Retirement Plans At Every Employer! Is Your State
Next?
Paid sick leave, raising the minimum wage, commuter benefits. Whatfs nextnext on the list of items employers
are going to have to offer their employees? Retirement
benefits.
Doesnft anyone with earned income already have the ability to save for
retirement in a traditional Individual Retirement Accounts and/or Roth IRA? Yes.
But that takes effort. What really gets workers to save is the availability of a
workplace retirement plan with payroll deduction (a chunk of your pay
automatically goes into your retirement account) and automatic enrollment (you
can opt out, but otherwise youfre signed up). Thatfs how more and more 401(k)
retirement plans, a given at large employers, work.
Yet there are 55 million workers who donft have a way to save for retirement
at their workplace, and of those, only 5% take the steps to open an IRA. gSo
thatfs not working; therefs something wrong with the way individuals are
interacting with products that currently exist,h says Sarah Gill, a senior
legislative representative at AARP.
Enter the states. The Obama Administration tried to come to the rescue with
its myRA proposal—a starter IRA that would be available through your
employer–but Congress has dithered. Meanwhile states have taken up the cause:
employers (the size varies by state) would have to provide a retirement savings
plan. Advocates say these state-sponsored retirement savings plans could help
millions of private sector employees not covered by workplace retirement plans
save. States like the idea because the more people save, the less theyfll need
to access state social services. gLegislators are concerned about their state
budgets,h says Gill.
The movement started in 2012 in earnest and now half the states are working
on retirement plans in some form, from feasibility studies to setting up plans.
Illinois and Washington state
are the farthest along (with planned early 2017 roll outs), and they couldnft be
farther apart in how theyfve approached the issue. Note: depending what state
you live in, youfll have access to a vastly different program.
The Illinois Secure Choice Savings Program will automatically deduct a
default 3% from an employeefs paycheck and move the money into a state-run
investment pool. Itfs mandatory for businesses in existence for at least
two years with 25 or more employees (unless they offer another retirement option
to their employees). Oregonfs Governor Kate Brown just this week signed a law
for a similar program, the Oregon Retirement Savings Plan, to debut mid-2017.
New Jersey has bills pending modeled after the Illinois program that could be
acted on this year.
By contrast, Washingtonfs Small Business Retirement Marketplace will serve
businesses with fewer than 100 employees, allowing them to access a digital
portal to find private sector plans such as IRAs, Simple
IRAs and the federal MyRAs (assuming they exist by then). Employers could
provide a match of up to 3% of what employees contribute, much like a workplace
401(k) plan. Participation is voluntary.
Yet another approach is Connecticutfs proposal that would hit employers with just 5 or more workers. Theyfd have to offer an automatic IRA with a default contribution rate to be determined. The plan would work more like a defined benefit plan than an IRA: upon retirement, the money would be paid out as a lifetime annuity with an option to take a lump-sum cash payout. There would be an annual guaranteed rate of return, backed by insurance, and survivor benefits as well.
President Barack Obama has given the state retirement plan movement his blessing. At a White House Conference on Aging this week, he declared his support of state efforts to create retirement savings programs, calling on the Department of Labor to propose a set of rules by year-end that would help states with these efforts. One stumbling block for the Illinois-type plans is for the state to be assured they donft fall under the auspices of the Employee Retirement Income Security Act (ERISA) which comes with all sorts of obligations for employers (and protections for employees).
gWefre trying to c make sure that if youfre working hard out there, even if youfre not making goo-gobs of money and donft have fancy financial advisors and all that, that you can still put away a little nest egg so that youfre protected when you get older,h President Obama said.