State-based retirement plans for the private sector
There is a movement afoot to use the efficiencies of public retirement systems to administer new types of pension plans for private-sector workers. Below are brief summaries of plans that have either passed or are being considered.
In addition, AARP’s Public Policy Institute has established a State Retirement Savings Resource Center, a library of policy papers, key facts, opinion pieces, and studies related to state-based plans for private-sector workers.
On January 22, 2014, Rep. Martin Quezada introduced HB 2063, legislation to establish a trust program providing payroll deposit retirement savings arrangements available to private employers in Arizona that have five or more employees. The bill was assigned to the House Appropriations and Rules Committees, and no further action has been taken.
On September 28, 2012, Governor Jerry Brown signed into law S.B. 1234, the California Secure Choice Retirement Savings Trust Act. The bill, which was sponsored by Senator Kevin de Leόn, will eventually require that all businesses with five or more employees that do not already offer a retirement plan enroll them in a new type of savings plan based on Individual Retirement Accounts (IRAs).
California Secure Choice accounts differ from IRAs in several ways. The new system’s investments would be professionally managed by the California Public Employees' Retirement System or another contracted organization. Employees would be automatically enrolled in the plan and would contribute about three percent of their wages through payroll deduction, although they could opt out of the plan. A modest benefit would be guaranteed through underwriting by private insurers, and not by taxpayers.
Employers would not have any fiduciary liability involving the fund; their sole requirement is to assist their employees by permitting them to use their payroll-deduction systems to make retirement fund contributions.
To date, the State has established the California Secure Choice Retirement Savings Investment Board and the California Secure Choice Retirement Savings Trust, as required by the statute. The Board has begun work on the market analysis and the feasibility study that are required before the new savings accounts can be established.
On April 14, 2014, legislation creating the Retirement Security Task Force (HB 1377) was introduced by Representatives Mark Ferrandino, John Buckner, Pat Steadman, and Lois Tochtrop. The bill passed the Colorado House on April 30, 2014, but was rejected by the state Senate on May 6, 2014 by a vote of 17-18. The bill would create a legislative task force to make recommendations for increasing the number of Coloradans working in the private sector who have are enrolled in a retirement plan and are investing for their retirement.
SB 249, an Act Promoting Retirement Savings, was introduced into the Connecticut General Assembly in February 2014 by Representative Joe Aresimowicz and Senator Martin Looney. The bill was voted out of the Labor and Public Employees Committee in March. Key provisions of the bill were incorporated into Connecticut’s "budget implementer" bill, which was approved by the legislature on May 7, 2014 and signed into law by the Governor on May 28, 2014.
The legislation dedicates $400,000 toward the establishment of a Connecticut Retirement Security Board and directs the Board to conduct a market feasibility study and create a comprehensive implementation plan for a new state-administered retirement program. The implementation plan must be submitted to the Governor and General Assembly for final approval by April 2016.
If approved, the implementation plan would create an automatic IRA that would be administered by the appointed trust fund board, as in California. Employers with five or more workers would be required to participate unless they offer a different retirement savings plan to their employees. Unlike most IRAs bought in the private market, the money would be paid out as a lifetime annuity with an option for workers to select a lump-sum, helping to ensure that people will not outlive their assets while preserving worker’s ability to choose the option best suited to their financial needs. Finally, a modest guarantee and low fees would protect the money saved by hard-working employees.
Read a more detailed summary of the Connecticut legislation.
On December 3, 2014, the Illinois General Assembly passed SB 2758, an Act creating the Illinois Secure Choice Savings Program, which was introduced by Senator Daniel Bliss. The bill now awaits Governor Pat Quinn's signature.
SB 2758 establishes a payroll-deduction IRA for workers whose employers do not offer any other retirement savings vehicle in the workplace. The bill requires all businesses in existence at least two years with 25 or more employees to automatically enroll their employees in the Secure Choice Savings Program unless they offer another retirement option to their workers.
Employees can choose to opt out of the program at any time, and they can determine a contribution level and select among a small number of investment options. A default contribution level of three percent of salary is offered to those who do not select one on their own, as is a default life-cycle investment fund for those who do not choose one from the options offered. Assets are pooled into a single fund and managed by the Illinois Treasurer and a qualified board, providing participants the benefit of low fees and competitive investment performance.
