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
May 14, 2019
20,000 Savers So Far in New Oregon IRA
About a third of retired households end up relying almost exclusively on Social Security, because they didn’t save for retirement. Social Security is not likely to be enough.
To get Oregon workers better prepared, the state took the initiative in 2017 and started rolling out a program of individual IRA accounts for workers without a 401(k) on the job. The program, OregonSaves, was designed to ensure that employees, mainly at small businesses, can save and invest safely.
Employers are required to enroll all their employees and deduct 5 percent from their paychecks to send to their state-sponsored IRAs –1 million people are potentially eligible for OregonSaves. But the onus to save ultimately falls on the individual who, once enrolled, is allowed to opt out of the program.
More than 60 percent of the workers so far are sticking with the program. As of last November, about 20,000 of them had accumulated more than $10 million in their IRAs. And the vast majority also stayed with the 5 percent initial contribution, even though they could reduce the rate. This year, the early participants’ contributions will start to increase automatically by 1 percent annually.
The employees who have decided against saving cited three reasons: they can’t afford it; they prefer not to save with their current employer; or they or their spouses already have a personal IRA or a 401(k) from a previous employer. Indeed, baby boomers are the most likely to have other retirement plans, and they participate in Oregon’s auto-IRA at a lower rate than younger workers.
Despite workers’ progress, the road to retirement security will be rocky. Two-thirds of the roughly 1,800 employers that have registered for OregonSaves are still getting their systems in place and haven’t taken the next step: sending payroll deductions to the IRA accounts.
The next question for the program will be: What impact will saving in the IRA have on workers’ long-term finances? …Learn More