State-Facilitated Retirement Plans Can Save Taxpayers $33 Billion and Reduce Dependence on Government Programs
U.S. taxpayers could save almost $33 billion over the next 15 years if every state established a state-facilitated retirement savings plan for small-business employees, according to a new report from the University of Maine. While most of the savings would come from reduced costs paid by the federal government, state taxpayers would save almost $7.8 billion. The savings reflect the lower cost for basic government benefits new retirees would otherwise need if they continue to be unable to save for retirement.
Final Department of Labor (DOL) regulations have opened the way for the largest expansion of retirement plan coverage in several decades. The regulations provide much-needed guidance to states that want to establish state-sponsored automatic IRA plans for small-business employees. Earlier, DOL provided guidance for state-sponsored multiple employee plans (MEPs) and marketplaces.
Individuals need better information to know how much to save for retirement. A good place to start is to provide them with a projection of their total retirement income that includes the monthly income they can reasonably expect from their retirement savings and their Social Security benefits. This combined estimate needs to be on one statement.
Automatic enrollment for retirement saving is both effective and popular among all income, gender and ethnic groups. It has increased participation, helped people to both start saving earlier and to make appropriate investment choices.This mechanism would be even more useful, especially for younger workers and those with low-to-moderate incomes if retirement savings plans also allowed employees to save for unexpected expenses. Recent research by the US Financial Diaries Project, which looks at the actual income flows of low-to-moderate income consumers shows why this feature would be valuable.
AEI’s Andrew Biggs has a proposal to help more people save for retirement. Writing for Real Clear Markets, Biggs proposes to require all employers who offer their employees a retirement savings plan like a 401(k) to use automatic enrollment. Workers whose employers don’t offer such a plan would have “access” to the Thrift Savings Plan (TSP), the retirement savings plan for federal employees. Biggs says that his proposal is “more about making government work better, than about making it larger.”
A soon-to-be- proposed regulation from the Department of Labor could help people understand how much monthly income they can count on their savings to provide in retirement
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