Lawmakers across the country are taking a serious look at offering state-run retirement plans for private workers to help people who aren’t saving for retirement on their own and don’t have access to them on the job.
According to data from the National Conference of State Legislatures, six states have considered legislation this year that would create state-run individual retirement accounts for private-sector workers. A handful of other states passed laws in previous years to create task forces and study how to best deliver a publicly run retirement plan to private workers at little to no cost to taxpayers or businesses.
So far, no state has a retirement plan in place, but California and Massachusetts are close.
The reason states are getting involved is because about half of U.S. workers do not have access to a 401(k) or other types of retirement plans. Even though workers without access could open individual retirement plans on their own, backers of state-run plans say people want to save for retirement while on the job.
“This has become a national issue,” said Oregon Treasurer Ted Wheeler. “If people can’t save enough to retire with dignity, there will be costs to society.”
Advocates say the best place to address these issues is at the state level. Data from the National Institute on Retirement Security show that all states’ private workforces are at different retirement readiness levels, so a one-size-fits-all solution coming from the federal level may not be the best idea.
“New York is not going to have the same need as Alabama,” said Hank Kim, executive director and counsel for the National Conference on Public Employee Retirement Systems. “Let the politics and needs of each state dictate how they address retirement security.”
To help states, Kim and NCPERS have created a model called the Secure Choice Pension. It’s a defined benefit cash balance plan where workers’ retirement savings would be shown like a 401(k). Workers would be able to take their savings to other jobs, even out of state, if they left the business where the account was created.
California is the closest to implementing a state-run plan. In 2012, Gov. Jerry Brown signed into law a state-run individual retirement account for private-sector workers. The law requires all businesses with five or more employees that do not offer a retirement plan to automatically enroll workers into the plan via payroll deduction systems that are already in place. The system startup hinges on a market and feasibility study that is due at the end of the year.
Still, several observers think states should stay out of the retirement business for private workers. In Connecticut, where a task force is studying the concept after legislation to create a state-run plan failed this spring, the business community argued that such an idea would create undue competition for existing retirement plan providers as well as thrust more complications on business owners.
“We definitely agree that people should be saving more for retirement, but there is no indication that the [state government] can do this better than the private sector,” said Eric Gjede, assistant counsel for the Connecticut Business & Industry Association. “This would be one more hassle that businesses would have to administer.”
Several states, including Oregon, are studying the process. Wheeler said one of the reasons Oregon is interested is because 98 percent of businesses in the state are small businesses employing half of the state’s workforce. Plus, a 2013 study from AARP Inc. showed half of Oregonians age 45 and older don’t have retirement plans through a previous employer.
“We are looking at the demographic trends of an aging workforce and the public policy implications,” Wheeler said. “There is a role for government to pool resources and to create options for small businesses.”
Patty Kujawa is a writer based in Milwaukee. To comment, email firstname.lastname@example.org.