States Aren’t Waiting for the Federal Government to Act on Retirement Savings

by June 12, 2018
Many Americans make savings one of their New Year's resolutions. This data should jump-start a business story. ("Attack of the Piggy banks" image by "Low Jianwei" via flickr, CC B Y 2.0)

While the federal government deliberates on what could be a retirement savings crisis in the future, states are moving to help alleviate the issue. (“Attack of the Piggy banks” image by “Low Jianwei” via flickr, CC B Y 2.0)

Overall, 58% of working Americans had access to a retirement savings plan at work and 49% participated, so what’s all the ruckus about?

A broader gap with retirement savings emerges if you drill a little deeper, says the Pew Charitable Trusts’ Retirement Savings Project . Approximately 74% of employees who work for large employers (500 or more employees) participate in retirement savings plans their employer sponsors, compared with 22% of employees who work for small employers (10 employees or less).

In March 2017, the U.S. Senate ruled against these plans by 50-49, but since then, 18 states have either launched auto-IRAs or enacted legislation.

Business reporters can follow one or more of these angles on this developing story:

Look into the legislative status of auto-IRAs in your state

Currently, five states (California, Connecticut, Illinois, Maryland, and Oregon) and the city of Seattle have enacted legislation on auto-IRA plans, while another 13 states have introduced new bills in 2018. The Georgetown University Center for Retirement Initiatives offer an interactive map with detailed information.

Email the press department or call them and register for access. Another good source: The Pew Charitable Trusts’ Retirement Savings Project. Contact Benny Martinez at Pew to interview the project’s director, John Scott. And don’t forget to touch base with the U.S. Department of Labor, to check on any pending federal regulations. Then call state legislators and find out where your state stands on auto-IRAs, to fill in the picture for your readers, which sets up the next angle on this breaking story.

Weigh the pros and cons of state auto-IRA plans for your readers

A defining feature of these state-sponsored plans is that they don’t require employers to offer employees certain protections under ERISA, the Employee Retirement Income Security Act of 1974. An employer automatically deducts contributions from an employee’s paycheck and deposits them into an auto-IRA–and that’s all. Employers aren’t required to act as fiduciaries, and also aren’t required, most importantly, to contribute to an employee’s auto-IRA.

To increase employee participation in Individual Retirement Accounts, auto-IRAs aren’t the solution, say critics such as the National Association of Insurance and Financial Advisors (NAIFA). The organization contends that plans compete with existing private market programs and may persuade employers with strong existing 401(k) and other plans to offer auto-IRAs to employees, leading to more plans with lower contribution limits and no matching employer contributions.

Why would states support such a plan? Short answer there: They’re afraid that they’re going to have to support large numbers of residents in the future who aren’t prepared for retirement.

Talk to small business employees and their employers

Finally, focus your sights locally. Talk to small businesses and their employees about the challenge of funding workplace retirement plans. Approximately 70% of all U.S. businesses are small businesses, with 10 or fewer employees. What’s happening in your neighborhood?