A proposed Massachusetts retirement program designed for employees of small businesses without workplace savings plans holds promise, according to new research from Boston College’s Center for Retirement Research (CRR). The study, financed by The Pew Charitable Trusts, finds that such a state program would be self-sustaining and garner significant participation while helping to shrink worker savings gaps and state budget deficits.
Today, nearly half of private-sector workers in the United States lack access to employer-provided retirement plans. The inability to easily and regularly save for the future leaves about one-third of U.S. households reliant solely on Social Security during their retirement years. In Massachusetts alone, this reality affects around 1.2 million workers, with a disproportionate impact on lower-income, non-White, and female workers. If current trends persist, projections show that vulnerable older households could face an average income shortfall of $10,820 per year by 2040, relative to recommended income replacement targets. And that would lead to significant declines in their quality of life.
But the implications extend beyond individual households. According to Pew’s analysis, those shortfalls could lead to an estimated $13.9 billion increase in Massachusetts state spending on social assistance for older residents from 2021 to 2040, linked to this lack of retirement savings opportunities.
Last year, recognizing the importance of addressing this issue, lawmakers in the state House and Senate introduced the Massachusetts Secure Choice Savings Program Act (H. 998 and S. 624). The measures are awaiting votes by both chambers. This effort—similar to initiatives already adopted in 15 states—would create an individual retirement account (IRA) program for certain private-sector workers at no cost to their employers. Under the legislation, businesses without a workplace plan would simply enroll their workers in the program and process payroll deductions. Workers would choose whether to participate, could opt out at any time, and would control their contribution levels. They would always have tax- and penalty-free access to their savings in the event of a financial shock prior to retirement.
To assess the potential impact of such a program, CRR, with input from Pew, conducted a study drawing on the experiences of the three programs launched in California, Illinois, and Oregon—the earliest put in place and, therefore, those with the longest track records. The findings indicate that the Massachusetts Secure Choice Savings Program would see significant enrollment within a short time frame. Projections suggest more than 400,000 newly established retirement accounts within five years and more than 600,000 within 15 years, levels that would significantly narrow the coverage and savings gap.
Furthermore, the report highlights that with a typical contribution and fee structure, historical return on investment, and similar participation and withdrawal rates to the existing initiatives, the program would become cash-flow positive for both the state and the third-party financial partner managing the program within about five years, with all startup costs recouped shortly thereafter. This financial sustainability would be coupled with the indirect benefits to the state’s budget outlook of reducing poverty among residents over age 65 and shrinking the projected increase in social assistance spending.
The Massachusetts Secure Choice Savings Program presents a promising opportunity to significantly reduce the number of workers without retirement savings while ensuring fiscal sustainability for the state and its partners. By addressing the pressing need for accessible retirement savings options, this initiative has the potential to improve the financial security and well-being of hundreds of thousands of individuals and families across the commonwealth.
Andrew Blevins works on The Pew Charitable Trusts’ retirement savings project.