State retirement plans may lose funding before starting
Three-quarters of Americans support state efforts to start private-sector retirement plans, according to a survey by the National Institute on Retirement Security, but Republicans in Congress are trying to erase an Obama-era regulation that made it easier for states to host their own plans.
In a showing of bipartisan support, 83% of self-identified Democrats and 72% of self-identified Republicans who participated in the survey said they thought state retirement plans were a “really good” or “pretty good” idea, while fewer than 20% of respondents said the concept was a “bad” one.
“The election served as a wake-up call that Americans are angry about economic insecurity, and we’ve known for years that working families are extremely anxious about their retirement prospects,” says Diane Oakley, executive director of the NIRS. “Today, nearly half of the workforce is shut out of any retirement plan. State legislatures are acting to address this issue and ensure that all workers can save money directly from their paycheck for retirement.”
Many states are set to implement their statewide plans as early as this year. California led the pack, followed by Washington state and Oregon.
“If Congress votes to shut down state efforts through the [Congressional Review Act], it would harm generations of workers struggling to save. Such action would deny 40 million working families the most important first step in preparing for retirement — paying themselves first by making contributions to a retirement account from their salary,” adds Oakley.
Under the CRA, the House of Representatives introduced two resolutions: The first disapproves the rule submitted by the Department of Labor relating to savings arrangements established by states for non-governmental employees. The second disapproves of the DOL rule relating to savings arrangements established by qualified state political subdivisions for non-governmental employees.
“Our nation faces difficult retirement challenges, but more government isn’t the solution,” said Rep. Tim Walberg, R-Michigan, in a statement. “A better way is to reduce costly red tape and make it easier for small businesses to band together to offer retirement plans for their employees. I urge my colleagues to support these resolutions, which are part of a broader agenda to ensure more Americans can retire with the financial security and peace of mind they need.”
Rep. Francis Rooney, R-Florida, said that, “this last minute regulatory loophole created by the previous administration will lead to harmful consequences for both workers and employers. Hardworking Americans could be forced into government-run plans with fewer protections and less control over their hard-earned savings. Employers will face a confusing patchwork of rules, and many small businesses may forgo offering retirement plans altogether.”
According to the Federal Reserve Bank’s Survey of Consumer Finances, 40 million working age households have no money saved up for retirement. Since the Employee Retirement Income Security Act of 1974 was passed, “workers’ access to employer-sponsored retirement plans remains flat, with a slight decline to 55%,” NIRS stated.
The AARP also voiced its opposition to congress voting to block state-based private-sector retirement savings plans.
In a Feb. 7, letter to members of Congress, AARP Executive Vice President Nancy LeaMond urged House members to vote no on the Congressional Review Act resolutions.
Seven states have already approved private sector workplace programs: Illinois, Oregon, California, Maryland, Connecticut, Washington and New Jersey.
LeaMond said in her letter that upending the rule would have a “significant chilling effect” on states adopting workplace plans and that “Congress should support these important state savings programs, not take steps to end them.”
She added that 55 million working Americans don’t have a way to save for retirement at work.
“Despite decades of federal incentives, employer sponsorship of retirement savings plans has remained static. The lack of employer-sponsored savings plans has a direct impact on the retirement readiness of workers because employees are 15 times more likely to save if they have access to a payroll deduction savings plan at work,” she wrote.
Urging workers to save
In the past two years, more than half of states have considered a variety of options to provide employers and their employees with low-cost savings options. In 2016, the Department of Labor issued a rule that said that any automatic IRA program established by a state would have to remove the operational burden of running a retirement plan from small business owners. It basically said that a small business owner’s only interaction with a state-run plan should be facilitating payroll deductions for individuals who want to participate in the plan.
States are trying to do what was done with 529 college savings plans, when they were first devised, create a whole new marketplace to allow Americans to save and to find a way to do it at lower costs, Oakley says.
It is imperative that people have a way to stock money away into savings before it appears in their paycheck. Once it is in a person’s pocket, it is hard to get them to have any left over for savings, she says.
If people are able to save some money toward their retirement and not just rely solely on Social Security, they will be in much better shape if an emergency arises, according to Oakley. The more money retirees have in their pockets, the better the economy will do. Right now, it is the baby boomers who are the driving force behind the U.S. economy, she says.
“I look at these state plans and see them as a win/win,” Oakley says. “ERISA was never able to expand coverage… That’s why states picked it up and are trying to do something.”