On January 7, 2014, SB 66 was introduced by Senator Greg Walker and referred to the Senate Pensions and Labor Committee. It was voted out of the Committee on January 9, 2014 and reassigned to the Senate Tax and Fiscal Committee. No further action has been scheduled.
SB 66 establishes a state-assisted retirement plan to encourage Indiana residents to increase their rate of savings. The bill establishes the Indiana Retirement Savings Board to oversee the plan. Participation in the plan is voluntary for both employers and employees, and is limited to employers who do not offer their workers another retirement plan. SB 66 also provides a tax credit, not to exceed $250, for payroll contributions to the plan by a participant who has not previously participated in a pension or retirement plan.
On April 30 2013, LD 1473 was introduced by Representative Diane Russell to create a public option pension system. The bill was referred to the Committee on Appropriations and Financial Affairs, where work sessions were held on the bill in January 2014. The Committee reported the bill “Ought Not To Pass” on January 23, 2014.
In January 2014, Senator James Rosapepe introduced SB 921, the Maryland Secure Choice Retirement Savings Program and Trust, in the Maryland State Senate. Delegate Tom Hucker introduced a companion bill HB 1251 in the Maryland Assembly, currently pending in Committee. SB 921 was the subject of a hearing in the Senate Budget and Taxation Committee on February 20. The bill was still pending when the Maryland General Assembly adjourned for the year on April 7, 2014.
The bill would provide a retirement savings plan to employees of private-sector employers with at least five employees that do not already provide an employer-sponsored retirement or pension plan. Eligible employers would be required to make the program available to their employees through payroll deduction. Employees are required to participate unless they opt out. Before the plan could go into effect, it must secure tax-favored qualification from the Internal Revenue Service and it must be determined that the plan is not subject to the federal Employee Retirement Income Security Act.
On January 1, 2014, Governor Martin O’Malley signed an executive order creating a “Task Force to Ensure Retirement Security for All Marylanders.” The Task Force is directed to examine how Maryland can improve retirement security for private-sector employees, and to recommend concrete steps that the State can take to ensure the opportunity for a secure retirement is offered to all Maryland private-sector workers. The Task Force is to issue a report by December 4, 2014, and will disband on February 15, 2015, unless the Governor determines more study is needed and provides an extension.
On May 12, 2014, Governor O’Malley announced that former lieutenant Governor Kathleen Kennedy Townsend will chair the Task Force. The remaining members include members of the Maryland House of Delegates, Senate, Governor’s Cabinet, the State Treasurer, labor unions, the financial services industry, the small business community, and the retiree community.
In March 2012, Massachusetts enacted HR 3754, an Act Providing Retirement Options for Nonprofit Organizations. The new law allows the State Treasurer to sponsor a retirement savings plan for workers at small non-profit organizations in the Commonwealth. The retirement plan would be a tax-qualified defined contribution arrangement with various investment options available to employees. Contributions could be made by workers, their employers, or both. A “not-for-profit defined contribution committee” of five members would be established to assist the State Treasurer in developing policy and providing technical advice for the plan. The plan would be marketed particularly to nonprofits with 20 or fewer employees.
The Massachusetts plan has been developed and is currently pending before the Internal Revenue Service for final authorization.
On February 27, 2014, SF 2078, Minnesota Secure Choice Retirement Savings Plan Establishment, was introduced in the Minnesota State Senate by Senator Sandra L. Pappas. The bill passed the State and Local Government Committee on March 12 and was referred to the Commerce Committee. The Commerce Committee passed the bill on March 26 and referred it to the Finance Committee, where it is currently pending.
The Minnesota Secure Choice Plan bill would require the Commissioner of Management and Budget to report to the legislature by January 2015 on the potential establishment of a state-administered retirement savings plan to serve employees without access to another retirement savings plan.
On December 10, 2013, the Retirement Systems Committee of the Nebraska Legislature held a hearing to discuss LR 344, a resolution calling for an interim study to examine the availability and adequacy of retirement savings for Nebraska’s private-sector workers. The hearing was hosted by Committee Chair Senator Jeremy Nordquist.
On October 2, 2013, SB 199 was introduced by Senator Eric Kearney. The bill would create the Ohio Secure Choice Retirement Savings Program under which certain private sector employers must offer employees a payroll deposit retirement savings arrangement. No further action has been taken on the bill.
