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State can play valuable role in helping to build nest eggs

John Burbank

Recently, the Legislature's House Appropriations Committee grappled with the government's role in helping to get people to save for their own retirement. It is a big and growing problem. We are on the road to reversing all the progress we have made over the past 50 years in enabling retirees to avoid poverty.

Fewer than 50 percent of workers have the ability to save for retirement at their workplace. Three quarters of low-wage workers are unable to save for retirement at work. Over one-third of workers making more than $40,000 are unable to save for retirement at work. Their employers just haven't had the patience, the knowledge or the financial wherewithal to set up a retirement savings program for their employees.

Setting up a retirement program can be particularly burdensome for small businesses. The business owner has to wade through literally dozens of options, each claiming to perform better than the others. He lacks the time and information to sort out who's telling the truth and who isn't. Then he has to finance the set-up fees and the ongoing administrative costs. When you're worried about paying your employees a decent wage and figuring out health coverage, retirement plans are something you can push off to the next day or the next year. And that's exactly what happens. More than 75 percent of businesses that have fewer than 20 employees don't offer a retirement plan.

So while we are told to save for retirement, more than half of us aren't able to do that at our place of work. Instead, we have negative national savings, and most of us don't have much of a nest egg for the future.

The typical amount of retirement savings for those who make less than $100,000 (most of us) is $22,000. That will get you a monthly annuity of about $125. We put off saving for retirement in our 20s and 30s. It's easy to do so when you're primarity worried about health coverage, or the mortgage, or college tuition. But eventually our failure to save comes back to hit us.

The Legislature can help solve this dilemma by simply creating a system that would enable every worker to save for retirement and every business to easily participate in a deferred contribution program. That is the intent of House Bill 2044, sponsored by Reps. Eric Pettigrew, D-Seattle, Hans Dunshee, D-Snohomish, and Mark Ericks, D-Bothell. Over in the Senate, newly elected Steve Hobbs, D-Lake Stevens, has taken the lead in developing this proposal.

House Bill 2044 creates the Washington Voluntary Retirement Accounts program. Through the Department of Retirement Systems, it will enable any private sector worker to participate in a work-based IRA and enable any business to participate in a 401(k) type deferred contribution program.

These accounts will be completely portable from workplace to workplace, so workers never have to stop saving for retirement. They will have low administrative costs, thanks to the state's bargaining power in financial markets. And most importantly, they will enable all workers to save through payroll deductions, so that pre-tax wages are invested in these accounts.

People tend to think that you have to make a lot of money to save for retirement. But the fact is if you begin saving early, even as a low-income worker, you can build a nest egg that amounts to something. Let's say you're 25 years old, make $25,000 this year, put 3 percent of that into a retirement account (that's less than $15 a week), and your employer matches that 3 percent. Even if you only get a 1 percent wage increase a year, you will end up with more than $200,000 saved when you retire. That rolls over into a $1,500 annuity you can count on every month, more than doubling your Social Security check.

That can be the difference between a retirement of worry and fretting about your finances and a retirement with financial peace of mind. That's why it is important for the Legislature to get this program going now. We literally can't afford to delay saving for retirement another year.

John Burbank, executive director of the Economic Opportunity Institute (www.eoionline.org), writes every other Wednesday. Write to him in care of the institute at 1900 Northlake Way, Suite 237, Seattle, WA 98103. His e-mail address is john@eoionline.org.