Several states have, or are considering, state-sponsored retirement savings plans for private-sector employees who do not currently have access to such a plan through their employer. Senate Bill 19-173 will add Colorado to that growing list.
SB 19-173 will examine:
- What would it cost if Colorado does nothing to help the 45 percent of private sector workers without retirement plans at work save more for their future?
- Can increasing financial education make a serious impact on how much Coloradans save?
- Would it make a significant difference to have a marketplace that offers businesses lower-cost plans?
- Can Colorado follow in other states’ footsteps to create a universal, portable plan that will allow everyone to automatically deduct part of each paycheck and deposit that into an IRA?
In the coming months, State Treasurer (and PERA Trustee) Dave Young will oversee analysis of these options, and come back to the Legislature in February 2020 with an implementation plan for the best way to fix our state’s retirement crisis.
State-sponsored retirement plans are one way states are trying to address the concern that workers are ill-equipped for retirement. Those without adequate retirement savings could become a costly burden to states and municipalities if they lack any financial resources as they age out of the workforce.
The AARP cites research showing that workers are 15 times more likely to save for retirement if they have access to a payroll deduction savings plan at work. Yet a thorough analysis of retirement savings readiness from the National Institute on Retirement Security found that many U.S. workers don’t have access to a workplace retirement plan. In 2013, nearly half (45.5 percent) of private-sector workers did not have access to a retirement plan at work. Retirement access in Colorado looks similar to the rest of the country: about 45 percent of workers do not have access to retirement savings plans through work, according to an analysis of U.S. census data from The Bell Policy Center.
Previous studies have found that younger workers, members of minority groups, and those with low-to-moderate incomes, in particular, have especially low rates of access to workplace savings plans. Access to retirement plans is particularly prominent among those working for small businesses.
The Center for Retirement Research at Boston College cites administrative costs and concerns, along with uncertain business revenue, high employee turnover, and a preference for cash wages as different reasons that small businesses, in particular, do not offer retirement plans.
Several states have taken the lead and established these retirement savings programs (see below). Most of these plans include key features that are designed to encourage retirement savings, such as automatically enrolling employees, using payroll deduction, and automatically increasing contribution amounts over several years. Typically, the plans establish IRAs for workers and cover administrative costs through fees charged to workers’ investment accounts. Generally, the laws require that all employers, at least with a minimum number of employees, must participate unless they offer an alternative retirement plan. The plan designs allow for portability where workers can rollover their savings if they go to work for an employer that offers a retirement plan or if they move to another state. The laws establishing these new plans have also included the creation of oversight authorities that will administer the programs.
The following information provides a summary of key features of several states’ retirement savings plans for private sector workers.
State-Sponsored Savings Plans
CalSavers, California’s plan for private-sector retirement savings, is in a pilot stage and will begin registering employers with five or more employees beginning on July 1, 2019. By June 29, 2020, all employers with 100 or more workers that do not offer another retirement savings plan are required to register. Over time, smaller employers will be required to register, with those with five or more employees required to register by June 30, 2022.
The Connecticut Retirement Security Authority was created in 2016 through an act of the Connecticut General Assembly. Though the law allowed the program to begin effective January 1, 2018, the program launch has been deferred to an unspecified future date. The authority will implement a program that will require participation of employers with five or more Connecticut employees that do not already offer a retirement plan.
Illinois Secure Choice launched in early 2018. By November 2018, all Illinois employers with 500 or more workers that have been in business for more than two years and do not offer another retirement plan were required to register. All employers with 25 or more employees are required to register by November 2019.
Maryland $aves, designed by a legislative commission and signed into law in 2016, is the retirement savings plan required of Maryland businesses that do not offer their own workplace retirement savings. The program is expected to start operations in late 2019.
The New Jersey Secure Choice savings program was signed into law on March 28, 2019. It is designed to help workers whose employers don’t provide their own retirement savings plans through automatic payroll deductions. Workers at employers with 25 or more employees will be automatically enrolled in the program.
Oregon was the first state to implement a state-sponsored retirement plan in 2017. By December 15, 2018, all employers with 20 or more workers were required to register with the plan or certify that they are exempt (already offering an employer-sponsored retirement plan, such as a 401(k)-type plan). Over time, smaller employers will be required to register, with those with four or fewer employees required to register by May 15, 2020.
Washington’s Small Business Retirement Marketplace, operated by the Washington Department of Commerce, is a central online platform where pre-screened financial services firms offer low-cost retirement savings plans to businesses and individuals. The Marketplace is an effort to simplify the process of finding a retirement savings plan and making it easy to compare plans that have been approved by the state.
New York approved Secure Choice legislation in 2018 to begin creating a program in 2019.
For more information:
Several other states are also considering legislation.