Report Finds Moderate Interest in Dropping DC Plan for State-Run Plan
As more states look to establish retirement savings plans for private sector workers, a new report by LIMRA’s Secure Retirement Institute finds that 55% of DC plan sponsors indicate they are “very likely” or “somewhat likely” to stop offering their DC plan in favor of having their employees enroll in a state-run plan if one were available. By comparison, 40% of sponsors reported they are “not very likely” or “not at all very likely” to stop offering a DC plan in lieu of a state-run plan.
LIMRA’s “Workplace Retirement Savings and State Plan Mandates: Employer and Employee Perspectives
” report summarizes the findings from two surveys – one of employers that currently sponsor DC plans and another of workers, with each survey including questions that seek to better understand the views of the two stakeholder groups.
Fear of Litigation
Fear of plan lawsuits was cited as a key reason among sponsors who expressed a willingness to discontinue a DC plan in favor of a state solution. A third of DC plan sponsors overall agree that the threat of lawsuits is a disincentive to offering a retirement investment program for their employees. And these sponsors appear to be most supportive of a state solution, with 81% indicating they would be “very likely” or “somewhat likely” to make the replacement.
In what seems to be something of a surprise, sponsors of the largest plans ($50M+ in plan assets) were most likely to say that they would consider replacing their plan with a state-run solution, while sponsors of the smallest plans (less than $5M in plan assets) were the least likely to say they would probably discontinue their DC plan in favor of a state solution.
Conversely, plan sponsors which place higher importance on retirement readiness and participant outcomes were more likely to convey a willingness to commit to their DC plan. The report notes that these sponsors are confident they are managing their plans properly, so lawsuits are not currently a concern, and they feel that the “benefits of offering a plan outweigh the challenges.”
Employees also place high value on several aspects of DC plans that will likely not be part of state-run plans, such as investment variety, education, higher contribution limits and loans. Moreover, the report emphasizes that one of the most important aspects to workers is their employer’s fiduciary responsibility and knowing that investments are chosen with their best interests in mind.
Almost equally as important for both workers (nearly 90%) and employers (96%) is the ability of employers to contribute to workers’ accounts. Employer contributions, however, would not be permitted under many state-run IRA programs, the report notes.
State of Play
As for state initiatives, most workers support state governments mandating that employers offer workplace plans (nearly 60%), yet most revealed they are not familiar with the various plans. According to the survey, just 5% were “very familiar” with the initiatives, and only a quarter reported any measure of familiarity. Moreover, their confidence in the ability of governmental entities to administer such programs is lower than in any other listed entity.
Despite knowing that employees strongly value key features of DC plans, some employers are still willing to consider replacing their DC plans with state solutions. The report suggests that employers may not have thought through the broader implications, such as comparing the different systems, or considered plan objectives, administrative costs and services, and fiduciary liabilities and protections.
Note that the surveys were conducted in 2016, before President Trump signed legislation overturning the Obama administration’s ERISA safe harbor rule for state-run auto-IRA programs for private sector workers. The employer survey was conducted in October 2016 with 1,052 non-governmental sponsors of DC plans in organizations with 10 or more employees. The worker survey was conducted in June 2016 with a nationally representative sample based on 2,498 full- and part-time workers.