Why should retirement plans be organized around employers?

[Peter Gulia]

An individual-account (defined-contribution) retirement plan doesn’t share longevity and mortality risks.  So that aspect isn’t a reason to organize a plan around a particular employer.

 

A recent survey suggests about 60% of those employers that maintain a retirement plan would drop it if a government-organized plan were available.

 

https://www.pionline.com/article/20181210/PRINT/181219911/survey-dc-execs-would-end-their-own-plan-for-a-state-plan?newsletter=defined-contribution-digest&issue=20181210#utm_medium=email&utm_source=newsletters&utm_campaign=pi-defined-contribution-digest-20181210cci_r=145845

 

Regarding many of the employers, a government-organized plan should have better scale and purchasing power to get services.  And for many participants who would have been in micro or small plans, one’s expense for investment funds should be no worse (and might be better).

 

Setting aside one’s personal interest in continued business or employment, what are the arguments for and against government-organized plans as an alternative to employer-organized plans?

 

[RatherBeGolfing]

Obviously the answer will largely depend on the state plan design, but very few of my clients would dump their current plan for a state plan. Those who would drop their plan are probably those employers who only have their plan because the other companies they compete with also offer a plan.  Most (99%) of my plans are designed to maximize the benefits to the owners, and that wouldn't be available in any state plan.

 

[Peter Gulia]

RatherBeGolfing, thank you for your thoughtful perspective.

BenefitsLink mavens, is the analysis different if the size and composition of the workforce makes it impractical to do an owner-dominated design?

 

[Belgarath]

A very difficult question to answer. A lot might depend upon the structure/options/restrictions in the State plan. In addition, many private employers have an innate distrust when it comes to having a State-run plan.

Ultimately, it would likely come down to a "what's in it for me" decision - if the State plan proves to be "better" - whatever that may mean to the person making the decision - then they might opt for the State plan. I'm with RBG - I think that very few of our clients would opt for it even if available.

[Bird]

52 minutes ago, RatherBeGolfing said:

Obviously the answer will largely depend on the state plan design, but very few of my clients would dump their current plan for a state plan. Those who would drop their plan are probably those employers who only have their plan because the other companies they compete with also offer a plan.  Most (99%) of my plans are designed to maximize the benefits to the owners, and that wouldn't be available in any state plan.

I agree.  We do have some plans that are actually designed as "employee benefits" as opposed to "tax shelters for the owners" but in our clientele, I can't the former wanting to go elsewhere.

I'd have to see how the questions were phrased (and I don't really care) but I have to believe the study is flawed.

[CuseFan]

2 hours ago, Fiduciary Guidance Counsel said:

And for many participants who would have been in micro or small plans, one’s expense for investment funds should be no worse (and might be better).

Personally, I don't hold a lot of faith in many government entities, whether at the Federal, state or local level securing the most cost-efficient services, although still likely to be comparable/competitive or better than the small/micro market. But will there be legal fiduciary duty and sufficient oversight to avoid the backroom deals that exclude all but one or two preferred providers from legitimately bidding for such services? 

[Peter Gulia]

Belgarath, Bird, and CuseFan, thank you for the further thoughts.

For an employer without an owner-dominated design, does a "what's in it for me" analysis include getting rid of responsibilities (except for remitting payroll contributions) for establishing and administering a plan?  Or does an employer perceive those responsibilities as so light that getting rid of them doesn't matter?

 

[Larry Starr]

4 hours ago, Fiduciary Guidance Counsel said:

An individual-account (defined-contribution) retirement plan doesn’t share longevity and mortality risks.  So that aspect isn’t a reason to organize a plan around a particular employer.

 

A recent survey suggests about 60% of those employers that maintain a retirement plan would drop it if a government-organized plan were available.

 

https://www.pionline.com/article/20181210/PRINT/181219911/survey-dc-execs-would-end-their-own-plan-for-a-state-plan?newsletter=defined-contribution-digest&issue=20181210#utm_medium=email&utm_source=newsletters&utm_campaign=pi-defined-contribution-digest-20181210cci_r=145845

 

Regarding many of the employers, a government-organized plan should have better scale and purchasing power to get services.  And for many participants who would have been in micro or small plans, one’s expense for investment funds should be no worse (and might be better).

 

Setting aside one’s personal interest in continued business or employment, what are the arguments for and against government-organized plans as an alternative to employer-organized plans?

