If you are an advisor working in the retirement-planning space, you need to let your lawmakers and clients know this important fact: Going into the retirement plan business to compete with financial advisors is not a proper role for governments.
Americans need to save more for retirement. Consider these statistics: Four out of 10 workers have saved less than $50,000, according to a survey by PwC, and only 15 percent have put aside more than $300,000. Some 25 percent have not saved a dime. Even among baby boomers, 30 percent have less than $50,000 in retirement savings.
To address these shortfalls, a number of states have decided to establish government-run retirement programs. Unfortunately, they are looking at the problem from the wrong end. Creating new products to compete with existing private-market options will not avert a retirement savings crisis. In fact, it could make matters worse.
As a professional advisor, you know that you and your colleagues already help millions of Americans prepare for financially secure retirements. Rather than forcing workers to make minimal contributions to generic plans and accumulate small balances unlikely to make discernible dents in real-world retirement costs, you work with your clients to meet specific goals and address their real retirement needs. You work with businesses to set up affordable plans tailored to their specific employees.
The market already offers a robust slate of products, including employer-provided plans, individual retirement accounts, annuities and various insurance products. This range of products meets the needs of every imaginable situation and is affordable and readily available in every state. The U.S. Treasury Department’s MyRA addresses the needs of investors with very small balances. In short, the problem is not a lack of options for workers.
Instead of going into the retirementplanning business, state governments should encourage workers and employers to take advantage of existing private-market options and increase plan contributions. The states of New Jersey and Washington have done this by investing in education and working with firms to set up marketplaces where workers can shop for private-market plans.
Although several states have passed legislation that would create state-run plans, none has put such a plan into operation yet. A major stumbling block has been consumer-protection rules for retirement plans established under the Employee Retirement Income Security Act (ERISA). The states complain that they cannot create viable plans if they or employers must comply with ERISA regulations.
Late in the Obama administration, the Department of Labor (DOL) removed this obstacle by exempting state- and municipal-run plans from protections that apply to all other plans available on the private market. This not only would put investors at risk, but would create an uneven playing field and limit choices available to employers and workers.
Preserving the Private Market
Earlier this year, however, new federal legislation removed the DOL’s ERISA exemption for state- and municipal-run plans. These new laws failed to produce big headlines, but they are crucial to preserving the private market for retirement plans and preserving consumer protections for people saving for retirement. That’s why NAIFA joined other groups and fully activated its grass-roots and political advocacy efforts to support the bills.
“I don’t know why state and city
governments would want to spend scarce resources to compete with firms and advisors who are successfully helping clients in the retirement planning and products business,” said NAIFA president Paul Dougherty.
“It doesn’t seem like something they would be particularly good at. But if they are going to get into that business, they should not have a competitive advantage over established plans, especially when that advantage would come at the expense of safeguarding workers saving for retirement. They should have to follow the same rules.”
Why Private Markets Are Better
Private-market plans have many advantages over state-run plans above and beyond the ERISA protection for consumers. Workers who participate in employer-sponsored plans often benefit from employer-matching contributions, auto-enrollment policies and auto-escalation provisions.
State-run plans also would require employers to abide by burdensome and perhaps even contradictory rules. If municipalities also established similar retirement plans, employers could find themselves contending with different rules established by more than 100 government departments.
Everyone knows that Americans should better prepare themselves for retirement. Fortunately, plans are available, along with advisors who can help. There are roles for government to play in providing education, incentives and encouragement. And it should ensure that consumer-protection regulations appropriately apply to all retirement plans. But when it comes to offering plans to consumers, advisors have it covered.
Mark Briscoe is senior director of strategic communications at NAIFA. Mark may be contacted at [email protected]