In 2018 alone, 16 states and one city have introduced legislation to tackle the growing issue of the retirement savings gap among private-sector workers.
In six years, 40 states have moved to consider, study or implement legislation, leading to the creation of state-run retirement savings programs. Of those 40 states, 11 have moved to establish retirement savings programs. Data from Georgetown University’s Center for Retirement Initiatives shows that states and cities plan to continue exploring these programs in 2019.
According to a 2016 survey of private-sector workers for small to midsize businesses by The Pew Charitable Trust, only 28 percent of full-time workers without access to employer-sponsored plans report having any other retirement savings such as an IRA or 401(k). Statistics like this one explain the push for states to create state-run retirement programs.
Enacted Savings Programs
Already, 10 states and a city have now enacted a state-run retirement plan. Those include California, Connecticut, Illinois, Maryland, Massachusetts, New Jersey, New York, Oregon, Vermont, Washington and the city of Seattle.
All of the 11 enacted programs follow one of the four models outlined below:
Auto-IRA – According to the Internal Revenue Service, an auto-IRA is an automatic contribution arrangement (also known as automatic enrollment) is a feature in a retirement plan that allows an employer to “enroll” an eligible employee in the employer’s plan unless the employee affirmatively elects otherwise.
Multiple Employer Plan (MEP) – An MEP is a type of employee benefit plan that can be maintained as a single plan in which two or more unrelated employers participate.
Marketplace – Think of this like the Affordable Care Act Marketplace. Firms participating in the marketplace offer a minimum of two product options for the employee to choose from. Participation is voluntary.
Voluntary Payroll Deduction IRA – The New York State Secure Choice Savings Program Board establishes default investment options for enrollees who fail to elect and investment option. This is structured as a Roth-IRA and is currently an automatic enrollment program. New York is the only state currently using this model.
Source: Georgetown University Center for Retirement Initiatives, Copyright 2018 Georgetown University.
Further details of each state’s plan such as contribution rates, administrative entities, fees and implementation timelines can be viewed here.
States Taking Action
With almost a dozen states embracing some sort of state-run plan, 15 other states are taking notice and studying the need for these plans or are proposing legislation. Those states include Wyoming, Colorado, New Mexico, Kansas, Iowa, Missouri, Wisconsin, Michigan, Tennessee, Georgia, Virginia, Pennsylvania, New Hampshire and Rhode Island.
Fewer than ten states have made no efforts to create a state retirement program. The map below shows where each state stands on legislative action for state-run retirement plans:
What This Means For Advisors And Clients
Advisors and clients need to be informed with up-to-date information on the program and policies enacted or being enacted in their state of residence. Take notice of states that have mandatory programs versus ones that are strictly voluntary as well as implementation dates. A good resource for updates on state-run plans is AARP’s State Retirement Savings Resource Center.
AdvisorNews Managing Editor Cassie Miller may be reached at cassie.miller@Adnewsfeedback.com. Cassie has an extensive background in magazine writing, editing and design. Follow her on Twitter @ANCassieM.