The modern retirement plan era began in 1974, with passage ofERISA and authorization of Individual Retirement Arrangements, thenfour years later came 401(k)s. This year, anew paradigm begins with the launch of thefirst state-sponsored SecureChoice programs.

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Although these programs have different rules, they generallyrequire all employers above a certain size to offer a plan thatcovers all eligible workers. Most Secure Choice programs mandateauto-enrollment and some require automatically increasingcontribution percentages over time.

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Some authorize investment choices designed to convert intoguaranteed annuity payouts at retirement.

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Secure Choice is just the first phase of the new paradigm, andsoon private retirement plans also may be required to adopt thesefeatures.

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Eventually, Social Security may be replaced, in part, byretirement plans that mandate participation, invest in pre-builtbaskets of equity indexes and U.S. Treasuries, have limited accessto assets prior to retirement, and promise guaranteed lifetimepayouts.

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Although several policymakers have advocated for the newparadigm, one person stands out based on her credentials andconsistency. She is Alice H. Munnell, a research economist who hasworked for the Federal Reserve, as Assistant Secretary of theTreasury in the Clinton Administration, as professor at BostonCollege, and as founding and current director of the Center forRetirement Research at Boston College.

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For some time, her mantra has been: 1) Most people won't saveenough for retirement on their own initiative; 2) Guaranteedpensions create more financial security than 401(k)s and IRAs; 3)The 401(k) plan was poorly designed, because it leaves too manydecisions to individuals, costs too much in fees, and permits toomuch leakage; and 4) The government should mandate retirement plancoverage for everyone, with minimum required contribution anddeferral rates.

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Actually, the 401(k)-IRA era wasn't planned or designed byanyone. It was driven by millions of individuals' desire to maketheir own retirement plan decisions and control their ownmoney.

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It coincided with a huge expansion of individual participationin investment markets, with the help of financial advisers.

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The new paradigm will be driven by government mandates andautomatic templates, and (somewhat by design) millions ofparticipants will no longer need professional advice. However,401(k)s and IRAs are still too large and popular to disappear.

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In regard to Secure Choice mandates, employers and participantswho affirmatively make active decisions can continue to continue tocontrol their own plans. You can urge clients and prospects: “Avoidbig-government interference by taking charge and proactively makingyour own plan decisions, with my help.”

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For employers, avoiding Premier Choice mandates is as easy asadopting another type of retirement plan (e.g., a SIMPLE orSEP).

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For participants, avoiding automatic enrollment,government-imposed deferral rates and default investment choices isas simple as obtaining good advice and affirmatively making thesedecisions base on personal needs and goals.

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To better understand the emerging new paradigm, you also maywant to study some of Munnell's research and interviews.

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