The opportunity to retire should be universal. Yet half of the private sector workforce in the United States lacks access to retirement savings due to high administrative costs and limited resources. At small businesses with fewer than 100 employees, 32 million American workers are uncovered.
To address the problem, a handful of states are developing automatic individual retirement accounts (IRAs) for uncovered private sector employees, despite President Trump’s discouragement of these programs. Oregon is the furthest along, having rolled out an initial pilot of its program, OregonSaves, this month.
At a national level, OregonSaves represents an important step toward leveling access to savings, but also serves as a reminder that America’s retirement crisis is too large for a single organization or initiative to effectively solve alone.
Out of Oregon’s population of four million, an alarming one million workers lack access to a workplace plan. Starting next year, midsize Oregon employers will be required to enroll their employees in OregonSaves or demonstrate that they have a 401(k) or similar plan in place. Workers enrolled in OregonSaves will get a Roth IRA with automatic payroll deductions set at a 5 percent default contribution rate, which employees can choose to change in 1 percent increments.
As states continue to develop and implement automatic IRAs, the programs build mainstream awareness about the importance of securing long-term financial wellness. It is an important dialogue, with tens of millions of Americans without a way to save for retirement out of their regular paychecks and small businesses severely underserved to close the access gap.
Legislation geared toward greater access is a step in the right direction. But before employers enroll their employees into any retirement plan — whether it’s a state-run program or a private solution — it will be critical to first dig into the terms. From additive costs to adviser services, employers and employees must both understand what they are signing up for and the value they will receive.
For example, many retirement plans charge fees for the various services involved in offering an IRA or 401(k), which are often outsourced. These administrative, recordkeeping and fund management fees are often hidden. They add up over time and eat at workers’ retirement savings in a significant way.
The goal should be to grow worker savings, not drag on them. Yet many retirement plans are not optimized to do so, particularly for small business clients, who typically have fewer total assets and limited resources to negotiate better rates.
Business owners have the responsibility to not only check the retirement benefits “box,” but ensure they’re providing employees with true value and real opportunities to save. Private sector 401(k) offerings should serve as a competitive counterweight to encourage states to be thoughtful about the automatic IRA plans they develop.
In pushing forward with the OregonSaves program, Oregon sets an important standard: Everybody should be able to save for retirement. The retirement industry has long favored large corporate clients with sizeable pools of investable assets, leaving smaller employers with limited options.
Although every state-run initiative will vary in design and rollout timeline — and in many cases a private plan may more effectively fit workers’ needs — the powerful drive from state governments has highlighted the urgency of planning for the future.
As these programs continue to roll out, it is imperative for both the public and private sectors to step up and serve the millions of Americans without access to a secure retirement. The crisis is too urgent to wait.
Jeff Rosenberger is chief operating officer at Guideline Technologies.
Chris Lu is a senior fellow at the University of Virginia Miller Center. He previously served as deputy secretary of the U.S. Department of Labor and as White House cabinet secretary during the Obama administration.
The views expressed by contributors are their own and are not the views of The Hill.