Laudable goal, but state ‘cost-saving’ retirement plan not right path

(April 18, 2008) Early in the session, lawmakers introduced a proposal (SB-652) that would allow the state to offer a retirement-savings plan to Connecticut businesses of 100 or fewer employees, through a third-party provider. Proponents say it would offer administrative savings, but even if so, it would still not address the real barrier discouraging small businesses from offering retirement plans.

Just getting the plan started would cost Connecticut taxpayers about $1 million in the first two years and then $400,000 each in subsequent years.

The biggest barrier for employers wanting to establish 401(k) plans for their employees is the cost of employer contributions – not, as proponents claim, the related administrative or investment costs. Any “economy of scale” the state might be able to achieve by offering retirement plans to small businesses won’t help at all with the cost of these employer contributions.

More complex
Retirement plan management is also far more complex than simply adding accounts to an existing pool — each account has to be individually managed and must adhere to strict federal regulations.

Lawmakers in Maryland looked at a similar measure — and then decided it was not where the state needed to put its efforts and rejected the proposal.

It’s true that people need to save more for retirement, and the legislature’s recognition of that should be applauded. But there is already a variety of products on the market in Connecticut that are available to small businesses.

That’s why, rather than creating unrealistic expectations for small businesses and putting the state into direct competition with other Connecticut businesses, lawmakers should do more to educate consumers about the importance of retirement planning. More productive state involvement would be to launch a public-awareness campaign to highlight the importance of planning for retirement and saving for the future.

For more information, contact CBIA’s Jesmin Basanti at 860-244-1929 or jesmin.basanti@cbia.com.