Wisconsin small business owners dodged a bullet, again.
Earlier this year, Wisconsin legislators proposed bills[1] that would have, if fully enacted, required many of its small businesses to offer a workplace savings program (WisEARNS) to employees and also create an online retirement marketplace. Fortunately, these stalled. As a service provider, I should like these; mandates would, after all, create demand for solutions I offer. The devil is in the details though and these proposals were, in my opinion, bad for Wisconsin businesses and their employees.
What is WisEARNS?
WisEARNS is a proposed workplace savings program that would automatically enroll eligible workers through payroll deductions in (1) an emergency savings account and (2) an IRA. Wisconsin employers who do not offer a qualified retirement plan to their employees would have been required to offer this. Under the program, employees would be automatically enrolled in a Roth IRA at a rate of 5% with annual savings rate increases of 1%. Employees may (but likely won't) opt out. Traditional (pre-tax) IRAs were also available under the program. The proposal also included substantial tax credits, similar to those currently offered at the federal level, to help offset costs employers may incur in offering retirement programs, which was a welcome, albeit unnecessary, provision.
What's a retirement marketplace?
So, you look at WisEARNS and decide it's a hard pass. Now what? You don't want to waste time searching for the best alternate, so this marketplace is intended to be a one-stop shop for an alternative. Think of this as the Amazon for retirement plan offerings. In theory, at least, this seems great. It's a website that financial providers can apply for their products/services to be listed alongside other similar products/services from other providers. The service quality and costs would be controlled by regulatory processes. If you visit the marketplace for Washington, which has been in place for years now, you'll see just how effective this is. I'll save you the click - there is only one provider available (as of 4/17/2024)! To be fair, there have been more than that but, in just a few short years, only one remains. And with a $3 million annualized cost estimate to facilitate the marketplace, is it really worth it to save a few clicks, especially if it nets only a single provider and you end up searching on Google anyway?
Failure by design?
The proposed mandate was similar to what has been implemented in several other states, but that doesn't necessarily correlate with forward progress. To help move families forward, we need to look at overall finances, not just retirement balances. Here are what I view as critical flaws in the program design:
I strongly believe in private companies right to choose what benefits are offered to their employees. Mandating retirement offerings may mean a company can't offer another benefit that are more valued by their employees.
Auto-enrollment increases balances at the expense of net worth for the most vulnerable employee populations. There is more to a family's finances than their retirement balance and this practice moves some families backwards, not forward. Consequences are exacerbated by automatic escalation of savings rates.
Does anyone really trust that the government or, in this case, a board reporting to the government, can manage assets well? Looking at the WI 529 options, it would be fair to say I have my doubts.
Roth IRAs, as the default vehicle, together with target date/risk portfolios, all but guarantee tax inefficient savings.
Since there are no employer contributions permitted, this isn't a "real" benefit. The allure of 401(k) has always been the employer contribution, not the payroll deduction feature. Employees can establish a similar account with automated deposits timed with payrolls for no/minimal cost at their favorite firm and choose from a wider array of investment options.
Are we out of the woods?
Not exactly. While the bills stalled in this session, chances are we'll see them come back in similar form during the next session. A similar bill stalled WisEARNS last year also. Will the third time be a charm? I certainly hope not! Let me know what you think about it below.
Do you support WisEARNS?
Yes
No
Need more information
[1]Assembly Bill 1138 (March 6, 2024), Senate Bill 1076 (February 26, 2024) and Senate Bill 1035 (February 19, 2024)