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Senate Vote This Week Could Reduce Your Chances to Save for Retirement

Money target, work and save program under threat

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The U.S. Senate is expected to vote this week on overturning a federal guideline designed to encourage states to set up retirement accounts for millions of private-sector employees without a 401(k) or similar plan at work.

The Department of Labor last year issued guidance that would allow cities and states to set up “work and save” plans without worrying they would run afoul of federal pension laws.

The House of Representatives voted this year to get rid of the guidance, and last month the Senate narrowly agreed to roll back the one pertaining to cities. In the next vote, senators will decide whether to scrap the part affecting states.

About 55 million workers do not have access to a retirement plan at work. Research shows that workers with modest incomes are 15 times more likely to save for retirement if they can do so automatically from their paychecks.

So far, seven states have approved setting up work and save plans for their private-sector workers. More than 20 other states as well as a few major cities are considering doing the same. Under these plans, workers could have a portion of their paychecks automatically deposited into a retirement account, typically an IRA. Employers don’t contribute at all. And workers can always opt out, too.

In a letter to senators today, AARP Executive Vice President Nancy LeaMond urged them not to eliminate the Labor Department guideline. “Despite decades of federal incentives, employer sponsorship of retirement savings plans has not grown, especially amongst small employers,” LeaMond wrote. “In response, numerous states have started working with employers, investment firms and key interested parties to create easy private sector retirement vehicles for their workers.”

Eliminating the Labor Department guidance, LeaMond warned, “sends an unmistakable message to states and to voters that state flexibility to encourage greater retirement savings is not desired by Congress.”

AARP maintains that this also would have a chilling effect on more states’ considering such plans and urges its members to call their senators toll-free at 844-453-9953 and ask them to oppose House Joint Resolution 66.