Thursday, February 21, 2008

CT Small Business 401(k) Plan

Pioneering legislation has been proposed in the State of Connecticut which would allow the State to provide 401(k) plans for; small companies with less than 100 employees, non profit organizations and the self employed. The proposal is designed to reduce plan administrative costs for small businesses by leveraging the existing employee base and purchasing power of the State of CT. The State of CT offers a very attractive defined contribution plan for state employees. This model might be extended to small employers to make their retirement benefits more competitive with larger organizations.

Retirement investing is not a statistical “fair game” for many small investors and retirement plans because of a fragmented market, information asymmetry and principal/agency conflicts. These biases virtually guarantee that investor’s interests are subordinated to the interests of a cornucopia of providers and intermediaries in that market. Large retirement plans have the investment and financial resources to manage these issues. Small market retirement plans typically aren’t aware of the issues and may not have the time or resources to effectively manage them.

Small market 401(k) plans have been underserved and subject to pricing and servicing inefficiencies. Efforts to deliver lower costs, more independent investment expertise, disciplined quantitative investment processes and fiduciary best practices to smaller retirement plans could substantially improve the level of retirement sufficiency for many.

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