Momentum Growing For State-Sponsored Retirement Plans

Date: June 01, 2015

Move To State Retirement Funds Comes Amid State, Local Budget Woes

As state legislatures work to solve the issue of a lack of savings for many Americans, a growing number are considering state-run retirement-savings plans for a range of smaller employers. The goal, the Wall Street Journal reported, is getting employees at small businesses, many of which don’t traditionally provide retirement plans, to have a way to save through contributions deducted from paychecks and put into state retirement accounts. This year Illinois became the first state to approve a state-run retirement-savings program for a wide array of small employers. There are 25 states examining similar moves or debating legislation on the issue, according to American Association of Retired Persons Senior Legislation Representative Sarah E. Mysiewicz Gill.

Government-sponsored retirement programs aren’t without controversy, however. In an op-ed for the Wall Street Journal, Andrew G. Biggs of the American Enterprise Institute argued that while some groups have heralded an improvement in the funding of public pensions, the reality is that many state and local governments continue to shortchange them and are now taking significant financial risks with the money they do have in order to boost their funds. In Illinois, for instance, with the state facing a budget shortfall the Legislature is debating adjusting Chicago’s contributions to its public safety employees retirement fund. Reuters reported that on Saturday the Illinois House approved a measure, in a 65-45 vote, that would restructure Chicago’s contributions to retirement funds for the city’s public safety employees.

What Happens Next

Illinois mandate SB2758 goes into effect June 1, and means employers with at least 25 employees who have been operating at least two years and do not already offer their employees a retirement plan must use the state’s plan. Washington State became the second state to approve a mandated state-run savings program, which will be implemented by 2017. Massachusetts is working to implement a 2012 mandate on the issue, but nothing has been finalized. Other states are expected to address the issue in the near future, meaning small businesses across the US may soon face mandated retirement programs.

What This Means For Small Businesses

Small businesses are burdened with many labor costs, and often owners do not have the resources to provide retirement benefits for employees. However, by getting involved in the issue of retirement savings, states are in danger of adding additional time-consuming, costly regulations to their small businesses. Illinois was the first state to start what may be a worrisome anti-small business trend.

Additional Reading

NFIB previously noted Illinois’ auto IRA mandate.

Related Content: Small Business News | Chicago, IL | Labor

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