Dick Mansfield 2Save Toward a Retirement Today (START) – Concept Paper for 2014 Legislation

Washington State is facing a Retirement Security Crisis

 - The average monthly Social Security benefit is $1,230 per month[i]. Private savings in addition to Social Security are essential to achieving financial security in retirement.

- A recent state survey of state residents between the ages of 45-64 found that a quarter of respondents (24%) or approximately 462,000 Washingtonians in this age group have less than $25,000 in savings.[ii] Nearly three out of five middle-class Washington retirees can expect to outlive their financial assets[iii]

- More than 38 million working-age households, or 45 percent, do not own any retirement account assets, whether in an employer-sponsored 401(k) type plan or an IRA.[iv]  Seventy-five percent of small businesses do not offer any type of workplace retirement savings option.

- If older adults don’t have enough money to be self-sufficient in retirement, they will be forced to rely on public safety net services – which are expensive for the state. Every dollar Washington spends on safety net services for older adults who can’t afford basic living and medical expenses is a dollar we can’t spend on other essential services like education and public safety.

Solution – START Retirement Savings Accounts

To address this problem, the START bill will makes it easier for small businesses to establish a basic retirement savings option for their employees. Businesses with up to 100 employees will have the option of enrolling their employees in simple, retirement funds, including age-indexed funds managed by the Washington State Investment Board. Instead of spending time and money researching options and setting up a plan, business owners will have a simple “plug and play” opportunity to help their employees start saving toward a secure retirement.

Key Features:

- Voluntary for employers and employees

- Portable as people move from job to job

- No on-going costs or risk for the state

- An effective tool to encourage private savings

Voluntary and portable:

- Employers will have the choice to offer START plans as an option for their employees.

- Employees can take their START accounts with them from job to job, known as a roll-over

- START will be especially beneficial to low-wage workers who are more likely to change jobs repeatedly over the course of their work lives and less likely to have access to retirement savings vehicles at work.

No risk for State Government:

- After initial start-up costs, START is self-sufficient, 100% participant funded

- The State is not responsible for participant gains or losses in the market, state cannot incur long-term debts;

- START funds cannot be comingled with public pension dollars, nor can they add to the state’s public pension liability, and START is compliant with federal law.

 An effective tool to encourage responsibility and self-reliance:

START is designed as a new basic option to get people started in saving for their retirement.  Without a retirement savings option at work, many people (particularly those who are un or under-banked) are unlikely to set up their own IRA. Making it easy for small employers to set up retirement accounts will encourage more people to save. Young people in their 20s, 30s and 40s will build up resources they will need for the future. Over time, this new pool of investors will build up assets and have the option of transferring from the START accounts to funds managed by private investment firms if they wish.

Case Example[v]: A 25 year old woman today could use START to save 3% of her annual $25,000 salary or $400 per year. If she continues at this rate for 40 years, by the time she retires at 65 she will have accumulated $160,000, and likely much more assuming her salary increases over time and her savings compound. These private savings plus Social Security will put her in position for a secure retirement.

Growing support across the nation:

State across the country, including Massachusetts, Oregon and most recently California have passed similar legislation to encourage private savings. In Washington State, a broad coalition of aging and retiree organizations, businesses and unions interests are coming together to support START.

For more information contact:

Ingrid McDonald, Advocacy Director, AARP Washington, imcdonald@aarp.org

 


[i] See the official web site of the US Social Security Administration:

http://ssa-custhelp.ssa.gov/app/answers/detail/a_id/13/~/average-monthly-social-security-benefit-for-a-retired-worker

[ii] Not Making the Grade: 2013 Survey of Financial Decisions Among Washington State Adults Ages 45-65 by Brittne Nelson, AARP Research and Strategic Analysis from AARP Research, April 2013

http://www.aarp.org/work/retirement-planning/info-Q4-2013/not-making-the-grade–2013-survey-of-financial-decisions-among-w.html

[iii] Americans for Secure Retirement, “Retirement Volnerability of New Retirees in Washington”, 2010. Available online: http://www.paycheckforlife.org/uploads/ASR%20WASHINGTON_revised%20for%20Web.pdf

[iv] National Institute on Retirement Security, “The Retirement Savings Crisis: Is It Worse Than We Think?”, June 2013. Available online: http://www.nirsonline.org/storage/nirs/documents/Retirement%20Savings%20Crisis/retirementsavingscrisis_final.pdf

[v] This hypothetical case example assumes no salary inflation, an 8% interest rate and no leakage.

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