Retirement security is largely dependent on people saving money through a plan provided by their employer, but millions of Americans lack access to this important benefit. Research shows that workers are 15 times more likely to save for retirement if they can do so through payroll deductions, but many small businesses are unable to offer retirement benefits due to high startup costs and a lack of administrative capacity.
Nationally, 56 million workers—nearly half of the private-sector workforce—don’t have retirement benefits at their workplaces, which affects the ability of working families to plan for their financial future. The lack of access to workplace savings also affects taxpayers. A recent study by The Pew Charitable Trusts quantified the costs of insufficient retirement savings both nationally and in Ohio and found that insufficient savings results in decreased household spending and an increased demand for social assistance programs, placing an even greater burden on a shrinking tax base.
But there’s good news: Even small savings now could help offset the impact of this projected $11.8 billion shortfall. If Ohio households saved an average of additional $2,200 a year, about $185 a month—meaning that some households would save more and some would save less—they could erase the taxpayer burden while ensuring themselves a decent standard of living in retirement.
To spur such saving, lawmakers in 16 states have passed legislation to create automated savings programs designed to make it easier for businesses to help workers save for retirement. In these programs, variously known as “secure choice,” “auto-IRA,” or “work and save,” employees who don’t have access to employer-based benefits are automatically enrolled—and, if they don’t opt out, save into an individual retirement account (IRA) at no cost to employers. Workers always control their contribution level and can opt out at any time; no one would be required to participate. Businesses would incur no costs and would simply enroll their workers and process payroll deductions. In addition, businesses could stop facilitating the program at any time by adopting an employer-sponsored plan, such as a 401(k).
If Ohio were to enact similar legislation, it would join California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maine, Maryland, Minnesota, Nevada, New Jersey, New York, Oregon, Vermont, Virginia, and Washington in expanding retirement security for its residents. Although some of the state programs are relatively new, over 800,000 savers in the seven states with active programs have already amassed $1 billion in assets. These workers are saving $168 per month on average, demonstrating that saving even $5 per day can lead to significant sums over time.