State retirement plan offers nothing new, no advantage

(April 28, 2008) Experts say that saving for retirement is a priority for most people, but not enough people are doing it and very few have any idea of what to do. It’s a problem especially prevalent among employees of small businesses.

There are a multitude of vehicles people can choose from to effectively save for retirement, such as individual retirement accounts and annuities and other products that are available from thousands of government-regulated financial planning professionals throughout Connecticut.

Trying to join this busy marketplace, however, is a proposal (SB-652) for a state-run, so-called universal retirement plan for small businesses.

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But SB-652 isn’t “universal” and fails to address the biggest barrier small businesses face in offering retirement plans. It also doesn’t offer anything that isn’t already available on the market, and the proposal spends more taxpayer dollars in the process.

The real barrier facing small businesses is the cost of employer contributions to retirement plans and the affordability of participation — not the administrative costs, as proponents claim (and which in fact are nominal).

Alternatives people can choose from include individual retirement accounts. IRAs are available to anyone, with no matching requirement from an employer, adn they allow employees to decide how much to save and where to invest the savings.

Small businesses that can afford to match employee contributions can opt for the federal SIMPLE plan. A low-cost option, the SIMPLE plans can be provided for $10 per person and set up with a $10 annual maintenance fee.

There are many options, but people first need to realize how important it is to save for retirement — and how to get started. A public-awareness campaign could help convince more people of the importance of planning for retirement and what options are available to them.

Setting up a new state program is, on the other hand, expensive — especially when Connecticut’s revenue projections are diminishing. The cost of SB-652 to taxpayers would be about $1 million in the first two years and at least $400,000 a year for several years afterward. Other states have rejected similar proposals because of the cost.

Instead of establishing a new state program where there is no need, lawmakers would better serve the state by improving current programs in which the state is the sole providing resource for those services. State government can help people in the area of retirement planning — simply by raising awareness of the need to do it.

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