Ga. — Malcolm Reid and Stewart Nelson-Reid, both 58,
have been together for 18 years. They’ve had a blast
— traveling, skydiving and riding roller coasters
around the country.
they haven’t done is save much money for retirement.
For years Malcolm Reid, a manager at AT&T,
contributed only a small amount to his 401(k). His
spouse, a freelance makeup artist, has no retirement
don’t know what we were thinking," Reid said.
"We were spending money like crazy. We traveled. We
bought clothes. We ran up credit card debt. Now, we’re
watching every penny."
aren’t alone: A recent federal report found about 55
percent of households with workers between 55 and 64
have less than $25,000 in retirement savings. Malcolm
Reid has saved a bit more than that — $38,000 — but
far less than what he’d need to support himself during
a retirement that might last decades.
many Americans, a major barrier to saving more is that
their employers don’t offer a retirement plan. Between
2010 and 2014, 42 percent of full-time, private sector
workers between 18 and 64 — about 30 million people
— did not have access to an employer-sponsored plan,
according to a study by the Pew Charitable Trusts (Pew
also funds Stateline).
fill the gap, since 2012 at least 31 states have
considered setting up state-sponsored retirement savings
plans for private sector workers, according to Pew. This
year, legislators in more than a dozen states introduced
states have approved state-sponsored retirement programs
for private-sector workers. In Massachusetts, the
treasurer would handle contributions and investments for
the voluntary program, which would be only for small
Illinois, Maryland and Oregon have approved mandatory
programs in which a small percentage would be
automatically deducted from an employee’s paycheck and
put in an IRA in a financial institution, although the
person could opt out. Employers would play a minimal
role, providing information about the program to workers
and sending payroll deductions to the state, but not
offering financial advice or assistance. None of the
programs require employers to match employee
Maryland’s program, employers that don’t enroll
their employees must pay a standard $300 filing fee. But
there is no penalty for failing to participate in the
Jersey and Washington state have adopted a
"marketplace" model, in which the states would
create an online exchange and set basic standards for
eligible retirement plans.
states would rely on the existing private market to
provide the plans, as well as help educate small
businesses about their options and encourage them to
offer one to employees. Participation would be voluntary
for small businesses and employees.
Illinois, which hopes to launch its program in June
2017, businesses with at least 25 employees that don’t
offer retirement plans would be required to participate.
Employees would be enrolled unless they opt out, and 3
percent of their wages would be placed in a Roth IRA,
although they could change the percentage.
who lack access to retirement savings options need and
deserve help. The number of families and workers who are
in trouble is just terrifying," said Democratic
state Sen. Daniel Biss, who sponsored the measure, which
passed in 2014 on a party-line vote, with only one
Republican voting in favor.
one of the biggest boosters of state-sponsored
retirement funds, says auto-enroll programs like the one
in Illinois will best help retirees become more
Security is not enough. People need that private
savings," said Gerri Madrid-Davis, AARP’s state
advocacy director. The average monthly Social Security
retirement benefit as of January was $1,341.
boomers, Americans between the ages of 52 and 70, are in
especially dire straits. More than four in 10 will not
have enough income to support themselves when they call
it quits, according to a report by the Employee Benefit
Research Institute, or EBRI, a nonprofit, nonpartisan
think tank based in Washington, D.C.
companies no longer offer pensions, as they did when
boomers’ parents were in the workforce. Nearly 30
percent of households age 55 and older have no money
saved in a 401(k), IRA or pension.
some boomers who did try hard to save dipped into or
drained their retirement accounts to buy or repair their
house or pay medical bills or college tuition; some lost
jobs during the recession. "A tremendous number of
people aren’t ready," said Jack VanDerhei of EBRI.
"It’s a serious problem."
AARP’s Madrid-Davis said younger Americans will
benefit most from the state efforts to set up retirement
savings programs because they’ll have more time to
accumulate savings. But the programs would help boomers,
too. Many are expected to work well past traditional
retirement age. The Bureau of Labor Statistics projects
that by 2024 nearly 22 percent of those 65 and older
will be in the labor force, compared to 12 percent in
programs are hugely important to boomers,"
Madrid-Davis said. "Most of them don’t have
pensions like people used to and a good number have
nothing saved for retirement."
said AARP prefers that states create auto-enroll
programs because many employees forced to put a small
percentage of their savings into a retirement account
won’t bother to opt out. "It’s trying to get
inertia to work in people’s favor," she said.
the programs would save tax dollars down the road,
Madrid-Davis said. "The states know at the end of
the day, if you have a large number of retirees who don’t
have the financial resources, they’ll need support
with health care, housing and food that generally comes
from local and state government. Ultimately, the states
will be the ones footing the bill."
financial services industry and some groups representing
small businesses, such as the National Federation of
Independent Business, have opposed much of the
legislation to create mandatory auto-enroll retirement
of these critics say they support efforts to educate
workers about saving for retirement, but they don’t
think states should force employers to offer plans. Some
say it will create administrative and regulatory burdens
on small businesses.
Mangan, a regional vice president for the American
Council of Life Insurers, which represents financial
companies that offer 401(k)s and annuities, said
employers already have access to a "vibrant
market" if they want to offer retirement plans.
"They can work and will work for employers who have
the time and energy to get a plan in place," he
said mandatory auto-enroll programs would create an
unlevel playing field, especially if they are exempt
from the federal Employment Retirement Income Security
Act, which sets out strict rules and standards for
private-sector employers and retirement plans and
provides financial protections for workers. That would
mean plans that are part of the state-sponsored program
wouldn’t be subject to the same requirements as other
not afraid of fair competition. We face that every
day," Mangan said. "Our concern is that states
are proposing to operate a plan under different rules
than we operate our plans under."
said his group prefers the marketplace model adopted in
Washington state. "It’s completely voluntary for
employers and taps into an existing private
marketplace," he said. "It attempts to connect
private providers to small employers who need a plan and
might not know where to turn."
California, the state Chamber of Commerce is opposed to
a mandatory auto-enroll bill under consideration, unless
it is amended. The measure was approved by the Senate
last month and is awaiting action in an Assembly
Fisher, a chamber lobbyist, said her group is worried
that employers won’t be protected from liability.
small-businessperson may inadvertently make mistakes in
the way they administer their responsibilities under the
plan or the way they interact with employees and then
they could be liable for any losses or problems that
occur," she said.
said her group also is concerned about the program’s
costs. A recent analysis estimated California would need
to borrow $134 million from its general fund for a
startup loan. The loan would then be repaid using a
trust fund supported by employee contributions.
think the cost to develop the infrastructure to
administer this brand spanking new program is going to
be fairly large," Fisher said. Employees may wind
up being "very disappointed in their returns,"
she added, because the startup and administrative costs
would come out of their investment funds.
critics of auto-enroll programs question how much
employees will be able to save, if just a small
percentage of their paycheck goes into an IRA. Research
has shown that a 3 percent automatic contribution would
have only a modest impact on their long-term savings.
the AARP’s Madrid-Davis said any savings is better
than none, and some programs allow for an automatic hike
in employee contribution rates over time, which would
help nest eggs grow.
can really build a great state program,"
Madrid-Davis said. "And if you build it, they will