Friday, April 11, 2008

Other Public Plans Seek to Expand Retirement Coverage

The State of California is considering a proposal (Assembly Bill 2940) to allow employees at businesses without retirement plans to set up IRA type accounts that would be managed by the California Public Employees Retirement System (CALPERS). The retirement industry questions whether this and other similar proposals are effectively publicly funded subsidies which create an unfair competitive disadvantage for them. The unique details of each proposal may have to be further developed to ultimately decide that question.

What is absolutely clear is that many small business employees are competitively disadvantaged in their ability to save for retirement. They either don't have access to a retirement program or must contend with the debilitating effects of high fees and/or poor investment alternatives.

The small retirement plan market, which seems to be the primary focus for these proposals, is obviously not homogeneous. There are many reasons why employers don’t have plans. The diversity of needs and objectives in this market should accommodate many providers and solutions. The State plans could provide a very attractive solution for certain segments of this market and might simply increase overall retirment savings, not materially displace existing programs. These models could provide a very modest form of self-funded public intervention in very inefficient markets. This has the potential to provide substantially more benefit than downside.

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