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'State-K' Could Help Employees Save for Retirement

Amy Brown, of Stillwater, is looking for a low-cost, hassle-free way to save for retirement. Photo by John Haynes

By Mary Van Beusekom

When psychotherapist Amy Brown went into private practice in 2010, she left behind a company-sponsored retirement investment plan.

A single parent of a 9-year-old daughter, Brown, 48, has only $20,000 in her now-stagnant retirement savings plan.

“It makes me really nervous, because I will need to retire at the same time my daughter is establishing her own career,” she said. “I know retirement has to be faced, but I feel so overwhelmed with no time or money to do it.”

Brown, who lives in Stillwater, said she would welcome a low-cost, hassle-free way to save for retirement because she’s unsure how to set up her own plan. “I’d definitely be interested in learning more about it,” she said. “I think people need not only access to something like that but also some help in making it happen.”

Brown may get her wish if several organizations, including AARP Minnesota, are successful in promoting a way to help people save for retirement: a voluntary, low-cost, state-sponsored, automatic (opt-out rather than opt-in) retirement savings plan.

State-K savings plan
“It’s a great way to save, and it’s portable, so if you change jobs, you can take it with you,” said Amy McDonough, AARP Minnesota associate state director for advocacy. “We want Minnesota lawmakers to enact a program that allows people to save for retirement.”

The State-Assisted Savings Plan, or “State-K,” as it’s being called, would be similar to proposed plans in California and Oregon that would provide a tax-deferred retirement savings option for people who don’t have a pension or employer-sponsored retirement plan to supplement Social Security.

It is unclear whether a state-assisted savings plan will be introduced during the legislative session that will begin Feb. 25, but AARP Minnesota and other groups plan to meet with legislative committee chairs to urge its consideration, McDonough said.

At the federal level, AARP will focus on retirement security in terms of protecting Social Security, McDonough said.

The State-K would be aimed at low-income workers but open to anyone lacking an employer-sponsored plan, and would offer workers an automatic payroll deduction—possibly 5 percent.

Employers could choose to contribute to their employees’ accounts—but are not required to—without the burden of being a plan sponsor. Self-employed people such as Brown could make both the employee and employer contribution.

Nationally, roughly 40 percent of the working population does not have access to a retirement savings plan, said Sarah Mysiewicz, AARP senior legislative representative in government affairs.

“One in 6 Americans retire into poverty, and people are saving less for retirement than in the past,” she said. “Taken together, these facts are startling.”

Retirement planners generally suggest that, at retirement, a person should have saved at least eight times his or her final salary.

However, a 2013 study by the National Institute on Retirement Security, which analyzed data from the Federal Reserve, found that roughly 45 percent of U.S. working-age households have nothing saved for retirement.

The importance of retirement savings is even more critical for women, not only because they live longer but because they have fewer sources of income in retirement—including lower Social Security payments—than men, according to the AARP Public Policy Institute.

In Minnesota, women are less likely than men of the same age to live in a family with income from investments—73 percent, compared with 76 percent for men.
Mary Van Beusekom is a writer living in Excelsior

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