Will the new mandates solve an old financial problem?
Too many Americans are saving too little for retirement. This problem has been discussed for decades in all kinds of media and there doesn’t seem to be an easy way to solve it.
Fourteen states are trying to do so, however: they have passed or introduced laws requiring or urging companies to offer retirement savings opportunities to employees. In most of these 14 states, employers must either sponsor a retirement plan or automatically enroll their workers in a state program.
Payroll giant ADP notes that a majority of states have considered mandatory retirement savings programs. A similar mandate is being discussed on Capitol Hill: HR 2954, informally called SECURE ACT 2.0, would require employers to automatically enroll employees in workplace retirement plans. This bill stalled in Congress in 2021, but the House and Senate are expected to review it this year.
California and New York are among the states now stipulating worker registration. By June 30, any private employer in California with more than five full-time employees must offer those FTEs a retirement savings program, enroll them in the new CalSavers retirement plan, or face fines after 90 days. of non-compliance. New York now requires most businesses and nonprofits with 10 or more employees to offer them retirement savings choices or automatically enroll them in the New York State Secure Choice Savings Program.
In Vermont and Washington, the employer mandate is voluntary. In all 14 states, employees have the right to opt out of state-run retirement programs.
Will efforts like this solve the problem of insufficient retirement savings? Not entirely. Only about 50% of Americans participate in employer-sponsored retirement programs. Tens of millions of Americans do not have access to any type of retirement plan.
Even if SECURE Act 2.0 were to become law, its automatic enrollment stipulation would not be retroactive. Auto-enrollment would only be a requirement for new workplace pension plans, not for those created in the past. It could also allow employer-sponsored pension plans to set a carryover rate as low as 3% and many financial professionals would like to see savers dedicate a higher percentage of their income to retirement.
List of states with live or upcoming retirement program mandates include California, Colorado, Connecticut, Illinois, Maine, Maryland, Massachusetts, New Jersey, New Mexico, New York , Oregon, Vermont, Virginia and Washington. Twenty-one other states have introduced bills in their legislatures that could create similar requirements.
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Kent Patrick works for Bush Wealth Management.