States Step Up Action To Address The U.S. Retirement Savings Crisis

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Colorado and New Mexico recently announced an innovative approach to managing their new state-facilitated retirement savings programs. under a memorandum of cooperation, the Colorado Secure Savings Program and the New Mexico Work and $ave Programs will collaborate on governance and financial services, marketing, data collection and participant privacy. Such partnerships could provide a cost-effective way for states to help workers who lack employer-sponsored plans save for retirement.

While partnerships on state-facilitated programs are new, these retirement programs are becoming more common across the country. Over the past decade, states have been taking action to address the enormous retirement challenges facing Americans. His efforts are warranted.

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According to the Boston College Center for Retirement Research (CRR), half of American households They won’t have enough retirement income to maintain their standard of living in retirement, even if they work until age 65 and annuity all of their financial assets. A big part of the lack of retirement savings is that retirement plan coverage is not universal in the US. half of the employees Participate in a defined benefit plan or 401(k) account, and this low level of coverage has remained stable for decades.

In addition, workplace retirement plan coverage varies sharply based on occupation, salary level, and part-time/full-time position. According to the Bureau of Labor Statistics’ National Compensation Survey statisticsIn 2019, 84 percent of management and professional employees in the private sector had access to an employer-sponsored scheme, compared to only 41 percent of workers in service jobs. Only 39 percent of workers in part-time jobs had access to a retirement plan, compared to 77 percent of workers in full-time jobs.

Already, some 46 states have either enacted, studied, or considered legislation that would establish state-facilitated retirement savings programs. Georgetown Center for Retirement Initiatives, Currently, 14 states and two cities have implemented state-facilitated retirement savings programs for private sector workers. Six states (California, Connecticut, Illinois, Massachusetts, Oregon and Washington) are open to employers. Massachusetts and Oregon launched programs in 2017, while Washington opened its marketplace in March 2018. The Illinois program was launched in 2018, followed by California in July 2019. Rest of the states are working towards program implementation.

And there have been new developments in Maine, New York and Virginia. I Legislation enacted to create a state-facilitated program for workers whose employers do not offer retirement plans. Starting in 2023, Maine employers with 25 or more eligible employees will set up payroll deductions so that their employees can participate. By 2024, the program will cover employers with five to 14 qualified employees. New York employers that do not sponsor retirement plans will enroll employees in the New York Secure Choice Savings Program. Originally established as a voluntary program in 2018, Governor Kathy Hochul recently signed into law An amendment that requires private employers to enroll employees automatically. In Virginia, lawmakers legislated to make VirginiaSaves program. Now, employers in states with 25 or more full-time employees that do not offer a retirement savings plan are required to automatically enroll employees. Employees will be able to opt out or change their savings rate.

While each state’s effort is different, the most popular type of program that states are enacting automatically transfers workers to medium-risk, low-cost retirement savings accounts referred to as auto-IRAs. Typically, state-facilitated programs require private sector employers who lack retirement plans to provide their employees with access to retirement accounts through payroll deductions. These programs are supervised and administered by the state, while investments are managed by private companies. Workers in states that offer these programs can access these retirement savings accounts when they retire.

From a retirement policy perspective, it’s encouraging that many states are taking action to help employees save for retirement. Equally promising is the fact that there is strong public support for these new retirement programs.

recently national survey finds that a majority of Americans (72 percent) agree that state-facilitated retirement savings programs are a good idea, with high support across party and generational lines. Three-quarters of Americans say they would participate in these retirement programs if they were offered in their state, and most express a favorable view of features like portability and low fees.

It is important to note that these state-facilitated programs provide convenient access to basic financial services, which many believe to be universal, Even more than seven million households do not even have a bank account, By design, these retirement programs are a backstop for employees who lack workplace plans like pensions and 401(k) accounts. Ideally, state-facilitated programs would prompt more employers to offer retirement plans to their employees. Employer-sponsored retirement plans have benefits that are not available to state-facilitated plans, including employer contributions. In fact, Research indicates that more employers in states such as California, Oregon and Illinois are turning to plan sponsorship in response to new state-facilitated programs.

Looking to the future, it will be important to monitor whether these state efforts work as intended to help promote savings while reducing poverty and stress on the safety net. It will also be important to assess and examine the lessons learned from the states along with the ongoing programmes. State-facilitated savings programs, along with actions in Washington, DC, are steps in the right direction to address the dreaded retirement savings shortage facing working Americans.


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