State-Run Plans Could Hurt Advisers

Lawmakers in several states have proposed the idea of state-run retirement plans for private sector workers, a move that some say could be bad news for advisers.

Proponents say this idea would allow employees who do not have access to a retirement plan the chance to save for their future, but opponents say other savings avenues exist, and that state-run plans could damage the adviser’s role in retirement plans.

Last year, California passed a law to study creation of a state-run retirement plan for private sector workers (see “Calif. Senate Approves Government-Run Private Worker Retirement Plan”). “So effectively it’s a ‘study’ bill,” Aaron Friedman, assistant vice president of product management at Principal Financial Group, told PLANADVISER. In addition, Connecticut legislators are looking at SB 54, which would establish a state-run plan for private sector workers—modeled after California’s legislation. In Oregon, HB3436 would create a public corporation charged with developing a government-run retirement program for private sector workers.

Altogether, 10 states have considered or had legislation proposing some type of state-run plan for private sector workers since 2008.

Friedman said that with these proposals, “there’s certainly risk for advisers” who may be pushed out of the system if states cut out the intermediary. He fears these states are not taking into account the fact that running a “robust” retirement plan requires education and communication, so advisers would lose their place in helping with retirement plans.  

While Friedman agrees with the goal to give more workers access to retirement plans, there are already simple, low-cost plans for small businesses.

Jim Szostek, vice president of taxes and retirement security at ACLI, agrees that plenty of retirement material is already available in the marketplace. “The idea that the state needs to create a product to compete … doesn’t make any sense,” he said. Simplified employee pension (SEP) IRAs and simple 401(k)s are already available in the marketplace, Szostek said.

Instead of commissioning a study about a state-run plan, California would be better off focusing on employee education regarding retirement savings, he concluded.