As Congress Mulls Retirement Savings Shortfalls, New State Programs Get Attention

Oregonians have socked away at least $19 million in less than two years through a state retirement savings initiative and the program’s assets are increasing by more than $2.2 million per month, the state’s treasurer told congressional lawmakers on Tuesday.

“The program is seeing strong participation in line with our projections,” Treasurer Tobias Read  told members of the Senate Finance Committee during a hearing focused on the challenges Americans are facing with financial security in retirement.

The bipartisan leaders of the committee last month introduced legislation with provisions designed to encourage employers to adopt new retirement plans, reduce the costs they incur operating the plans, and encourage employees to plan and save for retirement.

In recent decades, retirement savings have lagged in the U.S. as workers have experienced wage stagnation and the availability of traditional “defined benefit” pension plans has declined.

Many younger Americans, meanwhile, are wrestling with student loan payments that can consume income they might otherwise stash away in a retirement account.

Research published last year by the Center for Retirement Research at Boston College notes that about half of the nation’s households will not have enough retirement income to maintain their pre-retirement standard of living—even if they work until age 65 and take steps to “annuitize” assets through arrangements like “reverse mortgages."

The left-leaning Economic Policy Institute in a 2016 report found nearly half of families had no retirement account savings at all, based on data that ran through 2013. The group also highlighted a gap between high and low earners, saying the median working-age family had $5,000 saved in 2013, while the top 10% of earners had $274,000.

Joan Ruff, board chair for AARP, noted in her testimony to the Finance Committee on Tuesday that while Social Security keeps millions of older Americans out of poverty, its average monthly benefit is only around $1,565 per month for men and $1,244 for women.

“Given such modest benefits, the retirement security of many Americans could be strengthened if we meaningfully improve their retirement savings,” she said. “Our first goal should be to provide a workplace retirement plan for the 51 million Americans who lack one now.”

It’s in this context, that Oregon and other states have adopted programs like the OregonSaves initiative that Read described.

Oregon employers are required to participate in OregonSaves if they don’t offer an employer-sponsored retirement plan.

There are different registration deadlines for businesses to join based on the number of employees they have. The deadline for employers with 10 or more workers is Wednesday.

Nearly 2,000 employers have registered and the program is gaining about 1,800 workers per week, with a total of more than 78,000 enrolled, according to Read’s written testimony. The state estimates that between 400,000 and 500,000 workers could be eligible.

Eligible employees are automatically enrolled in a standard program, although they can opt out.

OregonSaves funnels 5 percent of a worker’s gross pay into a Roth IRA. Unlike a 401(k), there is no employer match. “Those IRAs are owned by the worker and not tied to the job,” Read said.

Each year on Jan. 1, the employee contribution rate to the account rises by 1% and is set to do so until it reaches 10%. But workers are free to not go along with these increases.

Read emphasized that the program was structured in a way that was meant to limit burdens on employers.

He offered congressional lawmakers three recommendations for how they could help bolster these sorts of initiatives.

One is to improve so-called “Form 5500” data that the federal government maintains about retirement and welfare benefit plans. Another was to change age requirements so that people as young as 16 could open their own IRA accounts in their own names.

And his third suggestion was to allow state-based programs like OregonSaves to continue operating if the federal government advances any legislation to create a comparable national-level retirement savings initiative, or other overlapping programs.

Illinois and California are among the states that have moved ahead with programs similar to OregonSaves.

The issue of retirement security is on the radar in other places as well. A task force in Wyoming delivered a report to lawmakers there in December warning about the lack of savings.

Based on a guideline that a person should have eight to 11 times their income saved for retirement, the report says that in Wyoming there’s a gap in savings that’s between $360,000 and $540,000 per resident for people nearing retirement age.

Wyoming’s state finances could be affected by the dearth of savings should more people turn to government subsidized nursing homes and other safety net programs for care, the report says.

It also points out that roughly 100,000 Wyoming jobs, about 36 percent of the state’s total, don’t offer employees a way to save, and goes on to cite research that found workers are 15 times more likely to save for retirement if they’re able to regularly deduct a portion of their pay.