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AARP AARP States Money

A Savings Plan for Workers, Small Businesses

Les Wallace, owner of iNtelligent Air in Austin, likes the idea of a ‘work and save’ plan. Photo by Brandon Thibodeaux.

By Tracy Sutton Schorn

Les Wallace could be considered part of the booming Texas economy. In 2012, he started his own air-conditioning and heating company in Austin, iNtelligent Air Services, employing five workers.

It has grown to 14 full-time employees. But having a retirement savings plan for Wallace and his workers seems out of reach, as it is for many small businesses.

“Retirement? That sounds like a good but far-fetched idea,” said Wallace, 38. “I wish I could offer a plan.”

A retirement savings plan, he said, could help him retain his older, more experienced crews. But he is deterred by the cost and red tape.

iNtelligent Air is typical. According to the AARP Public Policy Institute, 57 percent of workers in the private sector in Texas—roughly 5.5 million—work for an employer that does not offer a retirement plan. Of those without plans, 78 percent are working for small businesses like Wallace’s.

Most Americans are not saving enough to maintain their standard of living in retirement. The average Social Security benefit is about $1,340 per month. According to the National Institute on Retirement Security, the median retirement account balance is $2,500 for all working-age households nationwide and $14,500 for near-retirement households.

Among ways to address the grim savings rates are “work and save” programs—public-private partnerships set up by the state to facilitate savings plans, with payroll deductions, for small businesses and the self-employed.

When workers have the option to save for retirement with payroll deductions, savings rates increase dramatically. So far, Illinois, Washington and Oregon have adopted such programs and about 20 state legislatures are considering them.

In Texas, work and save is at the “groundwork stage” without a legislative proposal yet, said Tim Morstad, advocacy director at AARP Texas.

Voluntary participation
Morstad cited Washington state’s program as a good model for Texas. Expected to open next year, it will be available to businesses with fewer than 100 employees and will offer an online marketplace portal with private-sector savings plan options.

Participation for businesses will be voluntary. Employees will be able to keep their plan when they switch jobs.

Morstad stressed that the program as envisioned in Texas would be entirely voluntary and could be a win for employers as well
as workers.

Washington state officials are working with employers and employees as the program is being developed, making plans to promote low-cost savings options.

The Washington plan is designed to be easy for employers to set up, with no ongoing costs or risk to the businesses or the state.

In several states, small-business leaders have endorsed work-and-save proposals. In some others, business groups have said they are wary of a plan they fear could be burdensome.

Supporters of savings plans in Indiana, New Jersey and other states said that better savings rates over time will mean that fewer residents will become dependent on state and federal programs in their later years.

For employees, having access to savings plans through payroll deductions in the workplace means more financial choices and a chance to build their own economic security. More retirement savings for all Americans could also lessen future income disparity.

“Eliminating barriers to private retirement savings will be tremendously beneficial and would give more Texans an opportunity for a financially secure future,” Morstad said.

Wallace, of iNtelligent Air, said he would sign up. “Anything with more choices that gets me out from under the red tape is a benefit,” he said. “I have no desire to work until I’m too old to enjoy life.”

Tracy Sutton Schorn is a former Texas writer living in Washington, D.C.

About AARP States
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