It should be easier to save money for retirement. We can all agree on that, right?
But about half of all Americans who work in the private sector do not have access to an employer-based retirement plan like a 401(k). Federal legislation to increase those numbers has not amounted to much. And fledgling state efforts, while welcome, seem most likely to create the same confusion we now have with college savings and the patchwork of differing 529 plans all over the land.
A requirement that employers siphon money out of every employee’s paycheck and put it into a retirement savings plan (unless the worker opts out) would both promote self-reliance and create a foundation for a safety net. So is it too much to hope that a president-elect who promised to throw the rope back to people who feel left behind might agree to something like this?
First, let us consider the facts on the ground and bow our heads in collective shame. We are decades out from having more or less abandoned private pensions, yet we have replaced them, in many instances, with nothing at all.
? Of the roughly half of private sector workers who do not have workplace savings plans, according to a 2015 Government Accountability Office study, many work for small businesses, the engines for supposed growth and prosperity.
? People could save on their own, and they should if they can possibly afford to. But absent the ease of payroll deduction, they mostly do not. Sarah Mysiewicz Gill, senior legislative representative for AARP, said that people with a workplace plan that automatically enrolls them are about 15 times more likely to save than someone who is left to shop brokerage firms for an individual retirement account.
? The savings plan gap is a problem in red states and blue states. The 12 large metropolitan areas with the lowest access to workplace plans, according to a Pew Charitable Trusts study this year, are in just three states: California, Florida and Texas.
Set against this abysmal reality, there were attempts at federal legislation that would have created something called the Automatic I.R.A. I wrote about it in detail in 2009. Nothing ever passed.
The federal government already has an outstanding workplace savings plans for its own employees: the Thrift Savings Plan. Given that it’s cheap and has simple, prudent investment choices, why not open it up to the tens of millions of savers who have no workplace plan at the moment?
Senator Marco Rubio, a Republican from Florida, has proposed doing just that. Senator Jeff Merkley, a Democrat from Oregon, well aware of the fact that entrenched lifers in Washington do not want to share their great plan with others who have no plan lest it cost too much or make things too complicated, introduced legislation that would create a sort of shadow Thrift Savings Plan. Neither proposal has gained much traction.
So the ease-of-saving advocates have taken their efforts to the states, where lawmakers have been more receptive.
California, Connecticut, Illinois, Maryland and Oregon have passed laws requiring employers of various sizes to offer workplace retirement plans. If those employers use plans that the states have created instead of signing up workers for private sector plans, they must automatically enroll employees.
New Jersey and Washingtonwill soon have marketplaces intended to make it easier for small employers to find low-cost plans, and Massachusetts is setting up a program for nonprofit employers.
This is far better than nothing, but these are all blue states. Why? After the Affordable Care Act, legislators have been resistant to any new mandates, according to John Scott, the director of the Retirement Savings Project at the Pew Charitable Trusts.
Pew’s focus groups have turned up skepticism too, given the problems with both the underfunded state pensions and the leadership at the highest levels of state government.
“In Illinois, someone mentioned the fact that they’ve had two governors in jail,” he said.
This is unfortunate. While employers are not fond of mandates, hooking up payroll to a savings account is not a lot to ask. Resistance to government oversight is understandable, but state legislators are mostly looking to keep fees low and investments simple.
And maybe that is precisely the problem.
Todd Weiler, a Republican state senator in Utah who posts his mobile phone number on his website for anyone who wants to reach him, saw his own workplace savings plan bill go down the drain after many members of the financial services industry lined up against it.
He says he believes they did not want to compete for the state’s stamp of approval, since competition might have made working with the state’s plan unprofitable or close to it, or brought unwanted attention to other high-cost plans that their customers already had.
Still, that hasn’t tempered his enthusiasm for these plans.
“I approach this issue with sound conservative principles of fiscal responsibility,” he said. “And what is true in Utah is true nationally. The free market has somewhat failed us, for some reason.”
That failure could be expensive, and soon. AARP commissioned a study in Utah that found that nearly one in 10 new retirees qualifies for over $2,500 a year in government assistance. Increasing the net worth of the poorest third a bit over 10 percent (or just $14,000 in savings over their career) would decrease what the government had to spend on social programs for them by $194 million over the next 15 years. Self-reliance, for the win.
Mr. Weiler can’t quite bring himself to support a mandate, though. (His bill would have offered tax breaks to employers who participated and an endorsement for low-cost plans.) “It just goes against my political ideology,” he said.
In Washington, however, we have a new president whose ideology is unpredictable but who spoke passionately this week about the forgotten men and women of our country. In the nation he now leads, we once put many more people into private pensions and we continue to force most people to participate in Social Security.
Still, most people don’t save enough for retirement and many save nothing at all. The need to give employers a nudge — or a shove — toward helping workers save more should be neither divisive nor debatable
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