Small Businesses Debate Role of State-Based Retirement Plans

LIMRA Secure Retirement Institute polled small-business owners in Connecticut about their opinions regarding the forthcoming retirement planning program that will be administered by the state and offered to private-sector workers.

While work is already underway behind the scenes, the “Connecticut Retirement Security Plan” will begin widespread public operation in 2018. In the most basic terms the program will require all Connecticut businesses of five or more employees with no defined benefit or defined contribution savings arrangement to participate in the retirement security program. Employee participation will be voluntary, taking a negative-election approach such that employees will initially be auto-enrolled and will have the ability to opt out. Employers will not be required to match contributions.

With the program finally coming into fruition after years of debate and development, the LIMRA Secure Retirement Institute decided to conduct four focus groups made up of small-business owners in Connecticut “to better understand their feelings about the state’s new retirement plan and what they understand about it.”

As LIMRA explains, “the results of these focus groups also provide insight into how small-business owners across the nation may react to the mandates of possible upcoming retirement legislation.”

Unsurprisingly, LIMRA finds reactions were “mixed” among the small-business owners regarding the new program.

“There was also some confusion about the state-run retirement plan and how it would affect their businesses,” LIMRA warns. “In fact, some small-business owners did not realize a state plan actually existed. Others were confused about certain features, especially the required income option. Many simply did not believe their employees would value a state-run plan or utilize it.”

Naturally, LIMRA finds general “mistrust of government entities administering a state-run plan” fuels some negative responses. Other negative responses are pinned to “unsatisfactory experiences with state-based health exchanges.”

“In other cases, participants conflate the state managing the new state-run retirement plan with the already established state teachers’ and employees’ pension programs,” LIMRA warns. “Both have faced well-publicized funding and liability challenges.”

LIMRA reports that employers with positive reviews of the state plan “appreciate that the state is addressing a potential retirement predicament and providing employers with a new benefit they were unable to offer before. They are also pleased the state is taking responsibility for the plan and that employees can take their accounts with them if they were to change employers.”

The full LIMRA Trends analysis is available here.