Can states help more workers save for retirement?

Roughly half of all American workers aren't eligible to participate in a retirement plan at work, which doesn't bode well for their retirement years. The vast majority of these workers will receive Social Security benefits, but these benefits are meant only to serve as a safety net to keep you out of poverty. They were never intended to provide a comfortable retirement.

As a result, more workers are reporting that they never plan to retire, which isn't a realistic solution, either.

The existence of even modest savings to supplement Social Security can make a big difference in your retirement security. If you're not covered by a retirement plan at work, you can set up an individual retirement account on your own. Yet only about 5 percent of eligible workers do so.

It's becoming increasingly clear that participating in a savings plan at work significantly boosts retirement savings because the employer does the shopping for the investment funds and it's easier to save through payroll deductions.

However, many employers, particularly small businesses, don't offer retirement plans of any type to their employees, for a variety of reasons: They don't know how to design a plan and select a financial institution to run it, they've found they can hire the employees they need without offering a retirement plan, they don't care that much about their employees or they're worried about the legal obligations and complying with complicated rules and paperwork.

To address these issues, three states (California, Illinois and Oregon) have adopted legislation that will allow them to offer simple savings plans to employers. All the employer needs to do is submit the employee and employer contributions to the plan, and the state takes care of everything else -- designing and implementing the investment menu, employee recordkeeping and all the necessary paperwork. These plans would be 401(k)-like plans with low-cost funds that would allow the employees to supplement Social Security with their own savings.

The idea is catching on: AARP offers a helpful resource center on the issues related to increasing workers' retirement savings with state systems. In 2015, 18 bills have been introduced in 15 states, with Connecticut, New Jersey and Massachusetts serious contenders for passing a measure soon. At the moment, only Democratic-controlled legislatures have adopted these plans.

The programs' details vary, but a common feature is auto-enrollment with the option to opt out. California, Illinois and Oregon are currently considering automatic contributions of 3 percent of pay, with the ability to elect higher or lower contributions. Although contributions at that level fall far short of amounts that will deliver a comfortable retirement, they're a good start and could help invigorate the savings habit. For now, the three states are still working on their plans' details, and no state has implemented one yet.

Opposition to state-run plans, however, is coming from some businesses and financial industry representatives who feel the private sector is best suited to deliver retirement savings programs. To address these concerns, Washington state is considering a system that would encourage the private sector to offer plans to employees who aren't eligible for a retirement plan at work, and the state would promote these plans.

It remains to be seen if state-run plans will get off the ground and attract large numbers of employees who don't currently participate. Many small employers contend that they can't afford to contribute to the plans and requiring them to do so will raise business costs that will be passed along to consumers. Also, many employees live paycheck-to-paycheck and think they can't afford to save for retirement.

Small employers can already adopt simplified retirement plans enabled by federal legislation, such as SIMPLE IRAs and Simplified Employee Plans (SEP). Many financial institutions such as mutual fund companies and banks offer them. If an employer can't find a way to adopt one of these plans, it's not clear that a state-run plan will have much more success to boost retirement savings.

Nevertheless, the state-run proposals are drawing attention to the serious challenges that many workers face regarding saving for retirement. It certainly can't hurt to have more options and to promote the need to save for retirement. It will help that some states and AARP are sending prominent messages that it's important to save and that employers are uniquely positioned to help.

Collectively, employers and workers alike need to find the motivation and ability to increase retirement savings for the half of workers who aren't currently putting anything away.

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    Steve Vernon helped large employers design and manage their retirement programs for more than 35 years as a consulting actuary. Now he's a research scholar for the Stanford Center on Longevity, where he helps collect, direct and disseminate research that will improve the financial security of seniors. He's also president of Rest-of-Life Communications, delivers retirement planning workshops and authored Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck and Recession-Proof Your Retirement Years.