The Securities Industry and Financial Markets Association (SIFMA) says it is committed to increasing retirement plan coverage for Americans; however, the creation of a state-run retirement plan for private-sector employees is not the most effective way to do so.
The group says the private sector already offers a variety of retirement savings options, including fairly priced 401(k) plans, 403(b) plans, 401(a) plans, 457(b) plans, SIMPLE IRAs, SEP IRAs, and traditional IRAs.
In a position statement, SIFMA outlined problems it sees with the creation of state-run plans. First, it would burden already fiscally strained states with additional costs and liability to operate the programs, which are already available in the private market.
Second, a state-run retirement plan would create conflicts between federal laws governing retirement plans and laws enacted by individual states. Different states would likely have different rules governing operation, accumulation and distributions, which SIFMA believes could result in confusion among employers and employees. SIFMA also has concerns that employees who save in a state plan will not have the same rights and protections that are provided under the federal regime.NEXT: What is the answer?
Finally, SIFMA says, state-run retirement plans would have a number of implications under the Employee Retirement Income Security Act (ERSIA) and the Internal Revenue Code. Currently there is no direct guidance from the Department of Labor (DOL) or the courts about how a state-run plan would operate under ERISA. In the case of a state plan created for private-sector employees, ERISA would apply. In order for a plan to be a “governmental plan” exempt from ERISA, it must be established or maintained by a government entity for its employees. A plan for non-governmental employees would not qualify.
Earlier this year, President Obama tasked the DOL with providing guidance for states to set up plans for private-sector workers. The guidance is expected by the end of the year.
A survey of workers not covered by an employer-sponsored retirement plan, conducted for the state of California, found the majority of workers surveyed say such a program would be good for them, but a significant number still would not save or save enough.
To address the savings challenge, SIFMA believes financial literacy and general investment education need to become part of the American education curriculum. The association says there needs to be complementary general outreach by states, the federal government, employers and retirement plan providers to educate the American public about their savings, including on issues such as compounding interest, finding appropriate investments, monitoring investment portfolios and making changes to portfolios when appropriate.
More information from SIFMA is here.