Addressing the Retirement Insecurity Crisis

Many pundits, journalists, and others are closely watching the impact of policies on the needs of the working Americans whose profound economic anxieties have garnered much-needed attention in the wake of the 2016 election. Yet little notice has been given to a topic contributing to this angst—one that is troubling 60 percent of all Americans: retirement security.

For the past two years, a Gallup survey of Americans’ financial concerns has found that people are most worried about not having enough money for retirement. This concern ranks higher than whether they could pay emergency medical costs. That is not surprising, given that the average retirement savings is an anemic $3,000, and nearly half of American families lack any retirement account savings.

As these Americans reach retirement age, their lack of personal savings, and the reality of the decline in jobs with pensions in today’s economy, should be a serious concern for policymakers.

Fortunately, despite the lack of emphasis on this crisis in Washington, D.C., states are positioned to act and we have the opportunity to take simple steps, without burdening taxpayers, to buttress the retirement security of Americans. In Oregon and Illinois, we are launching efforts that give employers the choice to either provide qualified retirement savings options, or facilitate employees’ enrollment into a state program.

Workers enrolled in these types of savings plans are far more likely to stay enrolled in the programs long-term. While employees can voluntarily opt out, the automatic enrollment feature significantly increases the likelihood of a worker's long-term participation. These efforts combine some of the best features of employer plans and Individual Retirement Accounts (IRAs) by lowering the barriers that often keep people from saving.

Our state programs also encourage long-term investment by ensuring that each savings account is individually owned by the respective worker and is portable from job to job—a key to making any benefit program work effectively at a time when workers are likely to hold more jobs over the course of a career than ever. AARP has found that workers are 15 times more likely to save through work than on their own.

These policies are also a win for small businesses that do not have the capacity to offer a 401(k). States can facilitate access for their employees to a savings option without legal confusion, the costs of launching a plan, or fiduciary risk. Research shows that financially secure employees are more productive.

Luke Huffstutter, owner of Annastasia Salon and Summit Salon Academy in Portland, Oregon, puts it this way: “As a small business, offering retirement options is difficult. I have shopped around multiple times and find that either they are too expensive for the company or the cost gets passed on to my employees and is not a good deal for them…I know we need to support and guide our staff to start saving for retirement but we can't find a plan that is a win-win. OregonSaves looks like the solution we need.”

Market research predicts that more than 500,000 Oregonians will collectively save billions in the first 15 years of the OregonSaves initiative. An additional 1.2 million workers would gain access to a workplace option through the Illinois Secure Choice program. Meanwhile, reducing retirement poverty boosts the economy and reduces pressure on already strained tax-financed government programs.

It’s important to note that state plans like those in Oregon and Illinois, as well as efforts to implement similar programs in other states, have included vital consumer protections for retirement savers that are equivalent to those provided by employer plans subject to the Employee Retirement Income Security Act of 1974 (ERISA).

We were disappointed that Congress recently chose to create more red tape for states by rolling back U.S. Department of Labor rules that had supported these state efforts, apparently acting at the behest of financial industry firms wary of competing with states that could establish savings options that are “relatively low-cost for workers.”

However, states must not be deterred by Washington. Whether or not Congress makes this issue a priority, state leaders can ensure these programs have a broad impact across the country by sharing experiences with and advising each other on the best path forward, as we pledge to continue to do through our membership in the NewDEAL’s network of 150 state and local pro-growth progressive leaders.

Given that nearly half of Americans lack access to a retirement savings plan through their employer, and many more worry about retirement security, this issue clearly must be addressed. By taking a simple step of ensuring all of our people are automatically enrolled in a legitimate retirement savings account, states can take an important step toward easing one key sources of economic anxiety among working Americans.