Connecticut Local Politics

Democratic leaders today announced a campaign for their universal 401(k) bill intended to help employees of small businesses afford to save for retirement. From a release:

SB 652, AN ACT CONCERNING SMALL BUSINESS RETIREMENT PLANS, which was first announced in February and currently awaits action by the Senate, calls for the state to serve as a catalyst, pooling together employees from small businesses across the state in order to create an inexpensive 401(k) plan.

While support for the plan among members of the public and legislators has steadily grown, lobbyists for national special interest groups have mobilized against the legislation. They claim the plan would be too costly and that it would have no real benefit to workers or employers.

“Our proposal will help people save for retirement and instantly give our small businesses a real advantage over out-of-state competitors,” said Senator Williams. “The fees associated with 401(k) plans have a disproportionate impact on people who work for small businesses. The result is that the majority of these employees don’t have 401(k) plans, and at the same time, the small businesses are at a competitive disadvantage when it comes to recruiting workers. We’re ready to take on the special interests and fight for working families and small businesses here in Connecticut.”

The AARP is joining the campaign to promote the bill, and is launching a series of advertisements supporting the bill. AARP is also going to issue a report claiming 6 out of 10 private sector workers in Connecticut “…do not participate in an employer-sponsored retirement plan.”

So what’s not to like?

But the bill is facing strong opposition from a coalition of state pension professionals, bankers, insurers and financial advisers.

They say the legislation will cost as much as $1 million in the first two years and $400,000 in the following years. The bill sets aside $500,000 for the state Comptroller, who would establish the plan for businesses with 100 or fewer employees. The money would also pay for outreach efforts and preparation of various documents. The funds eventually would be recouped through fees, proponents said.

Jesmin Basanti, staff attorney for the Connecticut Business and Industry Association, said the money would be better spent educating residents about private retirement plans already available, such as Individual Retirement Accounts.(AP)

The difference is that 401(k) money is deducted automatically from one’s paycheck, rather than relying on contributions. So it’s a passive way to save money for retirement.

The other problem mentioned is that the bill doesn’t require employers to match their employees’ contribution, which doesn’t really help workers (although it does take some of the burden off of employers).

But here’s what makes me suspect that the objections to this bill are less about the welfare of small business workers, and more about self-interest: much of the hue and cry is coming from firms with whom the state would be in competition with. I fail to see their point. If the bill is aimed at businesses which can’t currently afford 401(k) plans, than these firms wouldn’t actually lose any customers.

In any event, the bill is making its way towards the senate. We’ll probably be hearing a lot more about it in the coming two weeks.

Source
“Lawmakers consider a universal 401(k) plan.” Associated Press 21 April, 2008.