Large companies usually offer a 401 (k) plan and match a portion of their employees’ savings, but millions of small businesses can’t afford to create their own 401 (k) or don’t see it as a priority. .
As a result, about half of private sector employees in the United States do not have a retirement savings plan at work, a situation that has not changed for at least 40 years, according to a new report from Boston College’s. Retirement Research Center.
The report says some states are trying to close this coverage gap in the absence of substantial progress by the federal government in addressing the problem.
So far this year, Colorado, Maine and Virginia have passed bills requiring private employers without a pension plan to automatically enroll their workers in IRAs, with workers allowed to opt out. New York City approved its program in May, and other states are starting to implement programs or are examining their options.
The report says mandatory programs are the only practical way to close the coverage gap, as voluntary retirement savings initiatives have never done so, including voluntary plans created by the federal government, such as the Simplified employee pension plan.
The state’s auto-IRA programs eliminate the administrative burden and expense of a private plan for employers and offer workers an easy way to save money, the report notes. The money is taken out of their paychecks before they can spend it and is deposited into an account that grows over time.
Public programs also allow workers to withdraw their contributions without penalty tax in an emergency if they need the money they have saved.
See the gallery for the six states that have automatic enrollment plans in place for private sector employees.
– In connection with ThinkAdvisor: