The number of private-sector employees without pension coverage — about half — has become an issue of concern at the state and federal levels.
Challenges of implementing public-private programs are daunting, and could result in a misdirection of state priorities and participant contributions.
The difficulties include minimizing administrative complexity and costs to make plans affordable for employers and employees, although some plans call for mandatory inclusion.
Administration and costs are obstacles small employers cite for not offering retirement programs.
In addition, such state-sponsored plans have to overcome obstacles of the Employee Retirement Income Security Act and other federal pension regulations, as well as employer and employee resistance.
At least 17 states — including California, Connecticut, Maryland, Illinois, Vermont and Washington — have enacted or considered legislation aimed at creating state-sponsored retirement programs for private-sector employees who don't have access to employer-sponsored retirement plans.
At the federal level, there have been proposals from both Democrats and Republicans to address private-sector retirement coverage.
President Barack Obama unveiled his MyRA proposal in his State of the Union address last February. Sen. Marco Rubio, R-Fla., speaking May 13 at the National Press Club, proposed opening the $403.9 billion federal Thrift Savings Plan to non-governmental employees who don't have retirement plans at work. Sen. Tom Harkin, D-Iowa, proposed in 2012 what he called Universal, Secure and Adaptable (or USA) Retirement Funds.
Similar proposals have been put forward by others such as Teresa Ghilarducci, economist at the New School for Social Research, while the Service Employees International Union and the Laura and John Arnold Foundation have embraced expansion of private-sector pension coverage, offering to finance initiatives.
The National Conference on Public Employee Retirement Systems, Washington, has been a strong and early proponent of efforts to expand private-sector pension coverage.
Hank H. Kim, NCPERS executive director and counsel, proposed the Secure Choice Pension, described in a 2011 policy paper he authored, “A Way Forward for Retirement Security in the Private Sector.” The Secure Choice Pension would be structured as a form of cash balance plan sponsored by state governments with the assets overseen by state retirement systems; it would not replace existing corporate or public employee plans.
Much of the current activity in this direction is taking place at the state level, targeting small private-sector businesses.
On a more modest scale, Massachusetts enacted a plan for employees of non-profit organizations that don't offer retirement programs.
The states seek to address the retirement needs of private-sector employees, but they also are looking to address the potentially vast costs that would affect public finances should many employees leave the workforce without adequate retirement income.
Some 60% of all private-sector employees had access to retirement benefits, and 50% of all the employees participated in at least one type of plan, according to a 2006 report of the Department of Labor's Bureau of Labor Statistics.
The Employee Benefit Research Institute has found small employers “feel little pressure” to create plans to cover their workforces, said Dallas L. Salisbury, president and CEO.
Employees place a higher value on current income than deferred income, even when potentially offered some kind of incentive match, Mr. Salisbury said.
In addition, small employers often lack the resources to establish plans, and face uncertainty about the revenue needed to keep their businesses viable.
The Connecticut General Assembly passed legislation May 8 for a plan whose investments would be overseen by the Connecticut state treasurer, who is also sole trustee of the $27.1 billion Connecticut Retirement Plans and Trust Funds.
The legislation established the Connecticut Retirement Security Board and directed it to complete a feasibility study on whether conditions for implementation exist, such as likely participant rates, contribution levels, ability to provide employers with a payroll system or remitting contributions from employees.The California measure, adopted in 2012, also called for a feasibility study before any implementation. It would make the plan mandatory for all private-sector employers that do not offer a retirement plan or automatic enrollment for payroll deduction in an IRA, while allowing employees to opt out.
It would require employees to contribute through their employers a minimum percentage of annual wages. The contributions would finance administrative costs. The legislation called for raising $500,000 for the study from private sources.
The costs of such plans could be daunting, considering complexities of administering them and ensuring compliance. The plans would have to keep track of employees who enter and leave the workforce, shift from employer to employer and move in and out of the state, as well as account for the dynamic business activities of employers.
Plan administration should have to track contributions to make sure thousands of employers and millions of employees are complying on a regular and timely basis. Plus it should have to provide individual account statements regularly. In addition, the programs should have periodic independent audits.
Some of the programs call on Congress to ease ERISA and other federal obstacles to clear the way for states to adopt the public-private programs.
But the workforce is dynamic. Employees without coverage today might move to jobs with retirement programs.
The activist states might wind up discovering their ambitious programs damage business and job creation, as employers escape to other states to avoid mandates, defeating the goal of improving coverage.
Any sustainable retirement program depends on a vibrant economy. Before enacting public-private plans, states as well as the federal government ought to remove governmental impediments to enterprise growth, such as taxes and regulations, to encourage more business and job expansion.
If easing ERISA is fine for state programs, why not do so for the existing private system?
Employees have long had the ability to open individual retirement accounts. Policy-makers need to embrace the IRA effort.
“Congress created IRAs to provide a way for individuals without employer plans to save for retirement” and to provide portability, according to a 2008 Government Accountability Office report.
“There are very limited reporting requirements for employer-sponsored IRAs and none for payroll-deduction IRAs.”
More could be done through public service and other educational efforts to encourage employees without plans to establish IRAs, contribute regularly to them and invest in a diversified program of risk-seeking and risk-mitigating assets.