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  2. DEFINED CONTRIBUTION
March 21, 2016 01:00 AM

State-sponsored programs confront challenge of the retirement crisis

John Chiang, Michael W. Frerichs and Ted Wheeler
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    America is facing a retirement savings crisis.

    The lack of savings is profound, and the gap threatens the quality of life for generations of families from coast to coast.

    “The Report on the Economic Well-Being of U.S. Households in 2014,” released last May by the Board of Governors of the Federal Reserve System, found 31% of non-retired people have no retirement savings or pension whatsoever. The National Institute on Retirement Security, in a June 2013 study, found the median retirement account balance is $3,000 for working-age households and $12,000 for near-retirement households.

    The jaw-dropping estimate for the U.S. retirement savings deficit? Between $6.8 trillion and $14 trillion.

    And yet, today, an estimated 68 million people — representing almost half of the domestic workforce — don't even have the chance to save for their retirement security through their places of employment. At the same time, we know that people will save more often, and save more, when there is a chance to do so at work.

    Common sense says change is due. The status quo has failed, the problem will not fix itself and the cost of waiting is massive and grows daily.

    Time is not our ally.

    Consequently, our states are taking action. We each are developing a sensible approach to begin addressing this financial crisis and to address it in a way that works well for families, for employers and for taxpayers. While the fine print differs, we share a single, vital goal: For the first time, these plans seek to give every person the ability to save through his or her employer.

    The efforts in California, Illinois and Oregon provide a blueprint for fellow states to help their workers begin saving. The Department of Labor has laid out a careful and proper path for such state-administered plans in federal law.

    We applaud the Department of Labor for its thoughtful approach to providing a clear path for states, and we urge it to stay the course amid criticism from defenders of the broken status quo.

    Every person should be able to save at work. This sensible state approach will level the playing field for millions of people — and allow them to step onto that field in the first place.

    The lack of adequate retirement savings carries many costs. As the DOL noted in announcing its proposed rule in November, inadequate retirement savings can mean “sacrificing or skimping on food, housing, health care, transportation and other necessities.”

    Workers will not be the only ones to benefit. More robust retirement savings will improve the prospects for families; small businesses; the financial industry, which will service a new culture of saving; and most notably taxpayers. The more people save ultimately will translate to less strain on overburdened public safety net programs.

    The proposed rule is critical because it clarifies that state-administered plans with automatic payroll deductions do not create a fiduciary burden for employers and thus have a “safe harbor” in the Employee Retirement Income Security Act of 1974 as long as certain important criteria are met. They include the ability for workers to opt out.

    The deadline to respond to the proposed rule was Jan 19. Each of our states voiced strong support for moving forward and with good reason: These sensible, proposed rules will advance millions of Americans toward a more secure future for themselves and their families.

    As the department noted when it issued its proposed rule, “states have a substantial governmental interest in taking steps to address the problem and protect the economic security of their residents.”

    The Labor Department should keep American workers and families in mind, allow them onto the playing field, and stay the course with this sensible proposed safe harbor. We urge them to finalize the rule as quickly as possible.

    The time to act is now.

    John Chiang, Michael W. Frerichs and Ted Wheeler are, respectively, the state treasurers of California, Illinois and Oregon.

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