State-Sponsored Retirement Program: Is New York State on Deck?
By Alyssa Snyder, NAIFA-NYS Counsel
Governor Andrew Cuomo announced in January of 2016 the creation of the SMART Commission (“Saving More to Achieve Richer Tomorrows”). This commission was created as Cuomo’s vehicle to study available options for the creation of a state-administered retirement savings program for workers whose employers do not offer a retirement plan.
Over the course of the year, many surveys have been published supporting the notion that private-sector workers are not adequately saving for retirement. However, these surveys have not answered the underlying question – why isn’t the private sector adequately saving? How can the state create a solution if it does not fully understand the reasons behind it? If New York wants to create a successful retirement program, it should not jump into the creation phase without its own due diligence.
OTHER STATES
Thirty (30) state legislatures have taken steps towards establishing their own state-sponsored retirement programs, eight of which—Massachusetts, Washington, New Jersey, California, Maryland, Illinois, Connecticut, and Oregon—have enacted legislation.
These states have created programs that establish one of three systems: a state-sponsored ERISA plan; a state-sponsored non-ERISA plan; or a plan to collaborate with the existing private retirement market and with employers to offer plans.
Massachusetts’s program offers an ERISA state-sponsored plan in which the employer remains subject to ERISA’s fiduciary obligations, but the state assumes the administrative and management responsibilities.
Washington and New Jersey both have chosen to provide their private-sector employees with the option of selecting an ERISA plan or a non-ERISA plan. Under Washington’s program, the state acts as more of a guide for employers, encouraging them to adopt an employee retirement plan by giving the employers, whose participation is voluntary, options in the existing private-sector retirement market.
Some states, such as Massachusetts, Washington, and New Jersey, have programs that are voluntary for employers and allow them to decide if they want to auto-enroll their employees and contribute to the employee accounts.
California, Maryland, Illinois, Connecticut, and Oregon’s programs, though, are all structured around non-ERISA plans. Participation is mandatory for employers, and their employees are automatically enrolled, unless they opt out. Employers in California are prohibited from contributing to their employees’ accounts if doing so would trigger ERISA, while the other states (except for Maryland, which doesn’t address contributions by either employers or workers) don’t allow employer contributions at all.
Aside from the differences in the enrollment process, the majority of all these state-sponsored retirement programs provide for a Payroll IRA and a default contribution rate.
NEW YORK
New York is on deck as one of the next states to probably create a state-sponsored program, though Gov. Cuomo has yet to announce how it would be structured or its enrollment features, and his commission has not issued any report.
If New York is going to implement a unique effective state-sponsored system, rather than just following the lead of others, it needs to take a step back and study the reasons behind the inadequate savings of private-sector workers. New York cannot expect to solve a problem it does not understand.
In its fifth nationwide public opinion research project, the National Institute on Retirement Security (“NIRS”) conducted a survey and found that the top three reasons why saving for retirement is difficult have nothing to do with a lack of available work-sponsored programs. In fact, according to the survey the top three factors include the rising cost of long-term care, salaries that don’t keep up with financial obligations, and increasing debt.
New York may find through its own research that, similar to Washington’s program, simplifying the retirement savings process is best. Educating employers and employees on the availability of qualified, low-cost, personalized options within the existing financial services market may well be the most effective avenue for New York.
