A few states including California are going into the retirement business. While ordinarily competition in the shape of a state government is cause for concern, I believe that it’s an actual opportunity for both third party administration (TPAs) and financial advisors.
California Governor Jerry Brown just signed California Secure Choice into law that will enroll employees who don’t have access to a retirement plan at work to be enrolled into this state run IRA savings plan, which many other states are now pursuing thanks to Department of Labor guidance allowing it.
The California run IRA will require all businesses with at least five employees to participate if they don’t already offer a 401(k) or other retirement plan for their workers. The requirement is expected to start in 2018 with businesses that have 100 or more employees, and phase in smaller businesses over the following three years.
Many plan providers will think this is a bad thing, but I do believe it’s an opportunity. If a company in a state offering the IRA program doesn’t decide to offer a retirement program, they will have to be part of the state program. While I think Individual Retirement Accounts are great, they are no substitution for a 401(k) plan especially when it comes to putting away as much money as possible into a retirement account. The California IRA program will not allow any employer contributions, which is another strike against it when compared to 401(k) plans.
I believe that when offered with no choice whatsoever to enroll in the IRA program, many employers will want the choice of offering a retirement plan of their own rather than dealing with government because despite the political nonsense of this Presidential campaign, people do have a libertarian bent when it comes to government handling their retirement money.
I think retirement plan providers should look at the different state program and see if there is an opportunity to market companies who may find themselves having their employees being automatically enrolled into a state program.
While these small employers maybe too small to market to, I believe there are novel approaches in marketing to the micro 401(k) plan market whether open multiple employer plans will be allowed again or not. Always feel free to contact me with questions, never a charge for the call or email.