Large corporations usually offer a 401(k) plan and match some of their workers’ savings, but millions of small businesses either cannot afford to set up their own 401(k)s or do not consider doing so a priority.
As a result, about half of private-sector employees in the U.S. do not have a retirement savings plan at work, a situation that has not changed in at least 40 years, according to a new report from Boston College’s Center for Retirement Research.
The report says some states are trying to fix this coverage gap in the absence of substantial progress by the federal government to address the problem.
So far this year, Colorado, Maine and Virginia have passed bills requiring private employers without a retirement plan to automatically enroll their workers in IRAs, with workers allowed to opt out. New York City approved its program in May, and other states are either starting to implement programs or looking at their options.
The report asserts that mandatory programs are the only practical way to close the coverage gap, because voluntary retirement saving initiatives have never done so, including voluntary plans created by the federal government, such as the Simplified Employee Pension.
State auto-IRA programs eliminate a private plan’s administrative burden and expense to employers, and provide an easy way for workers to save, the report notes. The money is taken out of their paychecks before they can spend it, and is deposited in an account that grows over time.
State programs also permit workers to withdraw their contributions without a tax penalty for emergencies if they need the money they have saved.
See the gallery for the six states that have auto-enrollment plans up and running for private-sector employees.
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