There is no doubt that the COVID-19 crisis is posing serious challenges to small employer retirement plans and the ability of workers to save for the long term.
Expanding access to workplace retirement plans – especially at small businesses – will be crucial as Americans strive to meet the savings challenge during and after this pandemic.
A handful of states have stepped in with a government-run approach. On July 14, Colorado became the eighth state to mandate small employers auto-enroll workers into a state-run ROTH IRA plan. California, Illinois and Oregon are the only states to implement such a plan.
Results are mixed. Set-up costs are high. Employer participation has missed the mark. Roth IRAs don’t permit employer contributions and also make it easy to take withdrawals. That’s good for emergencies, but not for building long-term retirement savings.
The state laws establishing these “Secure Choice” state-run plans seek to avoid federal consumer protections. However, a California legal challenge brought by a small employer takes direct aim at that premise. The U.S. Department of Labor, which protects retirement plan savers, filed an amicus brief with the 9th Circuit Court of Appeals supporting the claim that California’s CalSavers state-run plan conflicts with federal law, specifically ERISA. If this challenge succeeds, other state-run Secure Choice plans will be in jeopardy.
Fortunately, there are better and more effective strategies for workplace retirement plans, thanks to the Setting Every Community Up for Retirement Enhancement (SECURE) Act.
The 2019 SECURE Act offers tax credits and other incentives to help employers with retirement plan startup costs. SECURE permits businesses not yet prepared to sponsor their own retirement plan to join other businesses in a multiple employer plan. These offer lower costs and simpler administration along with the full benefits and federal protections of a 401(k).
Three-fifths of small employers (those with 99 or fewer employees) rely on life insurer products and services in their employment-based retirement plans. Life insurers have the expertise and resources necessary to help even more small businesses establish plans and build a secure retirement for millions of American workers.
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