Washington’s impending Small Business Retirement Marketplace is akin to leading a horse to water. Now it will be up to employees if they want to take a drink.
In 2015, the Legislature passed a bill co-sponsored by Sen. Don Benton, R-Vancouver, to create the online marketplace and facilitate retirement savings for workers at small businesses. The need for such a portal is evident; far too few Americans are adequately saving for retirement, and the dearth is even more stark among those at small companies.
Earlier this year, columnist Cameron Huddleston of GoBankingRates told Money magazine: “There are plenty of obstacles Americans claim are in their way when it comes to saving for retirement: Credit card debt, student loan debt, low wages, the need to save for a child’s college education, and the list goes on. Although all of these things can put a strain on our budgets, they don’t necessarily make it impossible to save for retirement.”
Certainly, there are economic constraints and, as has been well-documented, the middle class in this country has been losing ground for decades. But for many people, retirement savings are viewed as a secondary concern to, say, cellphone data plans or elaborate vacations or that deluxe satellite TV package. A 2013 study by the Employee Benefit Research Institute found that 36 percent of American workers had less than $1,000 socked away for retirement — a fact that indicates many people will rely solely upon Social Security in their post-working years. Say goodbye to those retirement dreams of playing golf every day or taking a monthlong trip to Tahiti.
Saving for retirement is a budgetary choice, just like all expenditures. And studies have shown that workers are much more likely to think about the future if they are provided with a savings plan through their place of employment. This is particularly problematic for small businesses, where the establishment and management of retirement plans can be too daunting to be realistic. The federal Government Accountability Office has reported that only 14 percent of businesses with fewer than 100 employees offer any sort of retirement plan.
That is where the Small Business Retirement Marketplace will step in beginning in January. The program will be overseen by the state Department of Commerce and will allow employees to funnel a portion of their pre-tax income into IRA-style investment accounts. Employers can match a portion of those contributions — as large companies do with 401(k) accounts — and contributions will be managed privately instead of by the State Investment Board. Bringing together investments from thousands of workers throughout the state can give the fund the critical mass necessary to provide some stability and diversity for the investments.
While the marketplace will provide an essential service for workers who otherwise would be unlikely to prepare for the future, it will not eliminate this nation’s severe lack of saving. That will be up to the individual employees, and the first requirement is to determine how much you wish to have in savings before it is time to retire. Looking at it in the most simplistic terms, if a worker makes $50,000 a year and wants to live on 80 percent of their annual salary during a 25-year retirement, that will require $1 million in savings. A retirement planner or retirement calculator can help you sort out the details.
But the point is that it’s never too early to start thinking about your post-work years. The state of Washington has wisely taken steps to help employees do exactly that.
