New IRA would target small businesses without employer-sponsored retirement plans

A new IRA could help small businesses offer their employees a retirement plan.

Legg Mason Inc. and two partners will begin offering a new retirement product aimed at small businesses and their employees.

The EZ-IRA is designed to overcome hurdles that limited small-business access to such retirement investment vehicles, leaving many workers unprepared for retirement. Small-business owners often balk at the expense and liability of offering their employees a retirement plan, and rarely do employees without an employer-sponsored plan sign up for one on their own.

Meanwhile, few financial firms offer plans for small businesses because they tend to be expensive to manage.

Legg Mason organized a roundtable discussion Monday about small-business retirement issues at the Baltimore-based money manager's Harbor East headquarters.

Legg, which is offering the investment options in the plan, is partnering with two Florida companies — Tampa-based retirement plan manager Aspire and Sarasota-based insurance company Cennairus Financial. Aspire is handling account processing while Cennairus will oversee the process of signing up payroll companies to sell and administer the plans.

"You're overcoming participant apathy," said Pete Kirtland, the president and CEO of Aspire Financial Services, one of the partner firms.

Officials with the three firms said payroll deduction was key to employee participation.

About 89 percent of employees who don't have access to a retirement plan at their jobs have saved less than $10,000, according to a March national survey by the Employee Benefit Research Institute. But when employer plans are offered, more than 71 percent of workers making between $30,000 and $50,000 sign up for the account.

In Maryland, there is interest from lawmakers in requiring companies with more than a few employees to offer retirement plans; this year, Gov. Martin O'Malley formed a task force headed by former Lt. Gov. Kathleen Kennedy Townsend to study the issue. Lawmakers in states including Massachusetts, Oregon and Ohio also have introduced bills to expand retirement options to more private-sector employees.

"There's no doubt there would be a need for it," said Mark Marszal, an agency relationship manager at Payce Inc., a Towson-based payroll firm. "[Employers] realize that this is an easy way to do it, and there's no cost for the employees. And their employees have a retirement plan and they have no cost."

The EZ-IRA will cost $5 a month for participants and have no fees for employers, said Gary Kleinschmidt, Legg Mason's head of retirement sales.

Such a product is unusual because it's a technological hassle to pull in retirement data and records from a multitude of small companies that may have different styles and methods of record-keeping, said officials of the partner companies.

"From the adviser's side, it was always too complicated," said Murray Carter, the senior vice president for wealth management at Philadelphia-based financial services firm Janney Montgomery Scott, which is offering the EZ-IRA. "So it was always something that was passed off."

But for the EZ-IRA, the firms will offer it through payroll companies that already keep that data. Cennairus, which offers workers compensation policies, can link electronically to more than 4,500 payroll companies, giving the partners potential access to 13 million employees.

State Sen. Jim Rosapepe, who co-sponsored a bill to create a state-sponsored, nonprofit retirement plan for private-sector employees this year, said he thought the EZ-IRA could overcome some of those hurdles.

"The economy of scale is such that the financial industry goes after the higher-paid employees at large companies," Rosapepe said. "The working class employees at smaller companies — they don't think it worth their time."

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