Most small employers oppose state, federal government as auto-IRA sponsors: survey

While the vast majority of small-business owners support the idea of offering auto-IRAs to their employees, most oppose the plans being sponsored and administered by the state or federal government, according to a survey conducted by The Pew Charitable Trusts, a nonpartisan think tank.
Rather, small employers are more comfortable with mutual fund and insurance companies taking the helm as an auto-IRA sponsor, according to the survey.
Auto-IRAs are a type of automatic-enrollment, payroll-deduction retirement savings vehicle that have gained prominence since Illinois in 2015 passed legislation to create an auto-IRA program for private-sector employees. Enrollment in the state’s Secure Choice program starts in 2018.
Four other states — California, Connecticut, Maryland and Oregon — have since followed Illinois with similar legislation, and several others have bills in the works.
The laws, which particularly affect small businesses, mandate employers of a certain size to offer a retirement plan to their employees, whether an auto-IRA or a private option like a 401(k), in order to increase coverage through the workplace.
The Obama administration has also included proposals for a federal auto-IRA program in past budget outlines, but the effort has been stonewalled primarily by congressional Republicans.
According to the Pew survey, which polled 1,639 employers with between 5 and 250 employees, 59% of employers somewhat support and 27% strongly support the concept of an auto-IRA. That’s primarily because they feel it would help their employees and make their business more competitive with other firms.
“They think the general principle of savings is a good thing,” according to John Scott, director of retirement savings at The Pew Charitable Trusts, which also conducted focus groups with employers to gain additional insight.
But 36% strongly oppose, and 20% somewhat oppose, auto-IRAs being sponsored by state government. The opposition increases when it comes to federal government, with 44% strongly opposing and 15% somewhat opposing.
Mutual fund and insurance companies seemingly received more trust from employers, with only 7% strongly and 11% somewhat opposed to the former, and 12% and 16% respectively to the latter.
Mr. Scott boiled down the government opposition to two factors: an ideology about the role of government in the free market, and concerns over whether government can effectively implement the auto-IRA programs.
However, there’s a caveat: the survey questioned employers on their feelings over “sponsorship,” a term which wasn’t defined for respondents. If they’d understood the state plans are effectively a private-public partnership, whereby the investment management and communications (cell centers and participant statements) would be handled by private companies, there would likely be more support for government’s role, Mr. Scott said.
Because there’s a tendency to conflate auto-IRAs with 401(k) plans, most of which are administered by mutual fund and insurance companies, people likely lent these private companies more credibility in the survey, according to Mr. Scott.