States take auto IRAs into own hands while Washington dawdles

Maryland and Connecticut launched efforts this week to develop policies to increase retirement savings among residents, taking on an issue that is languishing in Congress.
On Thursday, the Governor’s Task Force to Ensure Retirement Security for All Marylanders met for the first time in Annapolis. Chaired by former Lt. Gov. Kathleen Kennedy Townsend, the group will develop recommendations to expand workplace savings for private-sector employees.
A day earlier, Connecticut launched its Retirement Security Board, a group led by Comptroller Kevin Lembo and Treasurer Denise Nappier, which is assessing the feasibility of a state public retirement program.
Connecticut is trying to determine whether automatic individual retirement accounts or other retirement programs run by the state would boost savings.
“There is a desire for a vehicle that is easy to understand, affordable and marketed to individuals in small companies who may not historically have access [to retirement plans],” said Mr. Lembo. “If we can do something to make a difference in this area, it’s worth analyzing.”
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The Connecticut panel has to file an interim report by next May and complete its study by January 2016. The Maryland group must make its first report to Gov. Martin O’Malley (D) by Dec. 4.
Maryland’s effort emanated from legislation written by state Sen. James Rosapepe, a Democrat from College Park who said the state must address the shortfall in private-sector retirement plans.
“We have lots and lots of people who are at risk of poverty in retirement,” Mr. Rosapepe said. “That’s not good for them, their families, the economy or the taxpayers.”
He said Maryland has to take the issue into its own hands rather than rely on the U.S. Congress.
“Waiting for the federal government to solve a problem is generally not a solution these days given the gridlock in Washington,” Mr. Rosapepe said.
In Congress, a bill that would establish automatic individual retirement accounts for employees of firms that don’t offer retirement plans was introduced by Rep. Richard Neal, D-Mass., last year. It has only three co-sponsors. President Obama also has consistently supported auto IRAs as a way to boost retirement savings.
Republicans are avoiding Mr. Neal’s bill because they see it as a mandate on small employers. Rising partisan tension tied to this fall’s election is likely to keep that measure — as well as most legislation — bottled up.
“There’s no hope anything is going to happen at the federal level this year,” said Judy Miller, director of retirement policy at the American Society of Pension Professionals and Actuaries.
In the Maryland legislature, Mr. Rosapepe introduced a bill in each of the last two sessions that would require employers with at least five employees who do not have a retirement plan to establish an automatic 3% payroll deduction into a retirement plan. A state-sponsored plan would be available to the employees.
The bill was amended each year to turn it into a study and passed the Senate but not the House. Mr. O’Malley established the task force that met today by executive order.
“A lot of issues take a lot longer to make progress than this one has,” Mr. Rosapepe said. “I’m optimistic.”
In Illinois, an automatic IRA bill may get a House vote after being approved earlier this year by the Senate. Under the measure, written by Sen. Daniel Biss, D-Evanston, employers with 25 or more employees who do not offer a retirement plan would automatically enroll workers in a Roth IRA with a 3% payroll deduction.
In both the Illinois and Maryland bills, employees can opt out of the program, which would be administered by state boards.
The Illinois House could take up Mr. Biss’ legislation in a session that will start just before Thanksgiving.
“We’re hoping to build support for the bill between now and then,” Mr. Biss said.
Studies have shown that about half of U.S. employees have a retirement plan at work. Mr. Biss said that’s too few.
“That population of workers can find it difficult to save without the benefit of a vehicle attached to their place of work,” Mr. Biss said. “We have a big retirement savings shortfall. It’s going to lead to very severe human consequences and [substantial] pressure on public budgets.”