Unanswered Questions: Why a State-Run Retirement Plan?

The Retirement Security Advisory Board–a group tasked with studying and designing a state-administered retirement plan for private sector employees–held its first public hearing this week.

The plan is opposed by more than 40 business organizations because it would directly compete with Connecticut’s financial services industry. 

Although lasting more than three hours, the hearing failed to address a number of concerns Connecticut’s business community has about the proposal–questions unanswered since labor and other advocates first proposed the state-administered plan more than a year ago.

Among the questions are:      

If it's the state’s program, why will employers have to do all the work?

Under the proposal, business owners would be tasked with offering the plan to each employee, transferring employee payroll deductions to the board (or be fined), and make adjustments in paperwork every time an employee wishes to change his or her contribution rate.

Prior versions of the plan also called for businesses to verify, every other year, each employee's choice not to participate in the plan. This proposal ignores the fact that if a business could afford to hire a person to perform all these tasks, they would probably have already offered a retirement plan to employees.

Who is liable if problems arise?

The plan calls for guaranteeing a rate of return for participants and having the state purchase an insurance product to cover any shortfalls. Unfortunately, no such product exists and never has. If the guaranteed rate of return is not met, the state could be liable to participants for the shortfall.

With Connecticut already projected to have major deficits in the coming years, why would we add more potential tax liability for our citizens?

Why does the state think it can do a better job of offering retirement plans than the private sector?

Connecticut is home to many excellent financial services companies that offer a multitude of low-cost retirement products, some with fees as low as $50 per year.

If people need to know more about what’s available to them, that’s easily solved—without creating an expensive new government mandate, program, and bureaucracy.

This idea is especially costly as it would involve the state directly competing with the private financial services sector–a sector that employs more than 100,000 residents in the state. 

The public hearing added to the murkiness.

While the hearing’s invited speakers represented various interests, the speakers failed to articulate a compelling reason for the state to create the plan. 

The initial speakers, all university academics, said that such a plan needed to be mandatory. In order to decrease the riskiness of such investments, one speaker suggested the plan should have limited investment flexibility for employees–because the more choices they had in investing their money, the more risk would be involved.

The next presenter said that the proposal should have plans with low fees–although there are many plans with low fees already available.    

A representative of the financial services industry made the argument the business industry has been making all along: while many low cost retirement plan options already exist, the problem is that retirement savings is a low priority for most people.

In other words, the creation of a state retirement plan would do nothing to help people save for retirement–what’s really needed is education about the importance of saving.

The final presenters were a group of salesmen pitching their newly created online retirement product, which they said is a great private sector solution in lieu of a state administered plan.

It should come to no surprise that they liked the idea that the state would mandate all employees in the state to purchase their new product.

Unfortunately, labor advocates and their collection of progressive allies have no interest in this new plan being administered by anyone other than state government.

The board is not expected to make recommendations on the plan until 2016. A number of business groups also requested additional public hearing opportunities in order to have a more appropriate amount of time, and more geographic diversity, to express their opposition to the proposal.

It is unclear if the board is willing to hold additional public hearings in the coming months.

For more information, contact CBIA’s Eric Gjede at 860.244.1931 | eric.gjede@cbia.com | @egjede