SAN DIEGO – Oregon’s about to do it, Connecticut isn’t far behind and even more states are expected to join Illinois in setting up their own savings programs, according to a presentation Sunday at this year’s NAPA 401(k) Summit.
The motivation to do so is partly about helping Americans save for retirement. But state lawmakers around the country also are worried about the expense of caring for an aging population without the means to do so on its own.
“That’s why I don’t think this concept needs to be a partisan concept,” Illinois state Sen. Daniel Biss said.
Of course, it has been, to one degree or another. But there's no doubt more states are exploring the idea.
Biss, a Democrat, is a big proponent, having sponsored legislation creating the nation’s first state-based IRA.
“But this isn’t just about Illinois,” said his host, Brian Graff, the CEO of the American Retirement Association, the parent of the National Association of Plan Advisors. Graff showed the audience a map in which 19 states were highlighted as having introduced or are considering similar legislation.
Generally, the legislation wending its way through these state legislatures is designed to place as little responsibility on employers as possible. Their primary requirement would be to use payroll-deduction systems to see that about 3 percent of employees’ compensation is deferred to the state plan. Employers would assume no fiduciary liability for the plans’ performance.
In Illinois, the law requires businesses with 25 or more employees that don’t already provide a retirement plan to auto-enroll workers into an IRA. Employers not willing to participate will be subject to an annual $250 fine per employee.
Biss said he was motivated to act in light of the “overwhelming level of anxiety and confusion” surrounding retirement.
“People are frightened,” he said, about their lack of what the industry calls “retirement readiness.”
Graff noted the problem isn’t present in low-income households alone, citing statistics that rougly 20 million workers earning between $30,000 and $100,000 a year don’t have access to an employer-sponsored retirement plan.
Graf noted that not having enough money for retirement is now the No. 1 worry for many Americans. Just 52 percent of households headed by a worker aged 55 to 64 had a 401(k) account in 2013, according to the Center for Retirement Research at Boston College; the median balance among households nearing retirement that had accounts was just $111,000.
On the other hand, middle-class workers are 15 times more likely to save for their families’ retirement when they have a workplace plan as when they are on their own, according to Sunday’s presentation.
Biss acknowledged that, typically, business lobbying groups are “instinctively” opposed to these efforts out of fear of any new government mandates. But in Illinois they came around, he said, after he worked “slowly, methodically” to bring them to a “position of neutrality.”
That happened, he said, after it became clear the state wouldn't just “issue a mandate and walk away.”
“We made it essentially free to employers and there’s no liability or fiduciary responsibility,” he said.
That’s why even a tea party favorite such as Indiana’s Richard Mourdock, the former treasurer of his state, is a supporter of efforts there to establish a state-sponsored plan.
“This (trend) is not going away,” Graff said.