More states are passing laws creating state-facilitated retirement plans that are allowing more workers to save money for their future. These programs can give small business owners and their employees a pathway for putting money away for retirement when most other options were not available to them. To date, 17 states have enacted laws creating automated retirement savings programs, with Washington state and Rhode Island becoming the latest to do so.
Currently, 56 million workers do not have workplace retirement benefits and studies have shown that employees are more likely to save for retirement if they can do so through payroll deductions. Unfortunately, many small businesses are unable to offer retirement benefits due to costs and lack of administrative capacity. The inability to put away for retirement also disproportionately impacts communities of color.
This lack of savings will lead to $3.9 billion in increased state spending through the year 2040 in Washington state alone. Senate Bill 6069, known as Washington Saves, takes steps to fill this void by creating an individual retirement account (IRA) that is managed by the state. Workers are automatically enrolled to start through payroll deduction but may opt out or change their contributions at any time. Beneficiaries can withdraw funds starting at the age of 59.5 and accounts will stay with employees across their careers. However, they can also access these funds for emergent and exempted needs. The bill was passed by the Washington House and Senate and signed into law by Governor Jay Inslee last spring.
“Every Washingtonian deserves the opportunity to thrive economically over the course of their working life and enjoy a dignified retirement. Washington Saves will offer flexibility, ease of access, and security to ensure that a livable retirement is an option for all in our state,” said Washington State Treasurer Mike Pellicciotti.
In Rhode Island, roughly 172,000 workers currently lack access to a workplace retirement savings plan such as a 401(k). H.B. 7127, the Rhode Island Secure Choice Retirement Savings Program Act, also creates a similar program that automatically enrolls workers in an IRA program. It passed both chambers in early June and was signed into law by Governor Dan McKee on June 26.
“When I talk to small businesses in my community, they really care about their staff and want their workers to be able to save for retirement. But small business owners can’t be experts in everything and often don’t know where to start with offering retirement savings. This bill gives them a way to support their workers and gives workers a chance to save,” said Representative Evan Shanley (D-Dist. 24, Warwick, East Greenwich) who introduced the legislation.
A telling statistic about this law is that a Pew Charitable Trusts survey found that 72% of small-business owners in Washington state supported the creation of a state-facilitated retirement savings program. This level of support is also similar to results from surveys in other states.
State lawmakers across the country can meet the needs of their constituents and shore up their state’s economic futures by following the lead of Washington, Rhode Island, and 15 other states in creating state-facilitated retirement programs. They should not let another legislative session end without doing so.