I’m at a loss as to why some Republicans on Capitol Hill want to block the creation of workplace retirement plans for small-business employees.
We know that Social Security will soon face some serious funding issues.
And with fewer companies offering pensions these days, we know that workers have to save for their own retirement. The percentage of employers still offering a traditional defined benefit plan to new hires has fallen significantly, according to advisory services firm Willis Towers Watson. In 2015, only 20 percent of Fortune 500 companies offered a traditional pension plan to new employees, down from 59 percent in 1998.
And increasingly, companies that still offer a pension have stopped or frozen the accrual of benefits for plan participants.
We also know that when a company offers a defined-contribution plan such as a 401(k), employees are more likely to save for retirement. Only 5 percent of people who don’t have access to a workplace retirement plan will go out on their own and open an IRA, according to Sarah M. Gill, an AARP senior legislative representative.
And workers are 15 times more likely to save for retirement if they have access to automatic payroll deduction plans, Gill points out.
Here’s why I make these points.
Right now in the Senate there is an effort to stop states from creating retirement plans for small-business employees. But the smaller the business, the less likely that the company has the resources to set up its own retirement plan. About 55 million private-sector employees in the U.S. have no access to retirement savings plans at work, according to AARP.
To help encourage workers to save, the Obama administration made it easier for states to facilitate retirement plans. Several states have already approved such programs, and many other jurisdictions have been considering doing it, too. But the Republican-led Congress is trying to undo the policy, which could stall the initiatives.
To be clear, the states are facilitating the creation of these retirement plans, which are run by private investment firms. Employees put in their own money and control how it is invested, just like they would if they worked for a company that offered a workplace retirement plan.
Republicans and business groups who oppose the new plans argue that it’s not the role of states to create retirement plans for nongovernment workers. They also contend that such plans will discourage employers from establishing plans for their workers.
This is hogwash.
“Despite decades of federal incentives, employer sponsorship of retirement savings plans has not grown, especially amongst small employers,” wrote Nancy LeaMond, AARP’s executive vice president, in a letter to senators.
The more people save for their own retirement, the less drain and strain on federal, state and local government funds.
“The national cost of public assistance on the retirement-age population is projected to be $86 billion in 2032,” according to a recent report by the University of Maine. “The fiscal cost from the retirement-age population does not have to grow to such a magnitude, though. Increasing retirement income through greater pre-retirement savings can substantially reduce taxpayer contributions for public assistance.”
AARP is planning to run radio ads to encourage people to call their members of Congress and ask them to oppose any action to block states from helping to set up the retirement savings programs. If you want to join the effort, call AARP’s retirement savings hotline at 844-453-9953.
The politicians who oppose the state-facilitated retirement plans aren’t looking out for the interest of people who need every possible incentive and initiative to save. And when people save, it helps us all.
Michelle Singletary welcomes comments and column ideas. Reach her in care of The Washington Post, 1150 15th St. N.W., Washington, DC 20071; or singletarym@washpost.com.
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