While states are starting to realize they need to step up and help private sector employers better prepare their employees for retirement, Americans continue to fall short in meeting their economic needs in retirement.

The National Institute on Retirement Security examined key economic factors in each state, including the costs retirees face, the job opportunities available for older Americans and the amount they have to pay out of pocket for Medicare expenses, to determine how financially secure older Americans are in each area.

“When we look at our findings, one thing becomes clear: there is room for improvement in one or more measures of financial security for all retirees,” said Diane Oakley, executive director of NIRS.

Every state, even ones that scored fairly high in NIRS’ State Financial Security Scorecards research project, has potential sources of economic insecurity that need to be addressed and deserve policy attention, she added. The scorecards “help identify priorities for the lowest performing states but clearly indicate that every state needs something done,” she said.

Also see: State pension plan benefits on the decline

California, Florida and South Carolina were the lowest ranking states in the study. California had low potential retirement income, low workplace retirement plan access and high retiree costs. Florida had high retiree costs, low wages for older workers and low workplace retirement plan access. South Carolina had low potential retirement income and low labor market scores, the report found.

Wyoming, Alaska, Minnesota and North Dakota ranked the highest in the study “due to their relatively strong labor markets and lower retiree costs,” the report said. But even these states were weak in terms of potential retirement income for retirees. North Dakota, for instance, had an average defined contribution retirement account balance of $27,700 in 2012, “nowhere near the level of accumulated savings required to ensure self-sufficiency through retirement,” the report said.

“No state does well with regard to retirement plan coverage,” Oakley said. “On a national basis, the level of participation in defined benefit and defined contribution plans declined across the states.”

She pointed out that even Iowa, which had 54% of individuals covered by a retirement plan, had only had 54% of its workers covered by a plan. The average across the country is 46%.

Also see: Retirement benefits in 2015: What employers need to know

For the scorecard, NIRS looked at retiree income, including private workplace retirement plan participation and DC plan account balances. It also looked at the marginal tax rate on pension income. Retiree costs in retirement also figured into a state’s score, including a look at out-of-pocket expenses for Medicare copayments and deductibles and the amount each state spends per elder beneficiary of Medicaid. Housing cost burden was measured by looking at the number of households in each state where 30% or more of their income is required for housing costs.

Labor market measures were also factored in. NIRS wanted to find out what the unemployment rate and median hourly income was for people over the age of 55 in each state.

NIRS found that the average retirement plan participation rate was 46%; the average defined contribution plan balance was $30,345; and the average tax rate on pension income was 4%.

Illinois was the highest scoring state when it came to retirement income, with an average account balance of $45,600 in 2012.

Oakley pointed out that even the higher-than-average account balances are not enough to keep individuals financially secure in retirement. That is why state initiatives to help small employers offer retirement benefits to their employees are so important.

“What government has figured out is that if people don’t have a pension, those costs are going to be borne by government so government better figure out how to help private businesses to develop retirement security for their citizens,” said Kathleen Kennedy Townsend, former Lieutenant Governor of Maryland and the chair of Maryland’s Task Force on Retirement Security for All Marylanders initiative.

Also see: Retirement readiness battle: Boomers vs. Gen X

“The retirement savings shortfall has become increasingly important at the state level because policymakers know it can have a deep impact on strained state budgets,” Oakley said. “The largest source of retirement income for most Americans is Social Security, but this critical federal program typically provides only a part of the income working families need to be self-sufficient. State programs must fill the gap and help Americans meet their most basic needs for food, shelter and medicine.”

Laws have already been enacted in five states, including Massachusetts, California, Illinois, Washington and Oregon and 20 other states are looking at enacting laws. Each state is approaching the problem in a different way. Some states are making it mandatory for employers to participate in a statewide retirement plan if they are not already offering retirement benefits to their employers. Some plans are voluntary. A few states are looking at setting up a system that would allow employees to contribute to an IRA through payroll deduction, while others are looking to pool retirement assets across the state in one state-run retirement plan.

“Many of us in this area were encouraged and applauded the announcement by the President at his Conference on Aging where he directed the Department of Labor to begin the process of writing rules to modify ERISA (the Employee Retirement Income Security Act of 1974) so state initiatives will be acknowledged and hopefully will be protected going forward,” said Hank Kim, executive director of the National Conference on Public Employee Retirement Systems.

The DOL has between now and the end of the year to gather information and have informal conversations with the various stakeholders before proposing preliminary rules at the end of the year.

Kim said he hopes the final rules will give states “clear guidance on what is appropriate relative to federal ERISA rules related to their state initiatives on retirement security.”

Paula Aven Gladych is a freelance writer based in Denver.

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