At its most effective, government simply provides a framework for citizens to succeed. Give the people a foundation for building their own security, and then allow them to make choices that fit their desires and goals.
Along those lines, Senate Bill 5826, which was co-sponsored by Don Benton, R-Vancouver, and signed into law last week by Gov. Jay Inslee, creates a structure that could provide long-term benefits for many of the state’s workers. The law creates the Small Business Retirement Marketplace, making it easier for employees at small companies to save for the future.
The marketplace, which is expected to be up and running by 2017, will allow employers with fewer than 100 employees to set up payroll deductions and funnel a portion of the workers’ pre-tax income into IRA-style investment accounts. Employers also will be able to match employees’ contributions up to 3 percent of their salary. Most large companies long have had similar plans, yet small-business owners often find the establishment and management of such retirement accounts to be too time-consuming.
At issue is a situation that promises to be a future detriment to the economy and to the financial security of an entire generation of workers. With defined benefit pensions being nearly extinct in all corners of the economy, leaving workers to develop their own savings plans for retirement, a large percentage of American workers are demonstrating little foresight. According to a study by the Employee Benefit Research Institute, the median balance in a 401(k) plan at the end of 2013 was $18,433. Even worse, 36 percent of workers have less than $1,000 socked away. “We know people are very unlikely to save for retirement if they are not offered a plan through work,” said Washington state Rep. Larry Springer, D-Kirkland.
The result is destined to be a generation of people who labor much of their lives only to rely almost exclusively upon Social Security for their post-retirement income. So much for those dreams of playing golf every day and taking that vacation to Tahiti.
And, as CNBC.com reports, “If retirement savings are a problem for employees overall, the savings shortfall is at crisis levels among employees of small businesses. Only 14 percent of employers with fewer than 100 employees even offer retirement plans, according the Government Accountability Office.” Washington’s Small Business Retirement Marketplace helps address that. The law instructs the Department of Commerce to contract with a private financial group to operate the online exchange, and the investments will be managed by the private sector rather than the State Investment Board.
Washington becomes the second state to adopt such a plan for employees of small businesses, joining Illinois. It won’t be the last, as nearly half the states are debating similar proposals. “I have not seen a lot of movement like this on other issues,” said Sarah Gill, senior legislative representative at AARP, which is pushing for such laws. “Personally, I don’t think much is going to stand in the way.”
The bottom line is that governments can only provide the opportunity; taking advantage of it will be up to employees. Something about leading a horse to water and all that. As John Burbank of the Economic Opportunity Institute wrote in an opinion piece for The (Everett) Herald: “Pensions did not make retirees wealthy . . . but they did keep retirees economically secure.”
These days, such security can be fleeting, leaving it up to employees to take charge of their futures.
