Minutes after taking the oath of office on Jan. 20, President Trump declared that the era of “transferring power from Washington, D.C.” back to the states and to the American people had officially begun.
The president’s speech made clear that Republican control of the White House and Congress meant that states — the great laboratories of democracy — would finally have greater leeway to solve problems the Washington bureaucracy has failed to solve for generations.
Unfortunately, recent actions in Congress make evident that some lawmakers really do believe the federal government knows best and will act to kill innovation occurring in the nation’s statehouses to appease business interests. In fact, these lawmakers aim to impede progress on one of America’s most pressing challenges: the retirement savings crisis.
More than 55 million Americans — one-half of the private-sector work force — do not have access to a way to save for retirement through an employer-based plan. Many of these are small businesses who do not offer plans because of the costs and complexities of today’s federal laws and regulations.
Today, almost one-third of households age 55-64 have no defined benefit or defined contribution retirement savings, leaving Social Security as their primary source of retirement income. More than one-third of workers have less than $1,000 in retirement savings and two-thirds have less than $50,000.
To address this challenge, the U.S. Department of Labor issued rules and guidance providing rare regulatory relief for states to create simple, low-cost, state-facilitated retirement plans for workers who do not currently have access to a retirement plan through their employer. These public-private partnerships would help small businesses and low- and moderate-income working Americans, who the private-sector retirement savings industry admits has not been profitable for them to help, save for retirement.
Yet, the U.S. House of Representatives recently voted to undo this regulatory guidance that has helped to drive rapid state innovation. Congress should heed Mr. Trump’s words and allow states the freedom to innovate and expand worker access to more ways to save for retirement. The U.S. Senate should refuse to repeat the action taken by the House that would repeal the Department of Labor rules.
Employee participation in these state programs would be voluntary. They can opt-out at any time. The state plans place no liabilities for retirement fund performance on either the employers or state governments.
Governors and legislators on both sides of the aisle have enacted programs, ranging from auto-enrollment IRA-based retirement account programs in California, Illinois, Maryland and Oregon to marketplace programs in New Jersey and Washington State. Polling shows both Republicans and Democrats support these state initiatives and more than 30 states in 2016 either enacted or considered retirement savings legislation.
The Trump administration and Congress should support the state efforts for four reasons:
First, they are good for workers. Workers are 15 times more likely to save if they have access to retirement savings plans through their employer. Lack of access to a workplace-based savings plan leaves an individual alone to navigate an array of complex financial products and options, uncertain about what to choose.
Second, they will reduce government spending. Failure to address the retirement crisis will leave governments paying more for social services, such as health care and housing, as the baby boomers and subsequent generations retire. A new study by Segal Consulting estimates that in the first 10 years after state-facilitated retirement savings plans are established, states will save $5 billion in Medicaid spending.
Third, it’s good for small businesses. Small firms report feeling overburdened by the paperwork and administrative obligations that come with offering their own plan. State-facilitated plans would minimize administrative burdens on small businesses while ensuring their employees have the tools and education they need to take control of their retirement. At the same time, these state-facilitated programs will also encourage greater retirement plan adoption. This is a win-win for small businesses and plan providers.
Fourth, states are proven problem-solvers. The 529 college savings model is a great example of how states utilize public-private partnerships to help Americans solve pressing financial challenges. There were 12.5 million active 529 accounts in the United States in 2015, with $250 billion in assets under management, proving that Americans like having the simplicity of a few options offered through a state-facilitated program. State-facilitated retirement plans would offer the same level of clarity and comfort.
The federal government and the private sector have failed for decades to expand access for half of the private-sector work force. The president and Congress should trust states and allow them to innovate with new ideas and approaches to help America’s families save and build greater financial security in retirement. Not all rule making is bad. States are leading the way and Washington should not be fooled into putting back obstacles that federal rule making removed.
• David Damschen is the current Republican Utah state treasurer and Richard Mourdock is a former Republican Indiana state treasurer.
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