accounts.
With half of workers lacking access to workplace retirement plans, several
states are leading the charge to create their own individual retirement
accounts.
So-called universal voluntary retirement accounts (UVRAs) would be a low-cost
option to an IRA combining a state’s existing retirement system with
professional fund management. The buying power and influence wielded by a state
would help reduce costs and complexities that prevent many small businesses and
nonprofits from starting retirement plans.
The Economic Opportunity Institute, a nonprofit public-policy center in
Washington state and a member of the national Economic Analysis and Research
Network, is a proponent, describing the plans as critical for small-business
competitiveness. Workers would benefit from easy-to-manage payroll deductions, a
pre-selected menu of investment options, and a retirement plan that can move
from job to job.
According to the EOI, two out of three low-wage workers and one in four
high-wage workers lack access to a retirement plan in the U.S. In 2007, 80% of
private-sector workers in businesses with fewer than 25 employees didn’t
participate in a pension plan. Even in companies with 500 or more employees, 43%
lacked coverage.
In Rhode Island, a new commission will study the establishment of universal
voluntary retirement accounts.
Nearly half of Rhode Island’s retirees have only Social Security, says Xay
Khamsyvoravong, deputy chief of staff for Rhode Island treasurer Frank Caprio. A
similar share of employers don’t offer retirement benefits to full-time
employees, and just 19% extend plans to part-time workers.
“The retirement crisis in Rhode Island is real, and the taxpayers are the
ones who ultimately pay to provide social programs and services…to those
unprepared to burden these enormous expenses on their own,” he says. “There’s a
large portion, almost a majority, of the population that the financial industry
has not successfully been able to reach.”
The state would select an investment manager to design, market, and
administer the plan through bidding. Firms that could benefit include Fidelity
Investments, Barclay, State Street, OppenheimerFunds, and TIAA-CREF.
Employers would be required to offer the program to their employees, but they
would bear no cost. Participation itself would be voluntary.
Several states—including California, Connecticut, Maryland, Massachusetts,
Michigan, Virginia, Washington, and West Virginia—are also
considering creating universal voluntary retirement accounts.
“We are not looking to have states be a major player in the
financial-services sector, but rather to be that incubator to get people started
and off the ground,” says Gary Burris, EOI’s senior policy associate. “Each
state is going to decide for itself exactly how they manage it.”
“Many small businesses are just too small to get a 401(k),” he says. “There
is just too much cost associated with them.”
Although no state has yet to adopt a universal voluntary retirement account,
there has been some advancement, Burris says. That progress is all the more
heartening given that most state legislatures were narrowly focused on budget
issues for much of the past year.
EOI is urging the federal government to spend upwards of $15 million to help
states advance the plans. Burris says federal investment would help cover
start-up costs and, perhaps, create the momentum needed to bring additional
states on board with universal voluntary retirement accounts.
