Federal and state legislation designed to push 72 million American workers into workplace retirement plans (with an option to opt out) is rapidly emerging. Is a Roth IRA – state-run or not – right for your company?
The long and the short of it is that some states are passing legislation requiring employers to provide an automatic retirement savings vehicle to their employees. That sweeping generalization gets a little tricky. State governments are stepping in to offer state-run retirement initiatives, and each state is defining what triggers employer “qualification” by their own specific terms, like number of employees (Illinois requires 25 employees while California requires 5 employees, for example). An even larger challenge state initiatives pose to employers is the fact that they are structuring the required savings plan as Roth IRAs – but many employees, and some business owners or other highly compensated employees are prohibited from participating in the program due to income restrictions.
That puts employers in a real spot: If they choose the state plan, they may preclude themselves or other employees from participation. If they choose the state plan for their employees and another plan for themselves and high-level employees, they could face a “fairness” challenge from employees.
How to avoid the dilemma? Business owners should choose the right retirement savings program for all participants – including themselves as participant number one.
The newly minted state plans are designed to cover the millions of savers coming into the system in a one-size-fits-all fashion, instead of taking participants’ particular situations into consideration. The “cookie cutter” state plan design is convenient, and may fit the bill in terms of coverage and legal requirement but, ultimately, it may not work to participants’ best advantage or provide them with the retirement they envision.
On the other hand, 401(k) plans can be similarly priced to state plans but are actually better for the employees. Generally speaking, they level the playing field in terms of participation as 401(k) plans include employees at all income levels. Plus, 401(k) plans offer more robust plan design options, allowing business owners to design a plan that best fits their company and employees.
A 401(k) service, like CoPilot, is a well-rounded solution that engages with participants on their retirement journey, making it easier to understand how many years of retirement they are projected to have saved and alerting them about any decisions that impact their retirement. CoPilot makes it easy for participants to own retirement readiness, and allows plan sponsors to easily and confidently provide a diverse and legally sound alternative to the state-run plans.
Let’s start the conversation about how CoPilot can help you navigate increasingly stringent retirement savings program legislation and meeting participant needs in smart and practical ways. Contact us online or call 1-800-236-7400 (option 1) today to request a free needs assessment.
Michael Kiley, Founder and CEO