In large U.S. establishments with 500 or more employees, 91 percent of workers have access to a retirement plan, according to the U.S. Census. In comparison, among companies with less than 50 employees, only 46 percent of workers have retirement plan access.
This is known as the "retirement coverage gap," and for decades policymakers have been trying to close it—to little avail.
Now, however, the trend is changing with state-based initiatives that will require most employers to offer all workers retirement plan access. Now is the time to increase awareness of this trend among your small-business clients. Some may choose to start their own plans sooner, rather than be roped into state-run plans later.
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Most state initiatives are being adopted under the banner of Secure Choice Pension (SCP) accounts. These accounts generally follow a template of payroll-deduction IRAs with automatic enrollment and default investments.
Any employee can actively choose to opt out of participation. Employers are not required to make contributions, and they have no administrative responsibilities other than transmitting payroll deduction to IRA custodians.
In four states—California, Illinois, Oregon, and Washington—legislatures have already approved SCP accounts, and California and Illinois plan to roll them out in 2017.
The Illinois program would require participation by all employers with 25 or more workers that do not already offer a retirement plan. Its design is a template for several other states considering SCP accounts.
You can check the status of SCP legislation in your state.
The handwriting seems to be on the wall: Soon enough, most U.S. employers with 25 or more employees will be required to offer all eligible employees a payroll-deduction retirement plan.
This is a good time to show your small-business clients a variety of options, including regular payroll-deduction IRAs. By setting up a payroll-deduction IRA now, it appears that employers who don't want automatic-enrollment plans can avoid them. The IRS FAQ on payroll deduction IRAs can be found at the IRS site.
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