A number of states have pension plans for their citizens.

Illinois

Illinois has recently passed a new plan to provide pensions for a wide variety of its citizens.  According to the Chicago Tribune:

The law requires all businesses in operation for at least two years and that have at least 25 employees to offer by June 1, 2017, its workers an individual retirement savings option.

Such companies without a work-based savings plan such as a pension or 401(k) can decide to work with private entities but they can also join the newly created Illinois Secure Choice Savings Program, which comes with a default 3 percent payroll deduction.

“This is a special … opportunity, for all of us to go forward at helping people save for retirement,” said Quinn, who in about a week will be replaced by Gov.-elect Bruce Rauner.

In Illinois, state officials said, 2.5 million private-sector employees do not have access to a work-sponsored retirement savings plan. Officials expect the vast majority of those offered plans under the new law will stick with it, though it allows them to opt out or lower their contribution amounts.

A match or employer contribution is not required, and no public dollars will be invested.

 

California

Currently, 7.5 million Californians work for employees who do not offer a retirement plan.  On September 29, 2016, Governor Jerry Brown signed Senate Bill 1234 to establish the California Secure Choice Retirement Program.

This program, expected to be phased in starting in 2019, will require all employers within California with five or more employees who do not offer their employees another retirement savings plan to participate. Employees will be automatically enrolled in the program, but can opt-out.

According to the New York Times:

Under the plan, uncovered employees would have up to 5 percent of pay deducted from their paychecks, unless they opted out.  Those contributions would be pooled and managed by investment professionals chosen by the state through a bidding process. The plan, called the California Secure Choice Retirement Program, would be overseen by a board of public- and private-sector leaders, appointed by the governor and the Legislature in 2012, when the legislative effort first got underway.

The benefits of such a plan are the lower fees and higher returns that come with pooled contributions and professional management.  The burden on employers is minimal: They have to deduct the employees’ contributions from paychecks.  The risks to the state are also minimal: Because the accounts are financed entirely with employee contributions, they do not present the fiscal problems associated with any public pension funds.

 

Connecticut

The Connecticut Retirement Security Exchange requires covered employers to automatically enroll their employees into a Roth-IRA arrangement. The act covers:

  • Private employers with five or more employees who received at least $5000 in wages during the previous year
  • Have been in business for at least one year, and
  • Don’t offer a qualified retirement plan.

Companies with less than five employees may participate voluntarily.

Beginning January 1, 2017, the Connecticut Retirement Security Authority will have oversite of the retirement plan, which will begin in 2018.

The initial response to the program are positive.  Nora Duncan, AARP Connecticut state director, said “We applaud Connecticut for creating a plan that provides 600,000 workers without a workplace retirement savings plan an opportunity to build a secure financial future for their families.  The law adds no additional cost to taxpayers and will lead to less reliance on state-funded social safety net services in the future.”

Other Countries

Other liberal democracies are much more aggressive in supporting retirement savings programs.  The following infographic is from the GAO:

The GAO report notes that California’s and Illinois’ programs are quite similar to the U.K.’s, in that the government created a board to provide a “reasonable option to meet the requirement to provide workers access.”