18 States Eye New Retirement Plans For Private-Sector Workers

Are you failing to save enough for retirement because you simply don't have access to a workplace retirement account? Two states -- California and Connecticut -- have moved ahead with preliminary plans to force employers to either set up one of the retirement plans that already exist -- such as a 401(k) -- or to adopt a proposed new type of plan, an automatic-enrollment IRA. And 18 states in total are studying such initiatives, but have not moved as far as California and Connecticut.

That head count of states mulling action that would force employers to act comes from a new study by the Center for Retirement Research ( CRR ) at Boston College.

The impetus for state action comes from the fact that about half of private sector workers are not covered by any employer-sponsored retirement plan, the CRR says.

Those workers not only lack access to a traditional pension plan -- which are becoming increasingly rare in the private sector -- but they also lack access to something like a 401(k).

"Both states recognized that the key to the success of their programs -- both in terms of increasing retirement security and in terms of feasibility -- is achieving a large pool of participating employees," the CRR report said. In other words, to make such mandatory plans easy and cost-efficient for employers, the plans must attract lots of worker participants, to create economies of scale.

The Investment Company Institute, a trade group for mutual fund families, last week sent a letter to the California Legislature, urging the body to go slowly. The ICI advised the state not to overlook costs that would end up being foisted on workers or businesses. The ICI also advised against haste that could lead the state to "(fail) to consider workforce demographics and other factors that could reduce the program's ability to expand retirement plan coverage."

Also, the ICI cautioned against action that could lead to a patchwork of separate state programs. Instead, the group urged California and other states to "build upon the national, voluntary private-sector system of tax-deferred employer plans" like 401(k)s that already exist. "Simple reforms on a national level can make retirement plans less costly and more attractive to employers, particularly smaller businesses, that don't offer plans today," the letter from ICI general counsel David W. Blass said.

In January the ICI sent a similar letter to the Department of Labor ( DOL ), criticizing its proposal for helping states create retirement plans for private-sector workers. The DOL proposal -- which would give legal authorization to the state plans -- would create "a fragmented, state-by-state system of retirement plans."

That approach would create confusion for workers and businesses. And it would lack the strict federal protections for existing plans like 401(k)s, the ICI said.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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