ON POINTE – 401(K) EDITION
Don’t get me started.
And I’m not some ant-government fanatic. But I’ve lived long enough on this planet to know that I often know more than some government agencies when it comes to retirement. While I do respect the intention of some policies, it’s the implementation that can be the issue.
Who doesn’t like having a 401 (k) plan? Or how about the employer who believes in retirement and wants to help their employees save? Now some states are going to fine employers if they don’t offer one
You guessed it! I’m talking about State-Mandated Retirement Plans… Did you ever think this would happen? Not me.
So, what are they and why do I think they could be more of a problem than a solution?
In this On Pointe I’ll give you the lay of the land so to speak with State-Mandated plans. This is a series so if you’re looking to stay on top with this topic and other 401 (k) issues, sign up for On Pointe 401k here.
Again, the spirit of the State Mandated plans is to bridge the gap where many companies have failed. Many employers are not offering plans. And there is a real retirement crisis. We at Alpha Pointe Capital recognize this.
Employer-sponsored retirement plans are one of the most important methods of saving. Yet 49% of private sector workers had no access to such a plan in 2014. According to Retirement in America: Out of Reach for Most Americans, a 2018 report from the National Institute on Retirement Security.
It hasn’t gotten much better.
So, the state governments stepped in.
State-Mandated Retirement Plans are state-sponsored plans that mandate companies to offer retirement plans. The choice an employer has is to either sign up for their state’s plan or implement a 401(k) or other retirement plan on their own. In most states, you can satisfy your state’s mandate by starting your own plan.
The reason to consider 401 (k) plans is they are customized and flexible. They also come with advisors like Alpha Pointe Capital.
Employers in California, Connecticut, Illinois, Massachusetts, Oregon, Washington, Colorado, Maine, Maryland, New Jersey, New Mexico, Virginia, Vermont, New York, and New York City will want to investigate their state’s plan. Not all employee-sized companies are subject. But in many states the threshold for the number of employees is five.
Three aspects you will want to investigate right away.
First, you’ll want to find out if your company is exempt. If you’re not exempt, then you better find a plan fast. We can help…
Second, find out what kind of state plan is being offered. Are they similar to Roth IRA, Traditional IRA, options for both, or closer to a SIMPLE IRA. These are all very different plans which I’lI going into better detail later in my Part 2 – On Pointe, stay tuned here.
Third, find out who is administering the plans. My guess is these will operate like 529 plans. You will have one investment company who will operate and administer the plans. There are significant drawbacks should these retirement plans operate in this fashion. But, perhaps better than nothing and certainly better than potential state fines.
The main problem is limitations, especially investment options. We find similar issues with 529 Savings Plans.
While I’m offering critiques of State-Mandated plans, it’s the goals of these plans that is most important. Yes, I believe Americans need to build their retirement, which can be done through employer-sponsored plans and other means. Most government bodies see the issue as an “access” issue. However, I will push back on that assertion.
Most anybody can open an IRA, whether Roth or Traditional. Part of the problem, which most financial advisors know, is behavioral. There are many who will not open an IRA, nor take part in their employer’s plan, even if offered.
The base problem comes down to access and behavioral trends of retirement savings. The State Plans do attempt to address access, which may be step one. But they may still fall short.
In the next On Pointe expect me to help lay out some of these problems. And I may even offer some solutions!
Alpha Pointe Capital
1997 Annapolis Exchange Parkway, Ste. 300
Annapolis, MD. 21401
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