STATE LEGISLATURE
OKLAHOMA CITY – State legislators will explore the possibility of establishing a state-sponsored retirement plan for private-sector employees who do not have any pension through their employers.
The interim legislative study was requested by Sen. John Michael Montgomery, R-Lawton, and was assigned to the Senate’s Retirement and Insurance Committee.
Half of all Oklahomans have no access to a retirement savings plan through their employer and most feel they are unprepared for retirement, Montgomery said.
Americans as a whole aren't saving nearly enough for retirement. In fact, an alarming number of people have absolutely nothing put away for their golden years, according to data from Northwestern Mutual’s 2019 “Planning & Progress Study.”
That research found that 15% of Americans have no retirement savings at all, and an estimated 22% have less than $5,000 in savings earmarked for retirement, according to Northwestern Mutual’s study. Another 5% have between $5,000 and $24,999 put away, and only 16% have saved $200,000 or more. Additionally, 46% of respondents say they don’t know how much they have saved for retirement.
However, the outlook is not entirely bleak.
Even non-savers can look forward to Social Security in retirement. And claims that 48% of U.S. households aged 55 and older in 2016 had no retirement savings excluded anyone who has a traditional defined benefit pension. When retirement accounts and traditional pensions alike are counted, 72% of households aged 55 and over have retirement savings, the magazine Forbes has reported.
What is undisputed is that most Americans harbor concerns about whether they will have enough to live comfortably for the rest of their lives after retirement.
Several states – including California, Colorado, Connecticut, Illinois, Maryland, New Jersey and Oregon – have addressed this issue via state-sponsored retirement savings programs available through the employee’s workplace, Montgomery said.
Senate Bill 1890, authored this year by Montgomery and Rep. Marcus McEntire, R-Duncan, proposed just such a program in Oklahoma. The measure passed the Senate but failed to get a hearing in the House of Representatives because of the coronavirus-shortened session.
SB 1890 would have established a framework to allow employees of a covered employer to participate in a voluntary program sponsored by the State Treasurer.
A participating company would have had to employ at least 10 workers and been in business for at least two years. The employer would be required to offer each of his/ her employees an opportunity to contribute to an individual retirement account (IRA) established under the Oklahoma Prosperity Act Program.
Employees would have to be at least 18 years of age and would be automatically enrolled in the program unless they elected not to participate. An employee could contribute a minimum of 3% of his/her post-tax salary to an IRA.
No employer could contribute to the program. And although the State Treasurer would be the sponsor and administrator of the program, no state tax dollars would be deposited toward any private-sector employee’s IRA.
Initiating the program would require some upfront costs to the State of Oklahoma, but ultimately the program would be self-sustaining, Montgomery said. State Treasurer Randy McDaniel estimated the annual cost of the program at between $750,000 and $1 million.
Under SB 1890, the State Treasurer would have appointed qualified financial institutions to act as trustee or custodian of private-sector employees’ IRA accounts. Neither the program nor an employee’s IRA established under the program would have been guaranteed by the State of Oklahoma.
Various factors would have to be studied, Montgomery said, such as whether investments made by the administrator of the proposed retirement plan were progressive but overly risky or perhaps too conservative.
Colorado Gov. Jared Polis, a Democrat, signed a law July 14 that will create a state-facilitated retirement savings program that automatically enrolls private-sector workers who have no access to employer-provided retirement benefits. The program is voluntary; employees can opt out at any time.
Support for the “Colorado Secure Savings Program” grew after release of a 2020 report by the state treasurer’s commission on retirement security. The report found that 40% of private sector workers in the state did not have access to a workplace retirement plan.
Report data also show that when people lack retirement security, they often rely on the social safety net – Medicaid, social services, early claims to Social Security – and have lower household spending. These factors result in less money injected into the local economy, fewer jobs, and lost tax revenue for the state.
“If you help people sustain themselves, it reduces their need for government services,” Montgomery said.
In addition to increasing worker participation and lightening the state’s fiscal burden, auto-enrollment programs such as Colorado’s can help small businesses by providing a workplace benefit that’s more common at larger companies, supporters say. Employers want to offer retirement benefits, but many – particularly smaller firms – cannot afford to start one.
Research by The Pew Charitable Trusts shows that the main reason small businesses choose not to start a workplace plan for their workers is concern that doing so would be too expensive (37%). Another 22% cited a lack of administrative resources as a key barrier to setting up a program.
But a state-facilitated auto-IRA programs such as Colorado Secure Savings are designed to be a no-cost way for employers to provide retirement benefits. Under these programs, the fiduciary responsibilities typically fall not on employers but on third-party firms responsible for managing the employee savings.