Marketplace: 1 of 3 Retirement Security Options

States are considering three main approaches to help private-sector workers increase their retirement savings:

Auto-IRA

Multiple-employer lans (MEPs), and

Marketplace.

It remains to be seen which approach Pennsylvania will take for retirement security, but if it’s a marketplace design, the commonwealth would help businesses voluntarily set up their own savings plans for employees.

This is happening for small employers in Washington and New Jersey.

A marketplace approach gets the retirement savings ball rolling by providing a state-managed website listing plans administered by private firms that meet minimum standards. Here you would see plans sold directly to employers — think 401(k)s — and those sold to workers, like IRAs.

Some people like this approach because it is very broad and requires the state to work within the existing private sector retirement system as a facilitator and educator to encourage—but not require—businesses to adopt ERISA-covered retirement plans (ERISA is the body of federal law regulating employee benefit plans).

A marketplace program could help Pennsylvania get more people to save for their retirements with the help of education campaigns and by using websites and other communication technologies to bring together employers, financial service providers, and employees.

Washington’s Small Business Retirement Marketplace is administered through its state’s Department of Commerce. Employers with fewer than 100 workers, and those who are self-employed and sole proprietors, are eligible. However, participation is voluntary for employers and workers.

A marketplace program must offer a variety of investment options and determine whether financial services firms are qualified to take part in the system (Firms must offer a minimum of two choices: a balanced fund and a target date fund).

While different in their approaches to help more people save for retirement, marketplace, auto-IRA, and MEP plans allow small businesses to offer simple, low cost retirement savings plans to their employees, enabling more workers to provide for themselves rather than rely on taxpayer-paid services.

Which retirement security program would you like in Pennsylvania? Tell your lawmakers.