Whether it’s the reality of living paycheck-to-paycheck, or just plain procrastination, more than a third of all Americans say they have nothing saved for retirement.
With fewer companies offering pension plans, and the number of companies offering employees 401(K) programs decline, more and more workers could find themselves on their own in their golden years. Less than half of private sector workers have access to retirement plans at their workplace, a state of affairs that is making state governments step in.
“States are moving because the feds won’t,” Teresa Ghilarducci, economics professor at the New School told CNBC’s On The Money in an interview.
“The idea is that if the federal government isn’t going to do something and everybody in cities and states knows there’s going to be a retirement crisis,” Ghilarducci added, “the states said, ‘we should do something.'”
More than 20 states are developing retirement savings plans for workers who don’t have plans at work. Meanwhile, legislation for state-based private retirement plans has already passed in Illinois, Oregon and Washington State.
Illinois’s plan will start in 2017. The state would require businesses with at least 25 employees but no employer-based retirement plan to participate, but workers can opt out at any time. Illinois will automatically deduct 3 percent from workers’ paychecks into a state-run investment pool.
Some observers, however, argue that forcing retirement plans on the private sector is not the best method.
“We can all agree that Americans can do a better job at saving for retirement, but lack of options is not the issue,” said Andy Blocker, executive vice president of public policy and advocacy at the Securities Industry and Financial Markets Association (SIFMA).
“We don’t want to create fifty new state retirement plans, especially when the (pension) plans that exist currently in states are nearly one trillion dollars underfunded,” he told CNBC.
Blocker added that SIFMA is not in favor of many of the new state-run programs, but the “best example” would be Washington state’s plan, which he called a “public-private partnership.”