 

Peter,

1) Do you trust the government?  

2) Do you think you can call "them" and get responsible answers to your questions?  Ever try calling "IRS"?

3) The governments have done a great job with their own retirement plan liabilities.

4) Having to deal with government employees who get paid regardless of how good a job they do.

5) 6) 7) 8)........ 

[Pam Shoup]

 

2 hours ago, Fiduciary Guidance Counsel said:

For an employer without an owner-dominated design, does a "what's in it for me" analysis include getting rid of responsibilities (except for remitting payroll contributions) for establishing and administering a plan?  Or does an employer perceive those responsibilities as so light that getting rid of them doesn't matter?

 

If the PEP rules get finalized, a PEP will be viable option for those employers who want to get rid of most of their responsibilities, and will provide the economies of scale that you refer to. 

Let the employers choose what is best for them and their work force.  Based upon my clients (mostly small to medium sized companies), I can't see them wanting to go to a government run plan. 

 

[ESOP Guy]

I have worked mostly with larger plans in my decades in this field.  Most of my clients are in the 500+ and have had plenty of 2,000+ clients. 

Many of them actually set up the plan to be a benefit.  They cared a lot about their employees and their retirement.  To the point were some (not sure if it is most or not) were rather paternalistic about the whole thing.  They didn't allow their people to take loans or put other restrictions on the things that allowed leakage from the plans.

As  you move to the ESOP world that is even more true as many ESOPs are set up by small business owners who have decided they wanted the employees to own the company vs selling to Private Equity fund or large corporation.  

Having said that I have had my share of companies that simply offer a 401(k) plan because that is what it takes to compete for employees.  My guess is if they could unload the the job of helping their employees to prepare for retirement onto the state they would.  In fact one can't help but wonder if this wouldn't be an unexpected consequence of this if it became viable.  Would the taxpayers just be subsidizing the least caring and responsible employers? 

As an aside I also seriously question if the government is really more competent that the market to do this job well and efficiently.   After all Sanders see the fact you have 23 choices of deodorant as an impediment to helping the poor.   I guess I see it as the market trying to innovate to get me what I want at the price I want.   I am not sure I want people who think wanting choices in my retirement is an impediment to helping the poor running things so I need to take their one size fits all answer.  I would say history isn't on their side when it comes to providing benefits to the masses. 

[Peter Gulia]

Larry Starr, Pam Shoup, and ESOP Guy, thank you for your further thoughts.

And if anyone was wondering, I didn’t express any view.

 

I did get the information I was looking for; thanks.

 

[Mcdufi77]

These are really good reasons and agree to each and every point mentioned here. Everyone should be capable of making saving plans so that they can have a secure future. You can also make investments in properties. I also bought a home recently and have got additional income tax benefit on home loan. I hope this investment will help me a lot in future.

[movedon]

I'm guessing a lot of the argument for and against a government option has to do with popular notions about the glories of capitalism and the depravities of alternatives. The notion (that I agree with) that greedier employers would stay with their current private plans while those that "care" about their employees would consider a state-sponsored plan is telling. By "care" I mean "think it's more profitable to care."

[RatherBeGolfing]

3 hours ago, lippy said:

I'm guessing a lot of the argument for and against a government option has to do with popular notions about the glories of capitalism and the depravities of alternatives. The notion (that I agree wih) that greedier employers would stay with their current private plans while those that "care" about their emples would consider a state-sponsored plan is telling. By "care" I mean "think it's more profitable to care."

Why do you assume that the participants are better off in a state plan?  Why is it greedy to utilize retirement plans to maximize your savings?  

 

[movedon]

2 hours ago, RatherBeGolfing said:

Why do you assume that the participants are better off in a state plan?  Why is it greedy to utilize retirement plans to maximize your savings?  

 

 

On 12/10/2018 at 12:12 PM, RatherBeGolfing said:

Obviously the answer will largely depend on the state plan design, but very few of my clients would dump their current plan for a state plan. Those who would drop their plan are probably those employers who only have their plan because the other companies they compete with also offer a plan.  Most (99%) of my plans are designed to maximize the benefits to the owners, and that wouldn't be available in any state plan.

 

 

[RatherBeGolfing]

16 minutes ago, lippy said:

 

 

?  

Why do you assume participants are better off in a state plan?

Why is it greedy to utilize retirement plans to maximize your savings?