More than 30 states across the country are contemplating new ways to help workers save for retirement. Five states — California, Oregon, Connecticut, Maryland and Illinois — are already implementing new programs aimed at providing better access to retirement savings for the 55 million workers in America whose employers do not offer a retirement plan.
These innovations have strong bipartisan support, from Republican and Democratic state treasurers and other officials, and from small business owners and labor unions. In Maryland, for example, the state’s new “Secure Choice” plan won the approval of a Democrat-controlled legislature and a Republican governor.
Yet these promising experiments to improve the retirement security of America’s workers and their families could come to a screeching halt, if Congress acts to roll back Obama-era rules that gave states a green light to experiment with new ways of promoting retirement savings access.
The legislation, which has passed the House and is now pending in the Senate, would rescind a legal ruling the Department of Labor published last year confirming that employers who participate in the program would not run afoul of a federal statute called the Employee Retirement Income Security Act of 1974, or ERISA. But easing the regulatory burdens that today make it hard for busy small business owners to offer a retirement plan to their workers was the whole point of these state programs.
Under the state initiatives, small business owners and other employers that do not already offer a plan would be required to automatically enroll their workers in a state-sponsored, privately managed individual retirement account (IRA). Employees would get access to the power of payroll deduction to build savings in simple, affordable plans, and their employers would be able to offer a benefit to their workers without taking on more administrative and legal burdens.
Given small business owners’ many competing priorities – including trying to keep the doors open – providing a valuable new benefit without adding yet another item to their to-do list makes a lot of sense. But without the legal certainty that participating employers won’t be subject to federal regulation, it is unclear if and how states will proceed with their programs.
Some have argued that states are ill-equipped to administer IRAs and will misuse the money, but this is wrong. The state laws make clear that the money in these accounts are the workers and the workers alone. They will not be mingled with states’ public pensions, some of which face funding shortfalls, and the programs create no future promise to pay taxpayer-provided benefits. In fact, there is solid evidence that giving workers this chance to save their own money for their own retirement will actually save states billions of dollars, since impoverished seniors often rely on state Medicaid programs to pay for health and nursing home care.
These state programs closely resemble 529 college savings plans, popular programs that are offered in every state and help millions of Americans save for their children’s education. Like 529 plans, these state retirement initiatives will be overseen by state treasurers and administered by the private sector. A bipartisan group of state treasurers, from a wide range of states including Kentucky, Utah, and Indiana, weighed in last month urging Congress to maintain state flexibility and preserve these nascent programs.
We hope that states are allowed to move ahead – to continue to seek innovative solutions to increase the financial wellbeing of their citizens. Stalling promising state efforts without a clear commitment to create a more inclusive, national private savings system for all American families will mean that the retirement security of millions of Americans will continue to hang in the balance.
