N.Y. weighs variation on state-run IRA plan
State works on voluntary small-business incentive
ALBANY, N.Y. — New York is among a growing number of states considering legislation to create government-sponsored payroll-deduction retirement programs for small businesses, which financial planners say could be a relatively painless way to help Americans reverse a dismal record of saving for their golden years.
Personal finance expert Jean Chatzky noted that 52 percent of American households age 55 or over have no retirement savings, leaving them with only Social Security. She’s working with AARP in New York and other states to lobby for an individual retirement account plan with state oversight for small businesses that allows workers to have a portion of their paychecks set aside automatically.
“In my book of money rules, my favorite one is: ‘If you can’t see it and can’t touch it, you won’t spend it,’” Chatzky said. “That’s the magic behind the 401(k) and other work-based retirement plans. The problem for 3.5 million New Yorkers is that they don’t have access to one.”
With an estimated 55 million Americans lacking access to retirement plans at work, 40 states have considered legislation since 2012 to establish state-facilitated retirement programs for private-sector workers. Five have enacted state-run programs and two, New Jersey and Washington state, have launched marketplaces connecting employers with low-cost private-sector retirement plans.
It’s similar to initiatives launched in California, Connecticut, Illinois, Maryland and Oregon but with a key difference: Participation by businesses would be voluntary in New York, while the other five states mandate that companies meeting a certain size threshold automatically enroll all employees.
Mandated state-run retirement savings plans have gotten pushback from businesses and congressional Republicans who say they stifle private competition, impose onerous regulations and expose employers to lawsuits.
Last year, President Donald
Trump signed legislation revoking an Obama-era Labor Department rule designed to provide a legal safe haven for the state programs, which Senate Majority Leader Mitch McConnell called “more government at the expense of the private sector and American workers.”
In California, where a program administered by a state board will automatically enroll nearly 7 million workers starting in 2019, critics say it could expose taxpayers to a costly bailout if the investment fund plummets during the next recession.
California Republican state Sen. John Moorlach, a certified financial planner, said low-income workers don’t save because they can’t afford to. He noted that the federal government closed the Obama-era myra program last summer for lack of demand.
The Treasury Department said the myra program, launched in late 2015 for people without access to a 401(k) or other workplace retirement plan, had about 20,000 funded accounts with an average of $1,500 and would have cost taxpayers $10 million a year to maintain.
Katie Chaisson, 27, a baker at the Psychedelicatessen bagel bistro in Troy, said putting money aside would be easier with an automatic payroll deduction.
“Now that I have a son, I think about saving for the future more than I ever did before,” she said.