29 Oct STATE RUN RETIREMENT PROGRAMS
Several states have either already rolled out programs mandating retirement plans for small businesses or are preparing to do so. These programs are being called by some, “The most ambitious push to expand retirement security since the passage of Social Security in the 1930s.”
While the respective state programs have differences, most share the mandate that businesses that do not currently have a retirement plan join a state plan wherein their employees are enrolled in an IRA, often a Roth at a 5% deferral from payroll.
The programs are typically phased in over time. California’s model, for instance, requires that businesses with over 100+ employees comply within the first year after implementation, those with 50+ within two years and those with 5+ employees will have 3 years to comply.
As might be expected, the features of each state plan vary to some degree regarding employer size and implementation. However, the respective plans of these several states share the common requirements of mandatory participation by certain employers and participant investment in an IRA. While this mandatory participation approach does provide a heretofore absent opportunity for many employees to participate in a retirement plan, state retirement programs that mandate employers within said state to participate in the program place the burden of administering the plan on businesses.
Mandatory State Program vs TAG Resources 401(k) Program
Program Administration
By contrast, the retirement program offered by TAG Resources offers both employers and employees key options not available in the afore mentioned state plans and takes plan administration responsibilities, like enrolling every employee, setting up payroll deductions, providing educational materials to employees and remitting employee contributions to the investment provider, off the shoulders of employers. These tasks are performed by TAG Resources when an employer chooses to join the TAG Resources 401(k) Program.
Ability to Save For Retirement
IRAs have a saving cap of $5,500 annually. With a 401(k) with TAG Resources, that limit is $18,000 in 2018 and $19,000 in 2019.
Matching
Employers cannot make matching contributions to an IRA, but can in a 401(k). Matching is not required in a 401(k) but matching is a cost effective way to make the business attractive to prospective employees and provide valuable tax break to employers.
Employee Retention
IRA’s are individual in nature and, unlike the TAG Resources 401(k) program are not subject to vesting schedules or eligibility requirements which can be used by employers to encourage employees to stay longer, decreasing turnover and all associated costs. IRAs are the only option available for participants in mandated state plans.
No Financial Advisor
In the state run programs employers do not use financial advisors for their retirement plans. This leaves employees without the guidance to make informed decisions in their best interest.
To the extent that state mandates get more people to save for retirement, mandated retirement plans are a positive thing. However, there are better choices available to employers facing a state mandate to enroll employees in a retirement plan. TAG Resources 401(k) Program offers a proven, low cost alternative, with many advantages to state mandated IRAs.
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