Retirement plans for people who don’t have retirement plans — coming soon to a state near you
Today’s magic numbers in retirement news are 48; 19; 121,673; and $211.5 million.
The 48, shockingly, refers to the percentage of working Americans who don’t even get access to a retirement plan, like a 401(k), at their place of employment.
How is it any kind of surprise that we are hurtling toward a retirement crisis when half of workers — really — don’t even get offered a plan at work? There are no bonus points for guessing that low-wage earners, women, people of color and people who work for small businesses are grossly overrepresented in this group.
The number 19 refers to the U.S. states that are trying to do something about this scandalous state of affairs, by rolling out cheap, simple “auto-IRA” workplace plans that will include everybody.
The 121,673 is the number of people so far who have signed up and saved through the nation’s oldest such program, OregonSaves, even though it is still being rolled out.
And the $211.5 million is the amount, to date, that those thrifty Oregonians have set aside.
The other two numbers come from Tobias Read, who was one of the progenitors of OregonSaves when he was in the state’s legislature, and who now oversees it as the state treasurer.
Angela Antonelli, the Georgetown professor who is an expert on these plans, and who runs the university’s Center for Retirement Initiatives, adds that the total saved so far across the eight most developed state auto-IRA plans in the U.S. is $1 billion.
Oregon, which began piloting its program in 2017, this year finally made it mandatory for all employers, even those with fewer than five members of staff. Pity the state employees who have to call the estimated 50,000 pizzerias, corner stores, barbershops, tarot card readers and falafel vans urging them to sign up and get their staff in the plan.
There is a movie idea in there, somewhere.
So far, says Read, they’ve signed up 10,000, and another 8,000 have asked for an exemption because they already offer a plan of their own. “It’s slow,” says Read. “It takes a while to do this work. We’ve got a ways to go, no question.”
Among companies with more than 50 staff, who were part of the first waves of the program in 2017 and 2018, some 98% either offer staff OregonSaves or their own plan.
Recent independent research suggests that in its first two years, the program led to a 12% rise in the number of IRAs held by Oregonians, with notable gains among many “lower-income, single, and older workers, as well as workers of small-size firms.” Read’s tally says the total amount saved averages about $1,700 per person.
“It’s still way too soon to say if this is going to solve the problem,” admits Craig Copeland, an expert at the Employee Benefits Research Institute think-tank in Washington.
Critics note that as many as a quarter or more of workers are still opting out of these programs. And others are using the plans as piggy banks more than retirement accounts, cashing out at least some of their savings after a few years.
But Read offers a succinct rebuttal. “If we weren’t doing this, these folks would have zero,” he says. “The costs of doing nothing are astonishing.”
Indeed they are. Consultants Deloitte estimate the U.S. retirement savings shortfall is about $3.7 trillion and others put the figure way higher.
Plans like OregonSaves don’t cost the taxpayers money. (If they reduce the welfare costs of retirees, they will save taxpayers money.) They just encourage workers — “nudge” them, in the jargon of behavioral economics — to save their own money. Such nudges have an enormous effect. The middle classes — those with 401(k) plans, or other company pension plans — already benefit from them: 401(k) plan participation rates and savings have rocketed since a 2006 change in the law made automatic enrollment the norm.
Other states are going to follow suit. They’ll have to. The question is whether it’s going to be enough.
Meanwhile, Read says there’s one thing Congress could do that could really help: Change the federal law (under which these auto-IRA plans operate) so that they can allow a company match, like the one people (usually) get through their 401(k). Once again it won’t cost the taxpayer a dime. And it will surely help.