A new chapter in private-sector retirement savings was written July 1, when Oregon became the first state to launch a retirement savings program for employees whose employers don't offer one.
Several other states — California, Connecticut, Illinois and Maryland — that have also won legislative approval to build similar programs are waiting in the wings, and another two dozen states considering similar ideas are keeping a close eye on Oregon's experience, from legislative battles to program design.
Oregon is starting slowly, with two pilot programs this year. Starting first with employers who volunteered to participate, by next year, employers with 50 or more workers will be enrolled, and all workplaces in three years. By the time the program celebrates its 10th anniversary, it is projected to manage $5 billion in retirement savings for 500,000 participants, said Lisa Massena, executive director of the OregonSaves program.
Legislation creating the program in concept, but with few details on how to build it, passed in June 2015. Since then, the state treasurer and OregonSaves program officials have held a series of public meetings to engage stakeholders and address concerns raised by employer groups and financial services providers, among others. Program officials are now working with financial literacy experts to raise awareness among potential participants.
Keep it simple
The core concept of the automatic Roth individual retirement account program, said Ms. Massena, "is simplicity."
The states that already have legislative authority to build the programs hit a speed bump in May, when a Department of Labor safe harbor that exempted them from the Employee Retirement Income Security Act was rescinded by Congress. All but Maryland are required to build programs that are specifically exempt from ERISA, while Maryland legislation just calls for avoiding federal law and keeping the tax advantage.
Treasurers in those states quickly vowed to carry on. California dealt with the detour by passing amendments in June removing references to the safe-harbor exemption but keeping the requirement to avoid ERISA. Its private-sector payroll-deduction individual retirement account program is set to launch in 2019, with an executive director now on board and a search underway for a program consultant.
Other states are considering whether to design completely voluntary payroll-deduction IRAs that would be exempt from ERISA but not allow for automatic enrollment.
Losing the safe harbor did not affect Washington state and New Jersey, which took the marketplace approach of connecting small businesses with existing retirement service providers. Washington's pilot program is due to launch in the coming months.
Vermont took a different tack, passing legislation May 19 that creates a voluntary multiple employer plan for employers with fewer than 50 employees and not currently offering a retirement plan. Vermont Treasurer Beth Pearce, who expects the program to also strengthen the state's economy, said the bipartisan bill was the culmination of three years of study by her office and the Public Retirement Study Committee, which recommended the voluntary multiple employer approach expected to be implemented by January 2019. Employers choosing not to participate will have other options made available through a marketplace to be set up later.
In Philadelphia, which along with New York City and Seattle had asked the Department of Labor for the safe harbor, Controller Alan Butkovitz likes the multiple employer approach, too, following a June report that analyzed two options: voluntary open multiple employer plans and government-mandated automatic-enrollment IRAs. More than 200 local small businesses were surveyed, 92% of whom support a voluntary city-sponsored retirement plan. Mr. Butkovitz, who worries about increased public assistance costs as more people retire unprepared, is now urging the City Council to create or designate an authority to manage a multiple employer plan, and to conduct a financial and legal feasibility analysis.
New York City Comptroller Scott M. Stringer, who estimates 1.5 million residents lack access to a retirement plan at work, is promoting a NYC Nest Egg approach consisting of a voluntary defined contribution marketplace that includes a publicly sponsored multiple employer plan. "When we say we're facing a retirement crisis, it's not hyperbole. It's reality," Mr. Stringer said after the safe harbors were repealed.
In Maryland, officials are taking pains to ensure that whatever they build is done in a bipartisan way, said Joshua Gotbaum, chairman of the Maryland Small Business Retirement Savings Board. The program is required by law to offer several options, with the board choosing a default for those who don't want to choose.
Final decisions on program design are not expected until 2018, Mr. Gotbaum said.
All eyes on Oregon
John Scott, director of The Pew Charitable Trusts' retirement savings project, Washington, said that as Oregon begins enrolling larger numbers later this year, "we will be watching to see if there are any issues in the workings of the program as well as any worker or employer reactions."
As for the upcoming legislative sessions in other states, "I imagine that news — good or bad — from Oregon and California will have an impact," said Mr. Scott. He noted many bills were introduced in state legislatures even before the Department of Labor issued safe harbors, "so it would not be surprising if legislative activity continued. The problem of people not saving enough for retirement has not gone away and states like Oregon are moving forward."
Angela M. Antonelli, executive director of the Center for Retirement Initiatives at Georgetown University, Washington, sees more states and cities considering Vermont's multiple employer plan approach and other innovations. "The best way to quiet those who have challenged the need for these programs will be through demonstrated success so the public and policymakers see significant benefits," she said.
"States will continue to reshape the retirement landscape, remaining undeterred in their experimentation."