What We Can Learn From State Retirement Plan Mandates

In the year 2022, the word “mandate” elicits strong emotions on both sides of the aisle.  So why do retirement plan mandates appear to have bi-partisan support?!

Perhaps, because at its core, this initiative is less about mandating what business should or should not do, and more about offering all Americans an equal opportunity to secure a dignified retirement.

The data is pretty evident: employer sponsored retirement plans are increasingly effective at getting individuals to save for retirement. In addition, the popularity of auto enrollment and auto escalation features are clearly moving the needle, not only in terms of participation, but also deferral rates.

Thus, from a public policy perspective its clear workplace retirement plans drive results. This is what’s driving bi-partisan support for some type of employer sponsored plan mandate. A Federal mandate may be a ways off but this has not stopped states, and even some cities, from adopting various employer sponsored retirement plan mandates. For example, as of the fourth quarter of 2021, 14 states and 2 cities have enacted state-facilitated retirement savings programs for private sector workers.2 

Although all of the state mandated plans strive to get more Americans saving for retirement, all plans are not equally effective. State and city based programs are a testing ground for these programs and will help employers and policy makers evaluate employer sponsored retirement plans and provisions.  For a variety of reasons, the foundation of most state programs use the Individual Retirement Account (IRA) as the chassis.  In some instances, using a thoughtfully designed 401(k) plan would allow for increased savings and more flexibility for workers at all income levels. At a time when employers are struggling to find and keep talent, rounding out traditional compensation with additional benefits could be the key to a more satisfied workforce. 

For employers who have been offering a retirement plan for years, this shift in public policy is a great opportunity to re-evaluate current plan provisions to encourage and enhance employees’ retirement savings behaviors.    It’s also a good time to ask current service providers for a briefing on their latest and greatest tools and services – what are they pitching to prospective clients?  Demand your employees receive the same quality of care, at a competitive cost. 

Defined contribution plans are the bedrock of the American retirement of the future. This structure requires employees to make good choices. Employees need our guidance, support and encouragement to establish strong retirement and financial habits – and a well-crafted employer sponsored retirement plan can go a long way in providing the tools and structure employees need.

  • 1 National Institute on Retirement Security, “Americans’ Views of State-Facilitated Retirement Programs” November 2021
  • 2 “Georgetown University McCourt School of Public Policy Center for Retirement Initiatives: State-Facilitated Retirement Savings Programs” October 31, 2021 Update
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