How OregonSaves for retirement
Despite Congressional repeal action earlier this month, Oregon intends to become the first state in the nation to launch a retirement savings plan for workers statewide who do not already have access to one through their jobs.
Called OregonSaves, the state-based program was approved by the Oregon Legislature in 2015 under loosened federal Obama-era rules. The Oregon plan requires that over the next two years all businesses in the state have a payroll-withholding retirement program for their employees. Large businesses already offering a 401(k) savings program must certify that they have one.
Oregon Treasurer Tobias Read, responded to the Congressional repeal action on May 3, saying that "In Oregon, OregonSaves will continue to move forward with our pilot program that launches July 1. The need to address the oncoming retirement crisis is too great."
Opponents of state-based retirement savings programs such as OregonSaves say that state plans violate basic standards of ERISA (the Employment Retirement Income Security Act of 1974), which set up nationwide 401(k) savings plan rules. "We support these plans but we don't support them when they infringe on employers who already provide 401(k) plans and operate in multiple states," said Will Hansen, senior vice president for retirement policy at the ERISA Industry Committee, a lobbying group.
Instead, opponents propose new federal rules that would allow small businesses in each state to band together to pool workers' retirement savings in one plan. The federal rules would be consistent across state lines. Meanwhile, Washington, California and Illinois are, like Oregon, are moving ahead with their own plans.
OregonSaves, much like a 401(k), will offer savers a menu of investment funds where they can put their money. Boston-based State Street Global Advisors, which manages assets of $2.47 trillion, has been contracted to administer the program. Fund management fees will run 1 percent or lower.
OregonSaves is not a pension plan and has nothing to do with PERS, the under-funded Oregon Public Employee Retirement Fund. Instead, the state's new payroll withholding plan mandates that workers will automatically be enrolled in a Roth Individual Retirement Account within 90 days of their hire. A withholding-savings rate is set at 5 percent per paycheck, unless otherwise designated by the worker.
Starting with a pilot program in July, OregonSaves is to roll out in phases over the next two years. Businesses with 100 or more employees will be first to set up the program.
Mandatory for employers, OregonSaves is intended to eventually offer an automatic retirement savings plan to an estimated 1 million people working statewide who now have no savings option.
Employers already offering a 401(k) to regular employees will be required to offer the OregonSaves program to part-time workers who may not be covered by the regular plan. Self-employed business owners also are eligible for OregonSaves.
This month, an OregonSaves.com web site goes "live" where both employers and employees may learn more about the program.
OregonSaves will be different from a 401(k) plan in that employers will NOT match money saved by their employees. Money withheld in the plan is after-tax revenue and goes into a Roth Individual Retirement Account. Employees must OPT OUT of the OregonSaves retirement program rather choosing to sign up. Withholding at 5 percent per paycheck will automatically increase by 1 percent a year to 10 percent.
"Everyone agrees that we have a retirement savings crisis in this country," said James Sinks, director of communications and stakeholder relations for the Oregon State Treasury. "There's agreement that more savings in needed, the status quo is not working."
What could possibly go wrong with this plan?
While the goal of this plan is meritorious, the set-up, reporting and management of OregonSaves will likely add to the bureaucratic reporting burden for small business owners, especially those who operate retail and restaurant businesses with high employee turnover. It is yet to be seen how the electronic payroll withholding and tracking system will operate.
And with the new Congressional rollback of the state-based savings idea, Oregon and other states can expect private industry-sponsored litigation intended to block implementation of their programs.
The reality is that half of Americans have no money saved for retirement. But workers are 15 times more likely to save for retirement, if that option is available at work.
Julia Anderson writes for women about money and retirement at sixtyandsingle.com.