States pursue plans to help workers save for retirement
CHICAGO — States are moving forward with new initiatives to help workers save for retirement, even as the Republican-led Congress tries to block rules making it easier for them to do so.
Studies show a sharp divide in retirement savings between those who have employer-sponsored plans and those who do not. The state programs are designed to fill in the gap.
Dozens of smallbusiness owners recently gathered in Schaumburg, Illinois, to learn about the new state-sponsored retirement savings initiative, “Secure Choice IRA.” Officials said it could help about 1.2 million workers who don’t have access to employer-sponsored retirement plans.
“It’s clear there’s a retirement crisis,” Illinois Treasurer Michael W. Frerichs told the small business owners. “This is a problem not only for the families but for all of us.”
Seven states — California, Connecticut, New Jersey, Maryland, Oregon and Washington, in addition to Illinois — are in various stages of implementing state-sponsored retirement savings plans.
California’s plan will automatically enroll about 6.8 million employees. Employees can opt out of the plan and employers are not required to match contributions. Payroll deductions are expected to start in 2018.
The plans with automatic payroll deduction are IRAs and are taxdeductible, which means employees get a tax intensive because they don’t pay federal taxes on the money saved for retirement until they’re withdrawn.
The state programs were helped along by Labor Department rules governing automatic enrollment and payroll deductions. But Congress voted to block those rules on Wednesday.
“Our nation faces difficult retirement challenges, but more government isn’t the solution,” Rep. Tim Walberg, R-Mich., the chairman of the House subcommittee on Health, Employment, Labor and Pension, said in a statement. “A better way is to reduce costly red tape and make it easier for small businesses to band together to offer retirement plans for their employees.”
Walberg said there were concerns that these new retirement plans discouraged small businesses from offering private-sector plans and had inadequate safeguards.
At least 30 states have considered proposals to study or establish statesponsored retirement savings plans over the past five years, according to the Center for Retirement Initiatives at Georgetown University.