GOP, Business Advocates, Financial Advisors Unite in Opposition to Mandated State Run Retirement Funds

April 24, 2014

Hartford, CT – A group of Republican legislative leaders, business advocates and financial advisors today united in opposition to Senate Bill 249, legislation that would create a state run retirement fund and require Connecticut businesses to automatically enroll their employees if they do not offer an alternative of their own.

“Government has no business managing this aspect of our lives,” said State Senate Minority Leader John McKinney. “Government is already trying to manage your healthcare decisions. After the failure of the Obamacare rollout, is anyone really ready to trust government to manage their retirement savings?”

“There is no shortage of qualified financial advisors in the private sector who can manage retirement investments better than the state. The problem is not a lack of investment options. The problem is that people are living paycheck to paycheck and do not have enough money left over to invest in their retirements,” he added.

Under the bill proposed in Connecticut, employers required to use the state-run retirement plan would also be required to automatically enroll employees and begin withholding 2% – 5% of their income to be deposited into the state-run retirement fund. An employee who chooses not to participate would have to opt out in writing every two years.

“It is unreasonable to put employees in the position of having to justify to state government once every two years why they may not want to invest in a new, potentially risky, investment option managed by state government,” said State Senator Joe Markley, ranking senator on the Labor Committee.

The state-run retirement plan would be managed by the State Comptroller’s Office and a special oversight board. Administrative costs associated with the bill would increase state spending by $8 million.

“There is also an unnecessary cost to the state if this bill were to pass,” said Senator Markley. “This is not a role for government to be undertaking. If our state is ever to prosper, government needs to get out of people’s personal lives.”

The opponents also argued that government should not be undermining private businesses that already offer retirement fund services. “There are IRA’s available at your neighborhood bank. There are private investment advisors that make a living out of helping people. Perhaps state government needs to find a way, within existing resources, to educate the public about the importance of retirement savings and the opportunities already available to them, but state government should not be managing private retirement accounts,” said Sen. Boucher, a member of the Finance, Revenue and Bonding Committee with an extensive background in financial management. “State government should work with small businesses and the financial sector to educate employees and employers on the benefits of planning ahead for retirement. We should encourage both groups to look at the plans currently being offered – many of which cost less and can produce a higher return on investment than the Democrats plan.”

Senator Boucher noted that another provision of the bill requires the state to procure insurance to protect the investments made by plan participants. However, insurance of this nature is costly and does not provide the same level of protection that individuals would receive for investments made with private institutions.

“It is virtually impossible to guarantee a certain rate of return in investment, leaving room for liability problems for the state,” Senator Boucher said. “Buying portfolio insurance to cover shortfalls is exorbitant and rarely done as the very high costs reduce the gain or return on the investment.”

Opponents also contend that the state run retirement plan would be subject to the federal Employee Retirement Income Security Act (ERISA). Public employee retirement programs are exempt from ERISA, but it is unclear whether the exemption would cover this program. Subjecting the state to ERISA would impose costly administrative requirements and subject the state, and therefore taxpayers, to legal liability for any losses, damages or claims by participants in the program.

“We’ve been down this road before,” said Senate Minority Leader Pro Tempore Len Fasano, an attorney. “The same proponents spent years lobbying the legislature to open the state employee health care plan to private employers. At that time, the U.S. Department of Labor released an advisory opinion informing Governor Malloy that opening the state employee plan to private employers would cause the state to lose its ERISA exemption and trigger all of the legal and fiduciary obligations ordinarily imposed on non-government plans.”

As a result of the advisory opinion, the proposal to open up the state employee health plan to private employers was stopped dead in its tracks. As for the huge anticipated influx of municipalities eager to join the state plan, over two years later, only a handful of municipalities have actually joined.

Opponents of the state run retirement plan also note that no other state has successfully implemented one. California has been trying for over two years and still has not overcome the significant legal obstacles. Bills in at least ten other states have failed or stalled over legal and practical concerns.