How States Are Planning to Fix the Country’s Retirement Crisis

By Yuqi Wang, Economic Policy Analyst, NCLR


A secure retirement is a right of all workers, yet 45 percent of working-age households in the U.S. do not have either an employer-sponsored retirement plan, such as a 401(k), or an Individual Retirement Account (IRA). For Latinos, the data paints a starker picture: 60 percent of Latino workers do not have access to an employer-sponsored retirement plan, which is among the most effective ways for people to save for retirement.

Having states provide auto-enroll IRAs to private sector workers who don’t have access to such benefits through their workplaces and who tend to be lower-income is one effective solution. State-based retirement plans benefit employees of small businesses where 50 percent of employers don’t offer retirement plans. It also allows employers to provide IRAs to employees without requiring the employer to sponsor or contribute to the IRAs. Workers who participate are automatically opted in to a retirement savings account that takes out a predetermined amount from monthly paychecks and saves it in the IRA. Workers also have the option to opt-out at any time. Several states already passed legislation enacting these plans (e.g. California, Connecticut, Illinois, Maryland, and Oregon), with 27 more states considering this or other program variants.

However, Republican members of the House and Senate introduced resolutions blocking the Department of Labor (DOL)’s 2016 rule which allows states to create such retirement savings programs. The House voted to block DOL’s rule, and it looks like similar resolutions introduced in the Senate may soon face the same fate. Those opposed claim that state plans provide workers with less control and assert that such plans are redundant and ineffective – neither of which are based on facts.

However, state-based IRA plans fill an important gap left open by Wall Street mutual fund companies. Such companies could have been engaging lower-income workers or small businesses at any time to provide accessible financial products to them. Yet to date, they have not made a real effort nor showed interest in serving those employers or their workers. Plus, these plans are an option for small companies that can’t afford or don’t have the infrastructure to provide retirement plans to their employees. This gives small businesses a competitive edge against other larger employers, because even if they can’t offer retirement benefits, workers will still have access to an IRA. According to Pew Charitable Trusts, 86 percent of small and mid-size businesses that don’t offer retirement benefits were in favor of state-based plans.

In states that passed retirement legislation, more than 13 million Americans would gain access to workplace retirement plans. However, at the time of writing the Senate has not voted on the resolutions, and the likelihood of the Senate voting in favor to block states’ progress on these retirement accounts is high. California recently decided to do what is right for workers by continuing to implement their plan, regardless of Congress’s decision. I strongly urge other states that are considering similar programs, and those that are in the process of establishing them to stay the course. The future of working Americans should not be decided by congressional lawmakers who have no sense of what will benefit workers, and their ignorance should not deter states from filling a gap that will ensure more than 13 million workers can have a secure retirement.

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