Retirement Crisis, Small Businesses and the State

Jerry Brown, the Governor of California, signed the California Secure Choice law during the last week of September. This law needs small businesses having five or more employees and who do not provide any retirement plans being sponsored by them (the employer) to enroll all employees in state-sponsored plan. These steps gave California’s 7.5 million workers access to retirement savings accounts.

California is not a pioneer in this regard. It is one of the eight states which have similar programs already up and running. According to Georgetown University Center for Retirement Initiatives, many other states are actively considering to adopt such plans. The Obama administration was previously stopped by Congress when it tried to fashion federal retirement plan.

Reasons

The state is concerned for a number of practical reasons. The United States is potentially facing a crisis related to retirement savings. If one goes by the June findings of Bipartisan Policy Center, about 50 percent of American private sector workers suffer from a lack of access to retirement savings plans. There are some workers who do not contribute even if they have access. About one-third of the households headed by 55 year old persons have no defined business plan or have zero assets inside a retirement account. Average retirement savings of households which are headed by persons between 55 to 64 years of age is $104,000. This is insufficient to support the retirement period which can stretch to 20 years and even in a few cases, 30 years.

According to Jack Mazloom of National Federation of Independent Business, an advocacy group for small businesses, it is yet another expensive regulation. He stated that more than 50 percent of the members of the group presently provide the 401(k) retirement accounts. He brings out an interesting counterpoint of workers at these businesses unwilling to participate in such savings schemes. This is due to their young age. They are far away from retirement and thus do not feel the need for such programs.

Small businesses target

The small businesses remain at center of state savings plans. This is because they are the biggest employer of the private sector workers. Even though a few employers welcome such plans, many are afraid that these laws will impose regulatory and administrative burdens on companies. Mazloom is afraid that the present laws will be made much tougher and compel businesses to get more involved, like needing employers to match contributions. This would need greater administrative oversight and thus more expenses.

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