How much responsibility should an employer take for their employee’s well-being?  As employers attempt to make sense of the Affordable Care Act, and the role they have to play in healthcare, looming in the near future is retirement funding.  Five states have now enacted or are seriously considering legislation that would mandate employers to supply employees with retirement saving options. 

Roughly 75% percent of the Social Security benefits are covered by current tax revenue.  That leaves nearly 25% that has to be covered by the Social Security Trust.  Based on the Social Security Administration’s 2015 report, the trust is on track to be depleted in 2034.  For many of us, the amount received from Social Security in retirement will be much less than initially expected.  With that in mind, more emphasis is being placed on encouraging Americans to save more for their retirement.  But the data shows that 60% of American households have no money saved in a retirement account. On the positive side, about 50% of private sector employees do have some form of a retirement plan through their employer.  But these are voluntary programs, often incentivized by the employers with matches and contributions they make as well.  And for the time being, done on their own accord.

Concerned that the government may not have a solution for the Social Security shortfall, five states are considering or have signed legislation that forces employers to play yet another role in their employees’ well-being. This time, in making sure their employees are financially prepared for retirement. 

"Because different states are trying different approaches, state plans can be the innovation labs for better retirement," said Joshua Gotbaum, a guest scholar at the Brookings Institution and former head of the U.S. Pension Benefit Guaranty Corp. "They can — and I think, will — create new options for gig workers, for portability, for lifetime income, and for getting better coverage at lower cost."

"Encouraging people to save for retirement is a good thing, but forcing a new mandate and taking over a private-sector industry is not the appropriate role for the state," Connecticut Senate Minority Leader Len Fasano, a Republican, said earlier this year.

A quick look at what is happening already on this front:

CONNECTICUT - The Connecticut Retirement Security Program will require every business with five or more employees to offer a retirement plan or automatically register employees for an Individual Retirement Arrangement (IRA). Three percent of salaries will automatically go into the IRA accounts.  The state estimates that 84% of workers will participate after being automatically signed up for the plans (opt-out is available).

CALIFORNIA - Recommendations for a California Secure Choice plan were sent to the legislature. If enacted, every employer with five or more employees would need to offer a retirement plan or automatically enroll workers (with an opt-out option) in the state plan. The plan calls for an automatic employee contribution of 3% of their salary, a rate that can be set to automatically rise to as much as 8% over time.

ILLINOIS - Governor, Patrick Quinn (D), signed the Illinois Secure Choice Savings Program Act in January 2015.  The state will create individual accounts, managed by a private firm, for employees of businesses that don't otherwise have a retirement plan. Companies with at least 25 employees will be required to automatically enroll their workers in a Roth IRA, initially deducting 3% of their salaries. Again, employee opt-out is available, although their hopes are that by automatically opting employees in that they will be encouraged to utilize the program.

MARYLAND - Maryland Governor Larry Hogan (R) signed their plan into law on May 10, 2016.  The law lets the Maryland Small Business Retirement Savings Program determine how to set up the program, including how much of their salary workers must initially contribute. Unlike other states, Maryland doesn't automatically exempt the smallest businesses from a requirement to offer access to a state-run IRA.

OREGON - Oregon's state-sponsored retirement plan is slated to open in July 2017. An Oregon Retirement Savings Board is determining the details of the plan. It will automatically enroll workers in portable, privately run accounts and will automatically increase their contribution rates over time.

Time will tell whether or not Michigan jumps on board with state legislation such as this.  However, the ASE 2015/2016 Michigan Policies and Benefits Survey shows that approximately 50% of Michigan employers already automatically enroll their employees in 401(k) or 403(b) programs.  94% of Michigan employers offer a 401(k), 403(b), or 457 plan.  Even in small organizations (1-100 employees), an average of 86% of employers offer such plans.

Will more states take action? The upcoming elections might have a say in that.  While the Democrats have advocated for such laws, Republican candidates typically stand on the side of business and aren’t quick to support additional mandates on employers.  AARP, which supports the new retirement bills, says it will be pressing state candidates to take a position.

Source: Bloomberg News, Money