During President Obama’s State of the Union address in early 2014, he proposed a federal government-sponsored retirement plan called MyRA (my IRA). Sorry, President Obama, but states such as California, Illinois and Connecticut are already way ahead of you in getting the ball rolling on offering a state-sponsored retirement plan to individuals and businesses.
This is a trend we expect to see going forward. States are finally noticing there is a serious lack of coverage for workers in the United States, those employed by small businesses. A whopping 92 percent of businesses with between two and 20 employees don’t offer a plan: that represents almost 40 million employees and 4 million businesses.
Of those who have the ability to save at work only 46 percent have saved less than $10,000 and 32 percent have saved nothing at all.
Why do states care? They are realizing that their social services – state-based Medicare/Medicaid, housing and food assistance — will be depleted beyond their ability to provide assistance to people in old age. Forward-thinking legislators are looking at those statistics knowing that down the road, there will be serious issues when cash-strapped retirees ask for help. Avoiding that, or even lessening the blow, will require businesses – especially small businesses – to give employees the option to save for retirement.
The states’ efforts vary. For instance, Washington wants to offer a marketplace. However, we feel this will not be effective because there are already options that exist.
Illinois’ progressive legislation goes into effect July 2017. Small businesses in that have been in existence for more than two years and have 25 or more employees must offer a workplace savings program. In order to meet the mandate, businesses have three choices: enroll in a 401k plan, payroll deduction IRA or the state-run system in order to solve the problem.
Most of the states’ proposed programs will auto-enroll employees unless the employee opts out. Auto-enrollment is a very effective tool – 80 percent of participants stick with the plan once they’re enrolled. Because an employer match is not required, there are very little out-of-pocket expenses for the business owner. It only requires a little bit of money and effort to start, especially when compared to the relative benefits.
We haven’t seen any state mandate that requires employees to contribute, but that’s fine. At the heart of it, people simply need the vehicle to save at work.
Critics will say that it’s not worth it, and it won’t make much of a difference. To that, we say that it’s not about the dollar amount because every bit makes a difference.
This is about getting people into the retirement savings system . Once that happens, they will change their behaviors and attitudes toward saving.
We believe it’s a positive step to reduce the impact of the looming retirement crisis, and we will continue to provide insights and updates on the blog as state’s plans evolve.