Fifty-five million American workers do not have access to a retirement savings plan at work.
States that are considering creating state-sponsored plans for small employers to fill that void need to be ready for a lot of questions from business owners, according to LIMRA, an insurance and financial services industry organization.
LIMRA recently conducted four focus groups of small business owners in Connecticut, where a law creating a state-sponsored retirement plan was recently enacted. The participants in the focus groups had numerous questions about the plan and some did not even know it existed, says LIMRA in its study, called “Small Business Reaction to the Connecticut Retirement Plan.”
The Connecticut law requires businesses with five or more employees (in operation for at least two years) to provide a retirement savings plan for the employees or otherwise to be part of the state-sponsored program. Employees are free to opt out of the program if they choose, says Alison Salka, senior vice president and director of research at LIMRA and author of the report.
Seven states, including Connecticut, have enacted laws creating state-sponsored savings plans and more than 23 others are considering it. “The results of these focus groups provide insight into how small business owners across the nation may react to the mandates of possible upcoming retirement legislation,” the report says.
The Connecticut small business owners questioned how the plans would affect their businesses. They wanted to know how much administrative work they would need to do and how much it would cost them in money and staff time.
In Connecticut, the plans are administered by private retirement plan firms and the investment offerings are selected by the private firm, not by the state, which is a critical point for the small business owners to understand, Salka says. They also need to understand that the business owners are responsible for only minor administrative duties, she says.
Some of the business owners said they did not believe their employees would value a state-run plan or utilize it.
States that are considering these plans should be prepared to offer extensive education to small business owners before and after the law is enacted, Salka says. Small business owners in Connecticut, where the plan was signed into law last June, still were confused about their responsibilities and distrustful of the process, LIMRA says.