit.

State mandates may initiate the discussion, but they rarely define where it ends.

In many cases, the receipt of a state notice becomes the catalyst for broader questions about employee retention, business growth and retirement readiness. Advisers who recognize that shift can do more than help clients evaluate their options. They can help them make a more intentional decision about the role retirement benefits play in their business.

Michael Doshier is a senior vice president and head of retirement at LPL Financial.

This feature is to provide general information only, does not constitute legal or tax advice, and cannot be used or substituted for legal or tax advice. Any opinions of the author do not necessarily reflect the stance of ISS STOXX or its affiliates.