Posted by: Cynthia Tolan
Millions of workers struggle to save for retirement in part because it isn’t easy enough to open an account or to have the money automatically deducted from their paychecks. But they could soon find themselves with more options.
The Labor Department recently unveiled a rule that should make it easier for States to launch their own retirement plans for private-sector workers who don’t already have access to savings accounts through their jobs. The rules provide a clearer road map for States who want to provide such plans but needed more federal guidance. The Department also announced a proposed rule that would open the door for large cities to create their own plans.
States that create their own plans will be able to automatically enroll workers into individual retirement accounts (IRAs). Workers will also be able to have their contributions automatically deducted from their paychecks, an option that is not usually available for people saving for retirement outside of a workplace plan. Employees typically gain access to these easy saving strategies when they have retirement plans at work, such as a 401(k) plan.
But because the retirement accounts are IRAs and not 401(k)s, savers would not have some of the other benefits that workers with a workplace plan might receive, such as matching contributions from their employers. People saving through IRAs can also set aside less money each year than those saving through 401(k)s. But the IRAs give the states a simpler way to fill the gap for workers who don’t have access to accounts while also keeping the burden low on the states and employers, retirement experts say.
Few workers, when left to their own devices, will take action to open their own retirement accounts, such as an IRA. Fewer than ten percent (10%) of people without workplace plans were contributing to any retirement account. And the pool of employees without workplace plans is large: One-third of all workers do not have access to retirement accounts through their jobs!
Eight states are working to launch their own retirement plans. Some states have hesitated to create their own plans out of concerns that their plans may be subject to federal regulations that may require more paperwork and higher administrative costs.
The latest move is part of a broader effort to make the sometimes intimidating process of saving for retirement simpler and more seamless for the millions of Americans who are not stashing away enough money for their later years. Last year, the Treasury Department rolled out the myRA, an account for people who don’t have access to plans through their jobs. Through the myRA, savings are backed by the U.S. government instead of being invested in the stock market.
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