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 states as “The most ambitious push to expand retirement security since the passage of Social Security in the 1930s”
While these programs have differences, much of the details remain the same. Virtually all of these programs mandate that businesses that do not currently have a retirement plan join this state run plan that automatically enrolls their employee’s in a Roth IRA at a 5% deferral from payroll.
Most states are phasing the program over time. For instance, California 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. These parameters change by state but the concept remains the same.
We have attempted to identify key differences between these programs and TAG Resources 401(k) program so businesses can make an informed decision of whether or not to opt in to the state program or begin a 401(k) prior to being forced into the state run program.
These programs have one key advantage. They ensure that all employees of businesses within the state are provided with an opportunity to participate in a retirement plan. This is a key objective of retirement plans in general.
Program Disadvantages vs TAG Resources 401(k) Program
With the state run program employers will be required to enroll every employee, set up payroll deductions, send educational materials and remit employee contributions to the provider. Many of these tasks are provided by TAG Resources when an employer chooses to join the TAG Resources 401(k) Program.
Ability to Save For Retirement
IRS’s have a saving cap of $5,500 annually. With a 401(k) with TAG Resources, that limit is $18,000.
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.
State run programs are based on saving in an IRA. 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.
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.
All in all, these state run programs are a positive change to get more people to save for retirement. There are better choices available, however. TAG Resources 401(k) Program offers a low cost alternative with many more advantages and a time proven track record than being forced into a state run program when states have no experience in retirement plan offerings.