Companies Provide Retirement Plans with Mandatory Pension Auto-Enrollment
Retirement is not just a priority for working Americans anymore. The Social Security system is in need of a reboot and many Americans are afraid they aren’t saving enough. The United States government has decided to join in and make retirement a priority.
Recently, the U.S. Department of Labor proposed a set of rules to adopt mandatory, state-sponsored retirement plans for private businesses.
This came on the heels of a September report by the Government Accountability Office calling for government regulation. In other words, this was to make it easier for companies to expand coverage for employees.
Mandatory Pension Auto-Enrollment
The rules would create a safe harbor from fiduciary requirements put in place by ERISA for complying plans. ERISA stands for the Employee Retirement Income Security Act of 1974, which sets standards for voluntarily established, private-industry health and pension plans.
Illinois, Oregon and California have already begun the process of enabling this legislation. California employers with less than 5 employees will be required to offer automatic-enrollment pensions plans to all workers who qualify. If the employer already offers a plan, they will be exempt from the mandate.
The think-tank, The Brookings Institution provided the template for these state-sponsored automatic-enrollment plans, promoting low-cost and low-service plans for employees.
For small businesses and those that work for smaller companies, this is great news. Small businesses often overlook offering employer-sponsored plans because they are expensive. Furthermore, the administrative process to run them is often too complex.
What the DOL is proposing is to take away the majority of the hassle of offering these plans.
In a recent report by Oregon’s task force in favor of the template, they found that when people don’t make a decision they are actually better off than when they take an active role and start planning. The idea is to make it so easy for Americans to save and that they don’t question it.
In terms of pension plans, the idea is to start small and to increase the amount saved automatically overtime. This tunes out any uncertainty and negative emotions associated with saving, so that saving becomes second nature.
Does Auto-Enrolling Spell Death for Financial Advisers?
As with every plan, the DOL’s attempts to mandate automatic pension enrollment come with downsides.
One such downside is that many financial planners are concerned that this push toward making it easier for Americans to save will render their services obsolete.
We disagree. We WANT Americans to automatically save money and to not think twice about it. So, what do you do if you happen to be in a state that does not already participate in the DOL auto-enrollment initiative?
Speak to a financial adviser.
In order to make the shift from actively thinking about saving to turbo-charging your retirement savings, surely you will need to speak to a professional. While we think it’s great that the government is mandating that small businesses – and businesses in general – offer pension plans, we recognize that saving for the future is not a one-size-fits-all business.
This is where financial advisers will be needed more than ever: to help people with saving accounts tailor a plan to their current and future situations.
Additionally, you should frequently check your saving plan to make sure you are the right path to securing your financial future. A financial adviser can help.
Bottom Line of Mandatory Pension Auto-Enrollment
Your future is unique and your savings plan should reflect that.
Give us a call if you are worry about how the DOL’s regulations will impact your business. A solid financial plan could save your business money and may be a better option for your employees.