TESTIMONY OF MIKE FESTA, STATE DIRECTOR, AARP MASSACHUSETTS REGARDING SENATE BILL NO. 2084 AND HOUSE BILL NO. 35, HOUSE BILL NO. 3143:
AN ACT RELATIVE TO THE 401(k) CORE PLAN
BEFORE THE JOINT COMMITTEE ON STATE ADMINISTRATION AND REGULATORY OVERSIGHT, BOSTON, MA
JUNE 9, 2021
"Good morning. I am Mike Festa, State Director of AARP Massachusetts. AARP is the nation’s largest nonprofit, non-partisan organization dedicated to empowering Americans 50 and older to choose how they live as they age. On behalf of the nearly 38 million members nationwide and 775,000 members here in the Commonwealth, thank you for the opportunity to speak today. We urge you to favorably pass SENATE BILL NO. 2084 AND HOUSE BILL NO. 35, HOUSE BILL NO. 3143 - AN ACT RELATIVE TO THE 401(k) CORE PLAN.
Now more than ever, state leaders must help workers save for the future and the CORE Plan expansion is a good step forward. This expansion will allow employees of nonprofit organizations with more than 20 employees to enroll in the program.
The pandemic has shown how vital it is for Americans to have savings to depend on. We must make it easier for small business owners and employees to save and take control of their future.
- Nearly half (55 million) of American workers have no access to a retirement savings plan through their employers.
- 70% of workers employed by businesses with fewer than 100 employees do not have a pension or retirement plan
- The average household only has $2,500 saved for retirement.
- The average household that is near retirement has only $14,500 in savings.
About 49% of private sector workers in Massachusetts do not have access to a retirement savings option at work, many of them working for small businesses. And when they do, many retirement savings products currently available are complex to establish, costly, or not portable. The problem is not one of willingness- small business owners want to offer retirement savings options and employees want to save. The problem is lack of access. Although individuals without access to a way to save for retirement at work could open up their own individual retirement accounts, this rarely happens. Only 5% of people will go out on their own and open an IRA, and the numbers haven’t changed in decades. Yet, we do know Americans are 15 times more likely to save when they can do so at work. According to research from Vanguard, they are 20 times more likely to save if their workplace plan is automatic.
Additionally, certain groups of people are disproportionately impacted by a lack of access to retirement plans. The higher rate of part-time employment among women is a large factor in their low eligibility rates for employer-sponsored retirement plans. Employees of color are significantly less likely to have access to workplace retirement plans, and households of color have disproportionately lower retirement savings than white households. The contingent workforce, including gig workers, tend to also lack this critical access to employer-sponsored retirement plans. Programs are necessary to reach a huge and underserved population.
Massachusetts is no exception to this retirement crisis. The average Social Security benefit in Massachusetts is about $17,000 a year, while on average older families in Massachusetts spend $22,000 a year on food, utilities, and health care alone. Social Security was never intended to be a person’s sole source of income in retirement, yet in 2012, more than one in four older Massachusetts citizens relied on Social Security for 90% or more of their income. At this rate, one out of every two middle-class retirees will be unable to afford their basic needs in retirement- things like medicine, utilities, and rent.
This problem is not going to solve itself. This will cost taxpayers down the line in social services. If we take action today we can reverse this trend.
Action in Other States
Many states have taken action in moving forward on retirement security. States such as Vermont, Maryland, Illinois, Oregon, and California have taken bipartisan action towards solving the retirement crisis in their states. Vermont created the first state-facilitated multiple employer plan (MEP), the Green Mountain Secure Retirement Plan, which is which has not yet been launched. Maryland has set up a board to implement and administer the auto IRA Maryland Small Business Retirement Savings Program. The Illinois Secure Choice Savings Program is an auto IRA program that launched last year, and California’s CalSavers is an auto IRA program that launched earlier this year.
Oregon was the first state to implement this kind of retirement security solution, with their launch of OregonSaves in 2017. OregonSaves was the first in the nation program of its type- an automatic IRA retirement savings solution for businesses and employees in the state of Oregon. With over $28.5 million saved already, OregonSaves is leading the way to a more secure future.
Why it is Vital to Act Today
Making it easier for people to save their own money for retirement isn’t just the right thing to do- it’s also fiscally responsible. Cost-savings to states in the form of social services due to increased savings by individuals for retirement are significant.
AARP urges the Committee to favorably pass SENATE BILL NO. 2084 AND HOUSE BILL NO. 35, HOUSE BILL NO. 3143 - AN ACT RELATIVE TO THE 401(k) CORE PLAN.
We look forward to working with you and would be happy to assist you in any way possible on these important issues. Thank you."