START – Save Toward a Retirement Today
By Gary Burris, Senior Policy Associate at EOI (Economic Policy Institure) and a PSARA member
In the 2014 legislative session, lawmakers looked at how to help workers save and plan for retirement when they don’t have savings plans provided at work. Senator Mark Mullet (Issaquah) and Representative Larry Springer (Kirkland) proposed a new program called START (Save Toward a Retirement Today) to make it much easier for small business owners to offer retirement plans to their employees.
Senator Mullet and Representative Springer are both small business owners who know first-hand the problem of finding a good retirement plan. Both legislators worked hard to generate support for the idea with help from a broad coalition including the Small Business Majority, AARP, the Area Agencies on Aging, the Economic Opportunity Institute, and numerous labor organizations.
There’s a massive retirement savings problem in Washington State. While it’s not new, it’s getting worse. Currently, more than half of Washingtonians rely primarily on Social Security for their retirement income. The average Social Security benefit in Washington is $1300 a month. Social Security is very important and must be preserved and strengthened, but it is not enough for a secure retirement. Three out of five middle-class Washingtonians can be expected to outlive their retirement funds.
People accumulate the vast majority of their retirement savings through plans offered at their workplace. For workers in large corporations and in government, retirement plans are the accepted standard. However, a large percentage of workers, 77.4%, employed by a small business do not have a pension or retirement plan – and it’s worse for employees at the smallest businesses, where 85.7% in a business with fewer than 10 workers lack access to a savings plan.
Workers at small businesses and those business owners are desperate for better options. But the retirement plans dominating today’s financial services market don’t fit the needs of most small businesses or their workers. The most common plan, the 401k, is designed primarily for large businesses. It is complex – even cumbersome – to administer, and requires more time and resources than most small business owners and managers can commit.
While there are retirement plans specifically designed for businesses with fewer than 100 employees that have streamlined reporting requirements, very few brokers or financial institutions are actively marketing and selling these products. Only 8% of workers in firms with less than 100 employees participated in a SIMPLE IRA and only 2% of workers participated in a SEP IRA retirement plan in 2005.
START takes advantage of retirement products made available to public sector workers by the Washington State Investment Board as part of the deferred compensation program – a defined contribution program, with no promised return. That means the state would never be responsible for using tax dollars to contribute to an underfunded retirement plan.
The typical worker doesn’t have a sophisticated knowledge of stock funds and has a moderate amount of money to save each month. They should have a retirement plan and investments suited to their needs. START would provide a simple set of retirement products that are easy to understand. There would be no complex choices like those that are inherent with the on-line investing options. Fees could be kept low because of the economies of scale achieved by participating in a large program, which means workers’ earnings won’t be eaten away.
There are a couple of other important features of START. Participation would be voluntary for business owners and their workers’ and participants’ accounts would be portable when they change jobs.
In the legislature, START received support from Governor Inslee and many legislators. The House of Representatives passed START with bipartisan support. The Governor included funding for START in his proposed budget as did the House. Unfortunately, the Senate was not willing to include funding and START didn’t make it into the final budget this year, but the START coalition is already at work building support for the 2015 legislative session.
The prospects for making it easier for workers to save for retirement look bright. With the milestones achieved in 2014, there is a strong foundation in place for moving START forward next year.