How State Mandates Are Changing The Future of Retirement Savings…And Why You Should Start Paying Attention
By Chad Parks, Ubiquity Founder and CEO
Imagine if you knew as much about your personal finances as you do your favorite sports team. Sure, your dinner conversations would probably be pretty stale, but I bet your savings would be breathing a little easier.
It would be difficult to dispute the benefits the 401k has had on individual’s life savings. For most, managing their account is a fairly painless process, and more importantly it’s helped millions of people save billions of dollars towards their retirement. What many people may not be aware of is that we have a “looming” retirement crisis on our hands—one that will have devastating economic impacts, unless steps are taken today.
Facts About Retirement Savings Programs
Most large companies offer retirement savings programs. However, if you’re working for a company that has fewer than 100 employees, it’s worth taking note of the following numbers:
- 67% of companies with fewer than 100 employees don’t offer a retirement savings plan
- 92% of companies with fewer than 20 employees don’t offer a retirement savings plan
That’s about four million businesses representing 40 million Americans. There has traditionally been a lack of access based on a gross misconception of how much a plan costs or the time it takes to administer.
The reality is, there are plans designed specifically for the small and micro-small business that will deliver not only a lifetime of savings for employees and employers, but also offer tax benefits that positively impact a business’s bottom line—such as annual tax credits and deductibility.
When you consider the fact that pension programs don’t exist anymore and Social Security was never meant to be the primary source of income in retirement, that puts the onus back on personal savings, making it as crucial as ever for small businesses and their employees to act.
States and Retirement Savings
Luckily (and sadly), states have begun taking notice of this retirement savings shortfall. Beginning Summer 2017, Oregon will pilot a state-sponsored retirement savings plan that provides employees with automatic enrollment, payroll deduction and automatic annual contribution escalation. If you’re an employer with at least five employees, you’ll be required to offer a qualified retirement savings plan (401k) through the private sector or participate in the state’s program.
Oregon is one of over a dozen states that have explored implementing mandated plans around savings, and over the next several years, expect to see tens of millions in the workforce become new savers, primarily coming from small businesses. The expense to businesses will be negligible, and the impact on savers will be exponential for what’s been a traditionally neglected market.
Taking Personal Responsibility
As more states inevitably come to pass further legislation, it’s imperative that we shift our mindset from entitlement to independence. It’s up to you to take personal responsibility for your future so you’re not in a position of relying on the government or your employer as a primary source of income during retirement. So, ask yourself the following questions:
● Do I have a retirement savings (401k, IRA, 403b) account available to me?
● If so, am I maximizing how much I can annually save?
● If not, what can I do to change that?
If you can expand your monthly savings, it’s worth trying to save a little more (easier said than done, I know) – but especially if your company matches. If you don’t have a plan, consider opening up an IRA – an account you can open regardless of a company’s benefits. There are contribution limits, but even small amounts now can build up in an enormous way towards retirement.
As for the immediate future, California, Illinois, Connecticut, and Maryland have passed similar legislation to Oregon. More than a dozen other states are progressing towards the same goal. Surely, there will be pushback – some are resistant to the words “mandate” and “requirement”. But that narrative is unlikely to stick, since there’s absolutely nothing wrong with strongly encouraging or even requiring people save for their retirement, for the greater good.