New options for secure retirement
Last year, the AARP rated Minnesota the top state in the nation in which to retire. In issuing this honor, the organization cited a great quality of life, reasonable cost of living and adequate support for family caregivers.
These are all wonderful things for Minnesotans to look forward to as retirement nears, but what about for those who may not even see retirement on the horizon?
Retirement security is more challenging than it was a generation ago; thus policymakers should introduce legislation to facilitate retirement savings. According to a recent state-administered study on private sector retirement savings, 86 percent of Americans believe our nation is on the verge of a retirement crisis. Most Americans are not on track to acquire savings anywhere near what is required to maintain their current standard of living if they left the workforce, and many would struggle to pay for basic needs. Women have an even lower savings rate, due to more frequent career interruptions and lower earnings. There is also significant disparity by race when it comes to both access and participation in retirement plans.
The days of defined benefit plans, such as a traditional pensions, are history for many Americans. While many employers offer plans such as 401Ks, 40 percent of workers do not have a retirement plan available. Smaller employers face many barriers and administrative complexities in offering such a benefit, in addition to concerns about fiduciary responsibility and potential for liability.
To address economic insecurity during retirement some DFL colleagues and I introduced a bill (HF 2665) to create the Minnesota Secure Choice Retirement plan. This program would, for the very first time, open the door for Minnesotans to be able to participate in an Individual Retirement Account Plan, or IRAP. This program would allow employers who do not offer an employer-sponsored retirement plan to enroll their employees in an IRAP. By default, employees would be enrolled, but could choose to opt out. In employer-sponsored retirement plans, automatic enrollment leads to a participation rate of about 91 percent. For opt-in plans, it’s only about 42 percent.
Creating this plan would be a win-win for both employers and employees. Employers would only be responsible for making a payroll deduction, on a pretax basis, perhaps 3 percent initially and depositing it in the fund. The employer would not be responsible for any other duties in the administration of the plan, would have no fiduciary obligations and would have no liability to employees over their participation in the program.
Other states such as California and Oregon have noticed the void many workers face and have moved ahead with similar programs. Under the Obama administration, the U.S. Department of Labor gave the go-ahead for states to create these programs, making it clear they fall outside of the jurisdiction of the federal Employee Retirement Income Security Act, or ERISA.
According to a recent study by the National Institute on Retirement Security, 75 percent of Americans would participate in a plan like this if made available. Politically, support from these plans comes from across different ideological perspectives. The U.S. Senate has not yet acted on a proposal to reverse the Obama-era Department of Labor rule allowing state-run IRAPs likely because of bipartisan support for state flexibility.
While there are many reasons Minnesota is a great state to live, ensuring more Minnesotans can retire comfortably will make us an even more attractive state. Further, with more Minnesotans having adequate retirement savings, our state as a whole will benefit. Many retirees fall below the poverty level, and depend on assistance like public health plans, food assistance, energy assistance and others. By reducing reliance on these, our state can see tangible savings.
Minnesota is ready to join other states which have had robust discussions of tools we can give workers to plan for a secure, healthy retirement. As our demographics change and Americans live longer, it’s up to us to develop solutions now, and the Minnesota Secure Choice Retirement is one of them.