On July 7, 2013, Oregon’s state legislature passed HB 3436, which creates a task force to explore options for helping private-sector workers who lack access to a workplace retirement plan save for retirement. The bill was signed into law by Governor John Kitzhaber on August 1, 2013.
Sponsored by Representative Jules Bailey, Senator Lee Beyer, and Senate Majority Leader Diane Rosenbaum, HB 3436 authorizes the creation of a seven-person task force that will develop recommendations on ways to increase the number of Oregonians saving for retirement through new structures that could be facilitated by the state. The task force’s report is due September 1, 2014.
The task force is headed by Oregon Treasurer Ted Wheeler, who was named Elected Official of the Year by the National Conference on Public Employee Retirement Systems in January 2014, in recognition of his efforts to help people save for retirement. Mr. Wheeler also convened a bi-partisan roundtable in New York City of union representatives, financial services leaders, and state treasurers to discuss whether new options are needed to help workers save. The task force began holding public meetings on March 18, 2014, and held its most recent meeting on July 15, 2014.
On January 7, 2014, Senator Anthony Pollina introduced S 193, a bill creating an interim Public Retirement Plan Study Committee to evaluate the feasibility of establishing a public retirement plan. The Committee would also study whether private-sector employers of a certain size who do not offer an alternative retirement plan should be required to offer the public retirement plan through a voluntary payroll deduction that would be available to private-sector employees who are not covered by an alternative retirement plan. The bill was referred to the Committee on Economic Development, Housing and General Affairs on January 7, 2014, and was favorably reported to the Committee on Appropriations on March 3, 2014, where it remains.
On June 9, 2014, the Governor signed into law H 885 (Act 0179), legislation providing appropriations for Vermont agencies. Included in the bill was an appropriation of $5,000 to conduct an interim study on the feasibility of establishing a public retirement plan.
On January 17, 2014, HB 2474 was introduced by Representative Larry Springer in the Washington House of Representatives, and Senator Mark Mullet introduced a companion bill, SB 6294, in the Senate. Hearings were held on HB 2474 in the House Appropriations Committee on January 28, 2014, and a substitute bill passed the Committee on February 11 and was referred to the Rules Committee. HB 2474 passed the Washington House on February 14, 2014 by a vote of 54-43. In the Senate, the bill was referred to the Senate Committee on Financial Institutions, Housing & Insurance. This Committee referred the bill back to the House Rules Committee for a third reading on March 13, 2014.
HB 2474, the Save Towards a Retirement Today (STaRT) bill, would create a voluntary retirement savings account for small-business owners and their employees, operated by the Washington State Investment Board. Employers are not required to contribute; there is no minimum contribution for employees, and the account is portable.
On January 30, 2014, HB 4375 was introduced by Delegate Doug Reynolds to create the West Virginia Voluntary Employee Retirement Accounts Program. A companion bill, SB 488, was introduced in the Senate. HB 4375 was referred to the House Pensions and Retirement Committee and the House Finance Committee, where it was considered and passed. The bill passed the House on February 26, 2014, by a vote of 52-43. The bill was then introduced in the Senate,and referred to the Pensions and Finance Committees, where it was pending on March 3, 2014, when the legislature adjourned for the year.
On February 17, 2014, Senator Dave Hansen introduced SB 611 (LRB 3894-1), a bill creating a Wisconsin private retirement security board that would study the feasibility of establishing a private security retirement plan for private-sector workers and designing a plan to submit to the legislature. The bill failed to pass before the legislature adjourned for the year.
Looking for help with your retirement plan?
If you have a problem with your retirement plan, free help may be available from the U.S. Administration on Aging's network of Pension Counseling and Information Projects. Find help now.
We're hearing from people around the country who are worried about cuts to their pensions. These are their stories. Share yours here.
Roadmap to retirement
Let our roadmap to helpful information about retirement plans for private-sector workers put you on the path toward a secure retirement. Get started.
PensionHelp America connects people who need help with their pension, 401(k), and other retirement plans with the pension counseling projects, legal services providers, and government agencies that can help answer their questions. Visit www.pensionhelp.org.
Get E-mail Updates
Retirement USA is a national initiative that is working for a new retirement system that, along with Social Security, will provide universal, secure, and adequate income for future retirees. Visit the website.