Along with defending Social Security nationally, and our state Employee Retirement System, Wisconsin should design and implement a state-sponsored retirement plan for private-sector employees as a simple way to improve their retirement security.
What’s the Problem Addressed?
Many Americans are not saving enough for retirement (if they are saving at all), and are likely to fall behind their standard of living in retirement. According to recent studies, 80% of US households have saved less than one times their annual income, and only 55% of private-sector employees have access to workplace retirement benefits.1 According to a poll by National Institute on Retirement Security (NIRS), 88% agree that the nation faces a retirement savings crisis and 76% are concerned about their ability to retire with security and dignity.2
In Wisconsin, more than a quarter of the workers held a poverty-wage job in 2015.3 84% of these workers had no access to an employer-provided pension benefit plans.4 In total, about 41% of Wisconsin private-sector workers ages 18-64 work for businesses that do not offer a retirement plan.5
How OWR’s Proposal Addresses It
A state-sponsored retirement plan can increase the retirement security of Wisconsin residents by providing private-sector access to a voluntary, low-risk, low-cost retirement savings plan that enables direct payroll contributions into a personal Individual Retirement Account (IRA). A recent study by Segal Consulting also found that such plans can reduce spending estimates that in the first ten years after state-facilitated retirement savings plans were established, total state spending on Medicaid would be $5 billion lower. For Wisconsin, the study estimates that the reduction in Medicaid expenditures resulting from retirement savings for the first 10 years would be $96.4 million.6 Another study, commissioned by AARP Wisconsin, found a saving rate of 3% among lower and moderate-income households (up to $40,000/year) may reduce state expenditures by more than $3.1 billion in 2030.7
Who Else is Doing This?
Over 25 states are currently considering a state-sponsored retirement plan for small business employees,8 and seven states are already implementing them.9 In 2012, California became the first state to enact a law – the California Secure Choice Retirement Savings Program (“Secure Choice”) – to consider the establishment of a mandatory auto-enroll IRA program for uncovered private-sector workers. Massachusetts had established in 2012 a state 401(k) plan for nonprofit organizations. Other states, such as Connecticut, Maryland, Minnesota, Oregon and Vermont, established retirement study working groups in 2013 and 2014 to build support for the introduction of authorizing legislation to create their own programs. In 2015, Illinois and Oregon enacted auto-IRA programs, and Washington, established the first state marketplace to offer employers the opportunity to voluntarily use a web-based portal providing access to low-burden, low-cost approved plans.10
Why Not Wisconsin
On February 2014, Wisconsin’s legislature introduced a bill that requires the State Department of Employee Trust Funds (ETF) to establish a panel to write a private sector savings plan.11 The State of Wisconsin Investment Board (SWIB) estimated that conducting such a study will cost $23,344 in compensation and travel expenses for a period of 18 months.12 Despite the low costs of the study, the bill failed to pass pursuant to a Senate Joint Resolution in the last legislative session. But with changed state leadership, of course, we could do this.