By Edward Wagner – Managing Director, SageView Advisory Group
How do we use today’s current regulatory environment to enhance the retirement plan benefit we offer our public sector employees? With all the bad press surrounding private sector retirement plans lately (401(k) plans), it might seem counter-intuitive to say, “mimic those plans”. However, taking the best parts of 401(k) plans and implementing them into our public sector plans, may be one of the best things we can do for our employees.
Private sector retirement plans are governed by a set of laws called ERISA, or the Employee Retirement Income Security Act of 1974. Although public agency plans are exempt from ERISA, most experts agree it is in the plan sponsor’s best interest to integrate the same ERISA guidelines that exist in private plans into their public agency plan governance process. Additionally, many ERISA requirements have been incorporated into California statutory law that governs public sector plans. The ultimate result is that public agency plan sponsors are becoming more and more exposed to the fiduciary liability that has traditionally only existed in the private sector space. The bad news: Current legislative trends indicate these guidelines will become more restrictive and more cumbersome for public plan sponsors to follow. The good news: First, the private plan space has been dealing with these guidelines for years, so “blueprints” for building a successful public agency plan already exist. We can learn from their mistakes and borrow their best practices. Second, when following ERISA guidelines and instituting fiduciary best practices, the ultimate winner is the participant. These guidelines exist to ensure that participants have best in class investment options, reasonable costs, and that the plan is administered according to the plan document and in the participants’ best interests.
An example of a public agency plan that utilizes many of the successful components of the private sector space is the Self-Directed Tax Advantaged Retirement System of CA (or STARS). The plan was formed and is governed by California public agencies and is open for use by any public agency that wishes to enhance their retirement benefit program. There are many aspects of this plan that make it the perfect example of how we can apply lessons learned in the private sector plans in order to provide a powerful and effective retirement savings benefit.
More information can be obtained by contacting by Edward Wagner, Managing Director at SageView Advisory Group (949-955-7629)