Industry opposition to state retirement plans ignores reality

Most advisers would agree that the more people saving for retirement, the better. So the opposition to a recent DOL rule making it easier for states to help businesses not currently offering workplace retirement programs to set up savings plans is a bit baffling. Some industry arguments seem reasonable, until you peel back the layers. The biggest beef seems to be that the new DOL rule would allow states to avoid Employee Retirement Income Security Act requirements if they meet certain standards, giving them an unfair advantage over more expensive private plans. But we're talking about employers who otherwise had no intention of setting up a plan. And big firms that already have 401(k)s, and whose benefits packages are an integral part of recruiting top talent, won't engage in a race to the bottom with their retirement plans.

IRAs ARE NOT ENOUGH

The second contention is that private IRAs already exist, so additional opportunities to set aside tax-deferred money aren't necessary. But back in the real world we know many Americans aren't using them. We also know — through the popularity of auto-enrollment and auto-escalation features among sponsors of private deferred-compensation plans — that people need the act of saving for retirement to be kept simple. A million errands compete for people's time in what spare amounts of it they have. If something's not on fire, it's often put off. At this rate, many won't feel the heat until they reach their 50s, or even 60s, by which point much of the benefit of compounding returns is lost. (Related read: Got questions about the DOL's fiduciary rule? We've got answers.) And it seems the huge potential here for financial advisers is being ignored. Once people have a retirement plan, they're in the market. Considering that 42% of employees don't currently have a workplace savings option, the potential for expanding the investing population is unprecedented. At some point, many of these people will need guidance on investment decisions, whether it's when they get started, want to roll over their money or as the distribution phase begins. And, thinking beyond advisers' own pocketbooks, making it easier for people to save money for retirement will boost the nation's savings rate, provide for more corporate investment and in the end, alleviate some of the reliance on government pensions for those otherwise retiring with eggless nests. (Related read: How sharing economy will change the advice industry)