The dominoes continue to fall when it comes to states that offer retirement plans. On Monday, Minnesota Gov. Tim Waltz signed into the Automatic Personal Retirement Account Program, earlier this year Missouri introduced a voluntary multiemployer plan for small businesses, and Vermont released a voluntary multiemployer plan. Moved to a mandatory automatic IRA.
The addition brings the total number of states with state-sponsored retirement savings programs to 18, up from 16 at the start of the year, said Angela Antonelli, research professor and executive director of the Center for Retirement Initiatives at Georgetown University. He expects more states to join. to get online.
“Historically, one or two new state programs have typically been adopted each year. So, Missouri and Minnesota already have two new programs, and the total number of program states has increased. We are very pleased to have increased to 18,” Antonelli said. “By the end of 2023, one or two more new programs could be adopted.”
State plans, most of which involve retirement plan mandates, are an opportunity for some smaller plan providers to expand their business by working with the state, and Ascensus and Bestwell are among many. is in this position under the system of However, if employers opt for state automated IRAs over private options such as digital 401(k) startups, co-employer plans, and simplified employee pension plans, this mandate may not be available to small plan providers. It could also be potential competition. As of April 30, programs in the six states reporting data manage more than $839 million in assets, Antonelli said.
For Ascensus, which offers 401(k) start-up products and works with California- and Illinois-run IRAs, state involvement in retirement plans almost always results in business creation.
“We are always excited to see more [state-mandated plans] As a general effort to expand access for uncovered workers,” said Troy Montigny, vice president of National Accelerated Retirement Plans at Assensus. “There has been a major move by state mandates to bring tens of thousands of employers to the cases we manage.”
Montigny says assensus It will consider partnering with other states as they implement their mandated plans. He says that as more plans come online, the process and learnings from previous editions will make it quicker and easier to implement. For example, in California, state mandates were implemented as follows: Waves that last all year, based on business size. Montigny now says Asensus can offer a “shortened” schedule for businesses of all sizes.
“The feedback from the business community in each state is very different,” says Montigny. “If the state so desires, we can support operational efficiency and cost-saving opportunities by offering more compressed windows.”
public and private
But what about providers that do not implement the services of the national plan? Needs point out that it will lead to business expansion of services, especially if they can provide better services.
“There are groups that are looking at some options and opting for a state mandate solution, but I think they are in the minority,” he said. Steve ScottFounder and Partner of A retirement solutions group based in Chicago. “After all, state mandates are causing more employers to consider eligible plan solutions than any other measure I’ve seen, including the SECURE Act and SECURE 2.0. Most people were considering it, but mandates make this a higher priority. So if they are going to take the time to look for a solution, we feel our service is competitive and functionally different from the national plans. “
Scott’s firm offers small employers a PEP option, but believes that state mandates will eventually drive interest in joint offerings, which are relatively low cost and highly managed. The advisor believes that this mandate will encourage employers to value the market, and that if companies can prepare for more support, higher limits, and more flexible competitive private market solutions, the overall results will continue. said it would lead to significant growth.
“A lot of small business owners aren’t looking to expand their relationship with state government,” says Scott. “So for many small business owners I’ve spoken to, opening a retirement account and increasing reporting through the state is not a desirable option.”
Rakesh Mahajan, chief revenue officer of 401(k) startup Human Interest, has a similar view. State mandates are useful in warning all employers to join retirement plans, but offering state plans may not be the right choice for most businesses, Mahajan said.
“This helps raise awareness of the need for a retirement plan,” he says. “We have found that businesses opting out of state plans want easier administration and want to save more money than state mandated plans.”
San Francisco-based Human Interest reserves about 1,000 new startup plans each month, but says mandated states don’t always see more business, and employs about 500 salespeople nationwide. Majahan, the director, said.
The five states with the highest growth in human interest in 2023 include Florida, which has no state mandate, and California, which has a state mandate, Majahan said.
Asensus’ Montigny said: initial concerns about or against Interest in mandatory plans is waning as more employers across states introduce workplace retirement plans Options, or through traditional products such as 401(k)s. He points to a fundamental challenge that future national plans may face: “Scaling up can be difficult without mandatory obligations,” he says.
The California and Illinois programs administered by Assensus were combined with retirement savings obligations to employers. Without it, states may have difficulty attracting providers to bid for program management services.
Bestwell CEO Aaron Shum said the company is “focused” on working with states on retirement plans for its New York-based 401(k) provider.
“We believe that not only is the opportunity expanding, but there is also a proven willingness for savers to be actively involved,” says Serving State Planning in Connecticut, Maryland and Oregon. Shum, who runs Bestwell, which offers “As states enact these programs, they also strengthen the 401(k) side of our business.
Shum points out that after Vermont’s initial MEP proposal didn’t work out, the state decided to partner with an existing SECURE Choice option that had already proven successful. “We are seeing more states working together to facilitate the overall implementation of the plan, and we expect this trend to continue,” he said.
Schumm also has great interest in SEP IRAs, and Vestwell said he is interested in helping spread the quickly introduced privately-operated retirement plan option.
“Our ultimate goal is to get people to save,” he says.
The Pew Charitable Trust estimates that it will cost the nation more than $1.3 trillion over the next 20 years to help older Americans without retirement savings or a pension plan. As many as 56 million private sector workers do not have access to retirement savings plans through their jobs, according to Pew research.
Scott of Retirement Solutions Group thinks beyond state mandates. “The real question is whether his future SECURE Act will impose federal obligations,” he says.
What will he think of the outcome at some point in the future? “Inevitable.”
Additional reporting by Remy Samuels.