America’s pending retirement crisis—a scenario characterized by millions of workers facing financial shortfalls in their golden years—has gotten the attention of state governments.
While many workers who enroll in pension or 401(k) plans do so through their employers, many businesses do not offer a formal plan. Connecticut recently decided to develop a state-administered retirement plan for private-sector workers. The plan, which will be operated separately from the state’s public retirement system, will be developed by a newly formed retirement security board and will create a low-fee individual retirement account (IRA) for workers who don’t have access to a similar plan through their private-sector employers, according to the Washington, D.C.-based retirement advocacy group Pension Rights Center.
“When people have adequate income in retirement, they will continue to buy goods and services, which helps keep local and state economies moving,” said Karen Friedman, executive vice president and policy director of the Pension Rights Center, in a prepared statement. “Also, they are likely to be more independent and need less support from social service agencies, which ultimately saves the government money.”
Connecticut is the third state (after California and Massachusetts) to enact some form of legislation for state-administered, private-sector retirement plans. The trend is gaining traction, according to the Pension Rights Center, and several other states are considering similar moves.
This has significant implications for HR professionals, even if their organization already offers some form of retirement package. Workers everywhere are facing financial challenges in the post-recession economy when it comes to paying monthly bills, preparing for retirement, budgeting for college tuition or managing other expenses. In fact, seven out of 10 HR professionals responding to a May 14, 2014, survey conducted by the Society for Human Resource Management said employees’ fiscal struggles are having significant impact on their workplace performance.
The survey, culled from a random sample of 401 HR professionals, had a response rate of 14 percent and was fielded from December 2013 to January 2014. Of the respondents, 50 percent reported that employees’ stress from financial problems was affecting their work, and 47 percent said employees’ ability to focus on work was compromised due to these issues.
The survey also revealed that many workers are relying on retirement funds to meet short-term financial obligations; 62 percent of HR professionals “agreed” or “strongly agreed” that employees were more likely to request a defined contribution plan loan over the past 12 months compared with previous years.
Getting Any Better at Saving?
Some reports indicate that retirement planning may be improving. Assets earmarked for retirement were at a record level of $23 trillion in the fourth quarter of 2013, according to the Investment Company Institute, a Washington, D.C.-based association for investment firms.
But other data show that those funds are not necessarily distributed evenly among Americans. The average working household has “virtually no retirement savings,” according to the Washington, D.C.-based nonprofit National Institute on Retirement Security (NIRS). When all households are included—not only those with retirement accounts—the median retirement account balance is $3,000 for all working-age households and $12,000 for near-retirement households, according to a June 2013 NIRS report.
State governments are not alone in their concern. The Bipartisan Policy Center, a Washington, D.C.-based think tank, announced on April 23, 2014, its launch of the “Personal Savings Initiative.” The group will hold a series of roundtable discussions in the coming months to examine government policies, tax codes, the Social Security system and other items related to retirement. It plans to release its recommendations for Americans’ future savings needs in early 2015.
Joseph Coombs is a senior analyst for workforce trends at SHRM.
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