A potentially groundbreaking bill backed by state Comptroller Nancy Wyman and the state’s top Senate Democrats to create the nation’s first state-run program of retirement plans for small business has the intended beneficiaries — small businesses — asking: “Why bother?”
“The lack of a retirement plan is not a high priority for small business owners,” said Andrew Markowski, director of the Connecticut chapter of the National Federation of Independent Business.
“There are plenty of low-cost plans out there for small business. This type of proposal seemingly puts the state in direct competition with small businesses for the business of small businesses,” he said.
Wyman and state Senate President Donald E. Williams (D-Brooklyn) have touted the program as a low-cost alternative to private plans already available.
They note that 75 percent of Connecticut’s small businesses — companies with less than 100 employees — don’t offer retirement plans to their employees. More companies would, they argue, if 401(k) returns for their employees weren’t so eroded by the high fees.
“The fees associated with 401(k) plans have a disproportionate impact on people who work for small business,” Williams said at a recent press conference. “The result is that the majority of these employees don’t have 401(k) plans.”
If that’s true, Williams and other proponents have a selling job ahead of them.
Several of the state’s largest business trade groups agree that only a quarter of small firms offer 401(k)s, but they disagree with the notion that low participation stems from high fees.
State Benefits Versus Biz Bust
“We are opposed to this because the state is overreacting and not looking at the real barriers to retirement plans,” said Jesmin Basanti, staff attorney for the Connecticut Business & Industry Association. “The last thing we need right now is to add another level of government bureaucracy.”
The primary barrier is that business owners prefer to spend their money on something else, said Markowski of the NFIB.
“If you talk to small business owners and employees, they would rather have their money spent elsewhere … towards health insurance or other bills. A retirement plan is about sixth or seventh down on the list.”
Also lining up against the bill are the Small Business Council of America, the Connecticut Bankers Association, the Council of Independent 401(k) Recordkeepers and the American Society of Pension Professionals and Actuaries.
“So the state is going into competition with us?” said Michael Callahan, vice president and operating manager for Pentec Inc., a Southington-based pension consulting firm. “I find it unconscionable that the state wants to spend my tax dollars to compete with me in my marketplace.”
Wyman said the program would be an extension of the retirement savings plans that her office currently administers for state employees. ING administers the state employee retirement plan, which has assets of about $2 billion.
Better Returns
By using the immense size of the portfolio to negotiate better deals with brokers, the state would be able to offer better 401(k) returns for small business employees, she argued.
If the legislation is enacted, she said, her office would send out a request for proposals for an administrator and the program for small business could start by July 2009.
The bill passed the Commerce Committee by a 14-5 vote, with all Democrats supporting it. Five of the six Republicans on the committee voted no. The bill now moves to the appropriations committee.
Wyman said the state has a strong interest in convincing employees of small business to sign up for 401(k)s.
“We want to make sure these employees save money so they don’t have to come onto the state’s rolls when they do retire and don’t have savings,” Wyman said. “We want to give them a supermarket of investment options.”
But Basanti of the CBIA said proponents of the bill are trying to elbow their way into the pension business when they should be educating themselves and small businesses about the competitive retirement plans already available.
For example, the CBIA itself has a pooled retirement plan for small businesses that negotiates lower fees than individual companies could obtain on their own.
Basanti and CBIA estimate the proposal would cost taxpayers $1 million a year for the first two years and $600,000 a year after that. Wyman disputed those figures, saying that any additional costs would be covered in her current budget.
The Office of Fiscal Analysis has not completed a detailed cost estimate for the bill.
