Oregon’s IRA Gets Workers to Save
Luke Huffstutter felt a great sense of relief when the employees of his Portland hair salon started putting money into a state retirement program designed to make saving easy.
This is much better than the “guilt” he felt over many years of desperate attempts – and not much luck – to convince his stylists and other employees to save on their own. He even brought in a financial adviser once to nudge them.
“I have a responsibility to provide them a path to retirement,” Huffstutter said.
Today, 39 of the Annastasia Salon’s 45 employees have joined some 22,000 others across the state of Oregon who’ve accumulated a total of $10 million for retirement through OregonSaves, a state government program being rolled out over time for residents who don’t have savings plans at work.
Oregon was the first state to introduce this type of program, and California, Connecticut, Illinois, and Maryland are following. New York may be next. Mayor Bill de Blasio is proposing a similar program, because more than half of working New Yorkers lack a retirement savings plan at work.
The absence of a retirement plan is a particular problem at small firms, which often lack the money or staff to set up the 401(k) plans common at major employers. OregonSaves, which is mandatory for employers, provides a very low-cost way to automatically enroll workers and send their payroll deductions to personal IRA accounts.
The main stumbling block appears to be that not everyone is as enthusiastic as Huffstutter. Some employers are taking a very long time – more than six months – to set up the payroll deductions, and others that enrolled are showing lower participation rates than the salon.
Oregon employers automatically enroll every employee in the IRA, but it’s voluntary for workers – anyone can opt out. The beauty of automatic enrollment is that people tend to stay put, and new data show that the vast majority of the participants in the state plan are deducting the program’s full default rate of 5 percent of pay, including many of Huffstutter’s salon employees.
The state charges workers a 1 percent fee to manage the program and the investments. The fee is expected to decline once more employers sign up and more revenue starts coming into the program. [Full disclosure: the Center for Retirement Research, which sponsors this blog, provided financial analysis to inform program design in Oregon, Connecticut, and Illinois.]
The salon workers have saved a total of $67,000 – impressive for a workplace where the average pay is just $50,000. “What I hear a lot from employees is, ‘I don’t really notice the money’s gone,’ ” Huffstutter said.
OregonSaves is easy for Huffstutter too. It took about an hour to load his workers’ information into the state website, and he pays $40 a month to his payroll-servicing firm to make the IRA payroll deductions for each salon employee.
Many of his workers come from low-income families, and saving “wasn’t a part of their everyday life,” he said. “OregonSaves has created a place that makes that easier.”
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At the same time, we are also seeing states like NY and IL passing legislation to make it easier for state agencies to confiscate retirement balances or renege on pension promises for state employees who commit some criminal or political transgression. If such plans as in Oregon ever gain traction and become widely successful, a logical outcome would be their use as another way to control behavior. It’s not a stretch to imagine a #MeToo transgressor or one-time embezzler who rightfully loses his/her job and faces jail-time also suddenly being deemed ineligible to receive their life savings. The Oregon solution just shifts sponsorship of the plan from an employer to the state, which only encourages such nefarious meddling by “do-gooder” government. Increasing the availability of tax-advantaged stand-alone savings vehicles would seem to be a better option for working people.
Just throwing an allegation like that around is a little irresponsible unless you can show examples of situations where retirement balances are being confiscated. On the surface, the fact that any state government could reasonably make a case to take someone's retirement savings if those savings come directly from the worker seems legally unlikely. A pension is a benefit from the employer and that is more possible if there is some type of malfeasance occurring on the job. Confiscating a pension seems possible. But a retirement savings account?
See NYS Office of Comptroller’s April 2018 decision which authorized revoking the state pensions of Sheldon Silver and Dean Skelos, former state legislators who were convicted of embezzlement and fraud but now under appeal. See also IL General Assembly “Officials Convicted of Infamous Crimes Act” which allows the Assembly to de fact confiscate portions of high level state employees retirement plans to compensate taxpayers. The latter would include plans that are contribution plans versus pensions.
I respectfully disagree: it is indeed a stretch -- a big stretch -- to imagine a #MeToo transgressor suddenly being deemed ineligible to receive their life savings!!!Tax-advantaged stand-alone savings vehicles have been around for a long time and, obviously, they haven't been used by a lot of workers, particularly lower-income employees. The convenience of having a retirement savings plan with automatic payroll deductions (which, of course, you can change/opt out of) set up for you at work can make all the difference for some people. I think such plans are an excellent idea, and their benefits far outweigh any negatives.
The first person is on to something as these movements can make a big difference especially in blue/left wing states like Oregon.We already see that with colleges and universities having pressure to not invest in Israeli companies, or in firms that are not "progressive". If trustees felt Smith & Wesson were a solid investment do you think there would be big time push back?In NY the governor told insurance companies and banks to stop doing business with the NRA or there license in state to do business would be pulled. No more "CHASE" NRA affinity cards!Government means politics and I don't want them near any pension.
Well stated Marcie.Tony
It would be helpful to check out the "Oregon Saves" web site BEFORE posting statements like, "If such plans as in Oregon ever gain traction and become widely successful, a logical outcome would be their use as another way to control behavior."Please.The investment options Oregon Saves has on its platform are all State Street Funds - one Liquid Asset, a dozen Target Date Funds, and an S&P 500 Index Fund.The "behavior" that Oregon Saves is trying to control is the same behavior most employers who sponsor 401(k) plans try and control and supported by federal law (Pension Protection Act 2006)), specifically how do we get employees to auto enroll in the plan, get them to auto escalate their deferral, and default them into a reasonable investment.At the individual employee level, the Oregon Saves program provides an IRA -- an INDIVIDUAL Retirement Account. It's owned by the individual, not the state of Oregon, not the employer.So, I concur with Tony who said, "Well state Marcie".AL wrote, "Government means politics and I don't want them near any pensions".
There are ways, upheld in an opinion of the SCOTUS on a case out of Arkansas, that an IRA can be attached via lawsuit. Each state has the opportunity to make it easier or harder to attack. In CA, the CalSavers plan is a Roth IRA. People will miss the money because there isn’t any savings on taxes. TDF’s are hardly sound investments, take the time to compare them to good balanced funds.Most business owners in CA are well aware anything sponsored by the State is always best for the State and the State will benefit. It just make take a little time to come to light. Therefore most will avoid the mandated plans.