A retirement readiness crisis is looming in the US, with women, minorities, and low-income workers particularly unlikely to have sufficient savings to retire at a reasonable age, if ever. A Pew Charitable Trust study earlier this year found that more than 40 percent of full-time private sector employees lacked access to either a pension or an employer-provided retirement plan like a 401(k).
To help close this gap, the federal government last year introduced the myRA, a retirement account marketed to low-income individuals that invests in the securities investment fund and promises no risk of losing money—but critics of the myRA have questioned its utility as a retirement savings vehicle. Several states, meanwhile, are experimenting with a different approach: California, Oregon, Illinois, Maryland, and Connecticut have all passed laws requiring employers to either provide a retirement plan for their employees or connect them to a portable, state-run option.
These states are home to one in five Americans, so the success or failure of these programs could have a big impact on how Americans save for retirement and the government’s role in encouraging them to do so. Bloomberg’s Ben Steverman checks in on these programs, looking at what the states are currently working on and the challenges ahead:
The retirement accounts are designed to be far simpler than a health insurance policy, and states are giving themselves plenty of time to set up the programs and get the details right. Oregon is expected to go first, opening a pilot program next year. California is rolling out its plan gradually, starting with the largest employers and slowly working its way down to small businesses. The law creating Secure Choice was signed by Governor Jerry Brown on Sept. 29; the mandate on the smallest California businesses isn’t expected to go into effect for five years.
Big questions still face the five state plans. Will fees be sufficient to cover the plans’ costs without using taxpayer money? Will the employer mandate prompt more companies to set up their own retirement plans, rather than link workers to the state system? That might be good for workers, especially if increased competition improves the often-inadequate 401(k) options for small businesses but might rob the state systems of fee-paying participants.
Another question for these states is whether the federal government will continue to support their efforts after Donald Trump becomes president in January. In August, the Department of Labor issued a new rule encouraging the development of automatic-enrollment, payroll-deducting IRA programs (“auto-IRAs”)—the model for these state-run plans—by exempting them from the Employee Retirement Income Security Act (ERISA). This is one of many workplace-related rules and regulations introduced by the Obama administration that the Trump administration may change or rescind. While Trump himself appears to favor auto-IRAs, his position may change, or Congressional Republicans may choose to overturn the rule.