State Sponsored Retirement Plans

The Issue: State lawmakers continue to consider legislation that would establish state-run retirement plans for private sector workers and require certain employers to auto-enroll their employees in these plans. these plans would directly compete with existing private market programs that already offer consumers a robust variety of retirement options.
 
Background: In recent years both media and policymaker attention has focused on the fact that a large percentage of workers are not saving nearly enough for retirement. Due to the belief that there exist significant gaps in employee access to employer-based retirement plans, many states have considered bills that would implement state-run IRA-type retirement plans designed to make retirement savings options available to workers at small and medium sized companies.
 
NAIFA Position: NAIFA understands the importance of retirement security and acknowledges that many Americans are not saving enough for retirement. However, NAIFA does not believe that a state-run plan that competes with private market plans is the answer. Availability and access to retirement savings options are not the problem— there already exists a strong, vibrant private sector retirement plan market that offers diverse, affordable options to individuals and employers. Nearly 80% of full-time workers at large companies have access to a retirement plan through their employer, and more than 80% of workers with workplace access to plans participate in a plan. NAIFA believes that states would be better served by using scarce state resources for education and outreach efforts designed to educate their citizens about the importance of saving for retirement, rather than implementing their own costly state-run plan. NAIFA supports the voluntary, private market-oriented legislation enacted in Washington State and New Jersey, as discussed below.
 
Current Status: In 2015, 17 states considered legislation that would establish a state-run retirement plan. To date, California, Illinois, Oregon and Massachusetts are the only states that have enacted legislation establishing a program. The California, Illinois, and Oregon programs will automatically enroll most state residents in a state-sponsored retirement account if their employer does not already offer a retirement plan option; the Massachusetts plan is narrowly limited to non-profit organizations with less than 20 employees. Due to numerous legal and cost concerns, none of these plans have been implemented or become operational. No other state has enacted legislation establishing a state run retirement plan. Washington State and New Jersey have enacted legislation which sets up a voluntary retirement marketplace designed to bring together employers and private market plan providers.
 
Seven states have appointed commissions to study the feasibility of state run retirement plans—Connecticut; Vermont; Minnesota; Maryland; Virginia; Utah and West Virginia. These commissions are under various time deadlines to report their findings to their state legislatures. The following states have considered but not enacted legislation addressing the issue of a state-run retirement plan: Colorado; Delaware; Indiana; Kentucky; Maine;  Massachusetts; Montana; New York; Rhode Island; Wisconsin. Finally, the U.S. Department of Labor has proposed a rule that would facilitate the enactment of state run retirement plan legislation by exempting such plans from coverage under ERISA. 

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