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State programs essential for workers’ retirement security

The latest report of the Social Security system's trustees highlights once again the need for strengthening the non-federal retirement systems for private and state and local government workers.

It's not that the report is worse this year than in previous years, but that yet again no action has been taken by Washington to alter the trajectories for the long term.

The disability program's trust fund will be depleted by 2028. The Medicare program's trust fund will be exhausted by 2030, and the Social Security trust fund by 2034.

That means benefits must be cut in 11 years, 13 and 17 years, respectively, if action is not taken to shore up the programs. But with Congress distracted by health care, tax reform and partisan bickering, action is unlikely.

When the Social Security trust fund runs out of money, Social Security retirement benefits will have to be cut by an estimated 25% because that is all inflows from the FICA tax will support.

That will hurt workers who are in midcareer now, and those who follow behind them. They will be forced to rely more on their own savings to maintain their lifestyles in retirement. That is why efforts must be made to boost the retirement savings of all workers not covered by the government-sponsored retirement programs for federal employees.

The prospect of Social Security benefits being cut by 25% in just 17 years makes it vital that workers not now covered by any retirement saving vehicle must be provided with such coverage. Social Security does not now, and was never intended to, provide more than a bare minimum safety net in retirement.

The cuts coming in 2034 will make its benefits even less adequate for retirees who have no other resources.

That is why state-sponsored retirement savings programs for private-sector workers, like the one launched by Oregon and those that have been proposed in California, Connecticut, Illinois, Maryland and several other states, should be supported.

States have long been regarded as the laboratories for social and even economic experimentation for the country as a whole. Let them experiment with programs that might reach those workers without employer-sponsored retirement programs.

There are concerns that the workers served through these state-sponsored plans will not have ERISA protection; that some plans mandate employer participation if they don't have their own retirement plans, making participation another burden on small employers; that some small employers will drop their own plans, handing responsibility off to the states; and that states may gain the power to vote the proxies of any shares owned through plans to favor local political positions.

There might be mistakes. Some plans will not work, but good ideas about how to provide retirement savings opportunities to workers who currently have no coverage will likely emerge.

Perhaps hundreds of thousands of such workers — Oregon is estimating 500,000 within 10 years in that state alone — will be helped to save enough for retirement to offset the cuts to Social Security that seem to be coming.

That cannot be a bad thing.