Rhode Island workers need Secure Choice

California, Connecticut, Oregon, Colorado, New Mexico, and Illinois already offer portable retirement savings programs for private sector employees to save. (Getty image)

AARP’s mission is to empower people to choose how we live as we age.  Financial security is essential to that empowerment.

A new AARP survey finds that 20% of adults ages 50+ have no retirement savings, and more than half (61%) are worried they will not have enough money to support them in retirement. 

Every Rhode Islander deserves to retire with dignity and financial security. They work hard, and they want to put aside savings for retirement. Unfortunately, far too many workers lack access to workplace retirement savings options. Pensions are rare; many employers do not offer a 401(k) option. 

Some 40% of Rhode Island private sector workers ages 18 to 64 in 2020 are employed by businesses that do not offer any type of retirement plan. Over 70% of workers at Rhode Island firms with under 10 employees, and about 59% at companies with between 10 and 24 employees lack a plan. With fewer employers willing or able to offer traditional pensions or 401(k)s, it has fallen more and more to employees to establish their own retirement savings plans. However, workers are 15 times more likely to save for retirement if they have access to a payroll deduction savings plan through their employers, 20 times more likely if it is automatic.

There is an urgent need to put in place a savings plan that can work for both employees and their employers. The General Assembly can provide employees of small businesses with a choice to save for retirement by passing legislation that would create Secure Choice, a portable, voluntary retirement savings program that will be accessible to over 172,000 private sector employees in Rhode Island.

Responding to AARP Rhode Island’s survey of small business owners, close to three-quarters (72%) of Rhode Island small business owners support a privately managed, ready-to-go retirement savings option that would help small businesses offer employees a way to save for retirement. Among those who currently do not offer a way to save for retirement to their employees, most (72%) would be likely to offer them access to a state retirement savings option if one were available.

Every Rhode Islander deserves to retire with dignity and financial security. They work hard, and they want to put aside savings for retirement. Unfortunately, far too many workers lack access to workplace retirement savings options.

The need for Secure Choice is broad. About 71% of Rhode Island workers who do not have a high school degree do not have access to an employer-provided retirement plan— compared with 42% of Rhode Island workers with some college and 26% with a bachelor’s degree or higher. Looking at the actual numbers of workers without access to an employer plan, those with at least some college exceeded those workers without a high school degree (97,000 versus 22,000).

With Secure Choice all private employees (who work for employers with five  or more employees) would have the option to enroll in an IRA retirement program overseen by the state and managed by a private financial institution. 

Employee participation would be completely voluntary, and any eligible employee may opt out of the program, or to increase or decrease their contribution rate at any time. Employees would have a range of choices for how to invest their savings, with a lineup of investment options overseen by the State Investment Commission. 

Secure Choice would not expose employers to any cost, or to any legal or fiduciary liability. The benefit would be portable and stay with employees if they change employers.

Passing Secure Choice is critical. The average Social Security benefit in Rhode Island is about $22,000 a year, while on average older families spend $30,000 a year on food, utilities, and health care alone. At this rate, one out of every two middle class retirees will be unable to afford their basic needs in retirement. This will cost Rhode Island taxpayers down the line in the form of public assistance program increases.

This is the cost of doing nothing: Pew Charitable Trusts’ analysis of inadequate retirement savings in Rhode Island show that given current savings rates, taxpayers in Rhode Island would face a cumulative $456 million in additional social assistance if nothing changes. Additionally, based on current and projected tax flows, Rhode Island taxpayers may be on the hook for another $3.08 billion tied to their share of increased federal spending on social assistance programs. Combined, the cost to Rhode Islanders, attributable to insufficient retirement savings, total $3.54 billion, which works out to an additional $11,600 per working age household by 2040.

Secure Choice works for employees, for employers and every Rhode Islander.

Workplace savings plans similar to Secure Choice have been enacted in 18 states to date. Connecticut’s program led to over 21,0000 workers saving more than $11 million dollars in the first year of operation. These savings would not have been realized without Secure Choice.

It’s time we address Rhode Island’s retirement savings crisis head-on. The benefits of Secure Choice are clear. Let’s give our state’s workers an important new tool to set the course for their own financial future.

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