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.

Today, about half of all full- and part-time workers, about 55 million in total, don’t have access to a payroll deduction retirement savings plan. When employees don’t have access to payroll deduction, very few of them save for retirement on a regular basis. And without significant retirement savings, millions of those retiring between 2018 and 2032 will be forced to rely on basic taxpayer-financed government programs to supplement their Social Security benefits. Recognizing this, almost 30 states are considering a state-facilitated retirement savings program that would enable small-business employees to build their own economic security.

When considering the data, it’s easy to understand why states want to use this effective policy tool. Using public databases and widely accepted economic modeling tools, the University of Maine estimated the number of people who reach age 65 each year between 2018 and 2032, as well as their Social Security benefits and any additional income. The study then determined how many new retirees will have incomes so low that they will qualify for means-tested benefits (i.e., benefits available only to those below a certain income level) and the amount of benefits they would receive. The study considered both the total cost of those benefits as well as the share of that cost paid for by each of the 50 states.

Next, the study brings state-facilitated retirement savings plans into the equation. To do so, the study increases the retirement income of lower-earning workers by just $1,000 a year and estimates how many fewer retirees would need the taxpayer-paid services. Some of these people would permanently avoid needing these programs, and some would be able to delay starting those payments. In both cases, taxpayers would see reduced costs. In addition to the national study, which also includes Maine state numbers, the researchers developed individual state data showing how much taxpayers in each state could save.

As the study shows, state-facilitated retirement savings plans would reduce the costs for taxpayers — to the tune of $33 billion — and reduce dependence on government programs by allowing workers to rely on their own resources to build retirement security. Today, only 1 out of 7 small businesses offer their employees a payroll deduction retirement savings plan. State-facilitated retirement savings plans for small-business employees would be simple, low-cost and easy to understand for both employers and their workers. Enabling Americans to depend more on their own resources is a valid goal in itself. The fact that such a plan would also save taxpayers money is an added benefit.