Posts Tagged "auto-IRA"
July 20, 2021
State Auto-IRAs are Building Momentum
About half of the nation’s private-sector employees do not have a retirement savings plan at work, and that hasn’t changed in at least 40 years.
Some states are trying to fix this coverage gap in the absence of substantial progress by the federal government in solving the problem. And the state reforms are gaining momentum.
In the past year alone, Maine, Virginia, and Colorado have passed bills requiring private employers without a retirement plan to automatically enroll their workers in IRAs, with workers allowed to opt out. New York City, which is more populous than most states, approved its program in May. And other states are either starting to implement programs or looking at their options.
Auto-IRAs are already up and running in California, Illinois, and Oregon, where a total of nearly 360,000 workers have saved more than $270 million so far. The programs are run by a private sector administrator and investment manager.
These mandatory programs are the only practical way to close the coverage gap, because voluntary retirement saving initiatives have never done the trick. Numerous voluntary plans created by the federal government – such as the Simplified Employee Pension (SEP) – have failed to measurably increase coverage.
Large corporations usually offer a 401(k) plan and match some of their workers’ savings. But millions of restaurants, shops, and other small businesses either can’t afford to set up their own 401(k)s or don’t see it as a priority. Without additional saving, half of U.S. workers are at risk of a drop in their standard of living when they retire.
State auto-IRA programs eliminate the administrative burden and expense to employers of a private plan and provide an easy way for workers to save. The money is taken out of their paychecks before they can spend it and is deposited in an account that grows over time. The state programs also permit workers to withdraw their contributions without a tax penalty for emergencies, like a medical problem or broken-down car, if they need the money they’ve saved. …Learn More
August 13, 2020
Workers Lacking 401ks Need a Solution
Although COVID-19 has exposed alarming gaps in a health insurance system that revolves around the employer, the Affordable Care Act is one potential solution for workers who lack the employer coverage.
There is nothing equivalent on the retirement side, however.
Many workers between ages 50 and 64 are in jobs that provide neither health insurance nor a retirement savings plan. But, in contrast to the health insurance options available to them, “no retirement saving vehicle appears effective in helping older workers in nontraditional jobs set aside money for retirement,” concluded a new analysis of workers in these nontraditional jobs.
Nontraditional workers who want to save for retirement are left with two options: their spouse’s 401(k) savings plan or an IRA operated by a bank, broker or financial firm.
A spouse’s 401(k) hasn’t been an effective fallback for a couple of reasons. First, a substantial number of the workers who lack their own 401(k)s are not married. And second, if they are married to someone with a 401(k), they’re not any better off. The researcher found that married people currently contributing to 401(k)s do not save more to compensate for the spouse without a 401(k), reinforcing other research showing these couples don’t save enough for two.
The other option – an IRA – is open to everyone. But only a small fraction of Americans currently are saving money in IRAs, and most of them already have a 401(k). So IRAs, in practice, aren’t doing much for the people who need the help: workers who lack employer benefits. … Learn More