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Oregon small-business owner Saleem Noorani had worried for years about his employees’ lack of retirement savings. So when he learned about OregonSaves, the nation’s first suchstate-sponsored program to help workers build a nest egg, he jumped at the chance to sign on.
“This gives my workers a level of assurance that they’re saving something for retirement,’’ says Noorani, who employs about 15 workers ranging in age from 22 to 71 at three Cork & Bottle Shoppe liquor stores in Corvallis, Springfield and Albany.
An estimated 55 million employees in the U.S. do not have access to employer-sponsored retirement plans. Many work for small businesses that don’t offer traditional retirement programs because of high costs and administrative burdens.
Washington state is planning to launch its Small Business Retirement Marketplace in late March. That service will feature a website aimed at small-business employees and designed to help them compare and enroll in low-cost retirement savings plans.
California, Connecticut, Illinois and Maryland expect to phase in their own “Work and Save” programs over the next two years and several other states are considering efforts to stimulate retirement savings.
In New York, state legislators are considering a bill, which Gov. Andrew Cuomo supports, that would create a Secure Choice Savings Program. This effort could help millions of New York workers who have no access to an employer-sponsored pension or 401(k) retirement plan.
AARP has been actively supporting Work and Save initiatives across the country. “You’ve got 3.5 million workers in New York alone with no access to a workplace savings plan,” says Elaine Ryan, AARP vice president for government affairs, state advocacy and strategy integration. “Those lacking access to retirement savings at work number 7.5 million in California and 2.3 million in Illinois. Together with the other states where legislation has already been enacted, these programs will enable more than 15 million people to save at work. The goal is to provide a low-cost, simple way to have as many people as possible start saving for their future.”
AARP’s Public Policy Institute estimates that workers are 15 times more likely to save for retirement when they have a payroll deduction program. A new AARP national survey found that 80 percent of private sector workers ages 18 to 64 support state-sponsored public-private partnerships designed to help employees save money for retirement.
Most state-sponsored retirement savings programs automatically sign up workers for Roth IRA accounts and feature low-cost mutual funds or other savings and investment options, such as money market accounts. New York’s program would be voluntary for employers and employees. Oregon ultimately will require all employers who don’t offer a retirement plan to sign up, but participation among employees is voluntary.
“Every state doesn’t have to be the same – they can create programs that work best for them,’’ Ryan says. “The critical thing is to get the ball rolling, to get employers to provide a simple and easy way to provide employees a way to save and to help employees with future financial security.”
About 4,500 Oregon workers have put away a total of nearly $1 million through OregonSaves, which allows them to set aside up to 10 percent of their pay that they’ve already paid taxes on. The first $1,000 is invested in a money market account and the rest in target-date retirement funds based on an employee’s age. Employees can opt out anytime and keep the accounts when they change jobs. Because contributions are made post-tax, individuals can access the money without any penalty.
Noorani, 60, says all but two of his employees are in the program. About half of his workers are saving 5 percent of their pay, the automatic default savings rate. Some are saving less, and some are saving more.
“A majority of them live paycheck to paycheck,” Noorani says of his employees. “And for the younger ones, retirement isn’t even part of their thought process.”