Retirement experts agree: Getting people to voluntarily save money for retirement doesn’t work.
Public campaigns to convince people to open an Individual Retirement Account or voluntarily contribute to a 401(k) have proven unsuccessful, experts say. In Washington state, only 51 percent of workers between the ages of 55-64 participate in a retirement plan at work.
“We’ve studied this for 100 years and the only way that people save for retirement is if they do it automatically from their paycheck,” said Teresa Ghilarducci, director of the Schwartz Center for Economic Policy Analysis, a New York-based think tank.
“The job is where is the money is,” she said. “The paycheck is where the discipline is.”
Several Democratic state lawmakers held a work session Tuesday to consider ways to make sure that Washington workers have enough money to retire. One in four Washington residents between the ages of 45-64 years old has $25,000 or less in savings for retirement.
“What’s happening to our citizens is not right,” said Sen. Steve Conway, D-Tacoma. “To have so many on the edge of poverty in the years when they should be enjoying their lives.”
Experts discussed ongoing efforts in other states, including California and Oregon, to study the creation of a state retirement plan that would be available to all private sector workers. California is considering a plan that would give private workers an individual account with CalPERS, the state’s pension fund for public employees.
Employees could contribute between 3 to 10 percent of their paychecks into the state retirement account and use the money to supplement social security when they retire. The plan infrastructure would look similar to the state’s health insurance exchange, said Ghilarducci, who was one of several experts who addressed the panel and worked on California’s plan.
Ingrid McDonald of AARP Washington said other states have faced three types of opposition in trying to pass this type of legislation.
First, the plans are complex and lawmakers want to avoid creating a new liability for the state. Second, the plans face opposition from the financial services industry because they don’t want a public-private partnership to “take over their turf,” she said.
Lastly, the plans get “pushback” from the small business community. Small business owners don’t want additional burdens or to be forced to make a contribution match to retirement accounts, McDonald said.
This year, the Washington state House voted to pass House Bill 2474, which would have allowed private workers to contribute money to plan administered by the state’s retirement system.
The bill passed 54-43 largely along party lines, with Democrats in support and Republicans opposed. The bill did not get a committee hearing in the Senate, which is controlled by the Majority Coalition Caucus.
Sen. John Braun, R-Centralia, told TVW this week that Republicans support moving more workers into defined contribution plans, such as 401(k)s. He proposed Senate Bill 6305 this year, which would have transitioned elected officials away from pensions into defined contribution plans.
“A lot of this is fear of change,” Braun said. “People think about their retirement they want security, the want safety, they want something they know. In many cases, especially in the public sector, a defined contribution plan is an unknown. For that reason alone it is worthwhile for elected officials to lead the way and take some of the fear out of it.”
Republican lawmakers also introduced a bill this session, Senate Bill 5851, that would have created a defined contribution plan option for public employees, such as teachers and law enforcement officials. The bill passed 25-22 out of the Senate, but did not get a hearing in the Democratically-controlled House.