Does the Future of Retirement Savings Lie at the State Level?
A handful of states, along with AARP's Public Policy Institute, are pushing the idea of state-organized retirement plans—something the institute calls the biggest change in savings plans in decades. Is it the way to create a financial buffer for the millions of people without much in the way of savings?
With far too few Americans putting significant savings into their retirement plans, some associations have their eye on alternative options.
Among them is AARP’s Public Policy Institute. The group argues that putting private-sector workers on state-regulated retirement plans, a trend that is picking up in a handful of states, could ensure that roughly 55 million Americans would have something to fall back on.
David C. John, the institute’s senior strategic policy advisor, recently told Main Street that the push at the state level, which has passed in four states and has been discussed in at least 25 others, could prove significant in the coming years.
“I think this is probably one of the biggest steps the U.S. has taken since the development of the IRA and the 401(k) in the last 40 years,” John told the website. “There is a growing momentum, not in any particular type of state, but we are seeing this in rural states, Democratic states, a variety of states moving along this path.”
The challenge, of course, is that selling this idea to the private sector, especially because it puts some private companies on the hook for those retirement plans. But in recent years, AARP has focused on researching methods that could make the plan work for employers, employees, and state governments alike. The association suggests a retirement-savings approach that simplifies things for the recipient of the savings by making the choices less complex and the payouts more consistent.
“A state-sponsored retirement savings plan could help millions of private-sector workers who are not covered by an employer plan build financial security,” the institute argued in one report [PDF] that analyzed Illinois’ recently passed plan. “Several features will help a plan become more effective and produce more secure retirements.”
A problem that has often come up in this debate, however—one highlighted in the Main Street piece by the American Council of Life Insurers (ACLI)—is that state-level plans to push retirement may not technically be legal and may expose states and private companies to significant costs.
“The costs and risks associated with state-run retirement are unnecessary. Public policy should make it easier for small employers to offer workplace savings opportunities by limiting administrative burdens on employers,” ACLI argued in a 2015 policy statement.
This stance is partly supported by the Government Accountability Office, which has recommended that action on the issue be taken at the federal level.
To learn more, AARP’s State Retirement Savings Resource Center can get you up to speed on the topic—no matter which way you lean.