A Plan to Boost Savings at Work

By Pamela Schmid

Seven years ago, Jason Rathe began offering the dozen workers at his Minneapolis-based landscaping company access to an individual retirement account.

“We always thought that’s what a company does: provide a way for employees to save for retirement,” said Rathe, owner of Field Outdoor Spaces. He has been disappointed, but not surprised, to find himself in the minority of small-business owners.

“We’re all on the edge of not making it,” Rathe said, “dealing with other things that are more critical.” Offering a savings plan “is just not the norm,” he added.

With 39 percent of private-sector employees in the state—roughly 873,000—lacking access to a retirement plan at work, state lawmakers are expected to take up legislation next year to offer a state-administered option. Under the Minnesota Secure Choice plan, the state would make it easier for workers to save through an automatic payroll deduction.

As the population ages, advocates say a plan is needed to combat a looming savings crisis caused by disappearing pensions. Nationally, the average working household has saved only $2,500 for retirement. For households near retirement (age 55 to 64), those savings average only $14,500.

“Many people do not have personal savings, and we believe that is driven in part by the fact that they don’t have easy ways to save for retirement,” said Mary Jo George, advocacy director for AARP Minnesota.

Social Security isn’t enough to make up the difference, George said, forcing a growing segment of the population to work longer to stay out of poverty.

In 2014, the Minnesota Legislature earmarked $400,000 to study the feasibility of running a state-managed IRA for workers who lack a retirement savings option through their employer. A final draft is expected before the start of the 2017 session.

Who will oversee?
State Senate President Sandy Pappas, the plan’s chief sponsor, said she would like to see the State Board of Investment, which oversees public employee pensions, manage the plan. Pappas (DFL-St. Paul) said she also supports a mandate for employers, although small businesses could be exempted.

In a recent survey commissioned by AARP Minnesota, 61 percent of small-business owners who currently do not offer savings plans said they would take advantage of a state plan if offered. Those surveyed favored low-cost, widely accessible plans that followed employees from job to job.

Jeff Schmidt, owner of Lizzards Art Gallery and Framing in Duluth, said he would “definitely” support a state-managed plan. As a sole proprietor with three employees and long hours, “it’s scary to do on your own,” he said. “I don’t have time to meet with a consultant on a retirement plan.”

At least seven other states have enacted similar savings plans.

Some business groups are skeptical. Beth Kadoun, a vice president at the state Chamber of Commerce, warned of “increased employer costs for new labor mandates and financial risks to taxpayers.”

Pappas said she favors a plan in which workers are automatically enrolled but can choose to opt out. Research has shown that participation in a defined contribution plan jumps from 42 percent to 91 percent when enrollment is automatic.

Rathe said he is frustrated that fewer than one-third of his employees make use of his IRA plan, even though he offers a match of up to 3 percent.

“I feel like I’ve done a disservice in not pushing it harder and helping them see why it’s critical for them at their age,” he said. "The number of people who use it should definitely be higher.”

Pamela Schmid is a writer living in St. Paul.