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Noel Bonam is the state director for AARP Maine. Mark Iwry is a visiting scholar at the Wharton School at the University of Pennsylvania and former senior adviser to the U.S. secretary of the treasury.
It is a sobering fact that more than 207,000 Maine workers aged 18 to 64 currently have no access to a retirement savings program at work. Few of these employees save on their own. Considering the economic impact of COVID-19, many Mainers face deeper retirement savings deficits with little to fall back on when they reach retirement age.
Thanks to a new law — An Act to Promote Individual Savings Accounts through a Public-Private Partnership — which passed with strong bipartisan support under the leadership of state Senate Majority Leader Eloise Vitelli, D-Arrowsic, these statistics are going to change.
The new legislation is designed to help workers, small businesses and our communities. It provides a common-sense, public-private solution to Maine’s retirement savings gap by automatically enrolling eligible workers into Roth IRAs with private-sector investments. Other states like Illinois, California and Oregon that have enacted similar “Work and Save” automatic IRA laws are seeing encouraging results. Across all three states, by our calculations, almost 400,000 employees at more than 37,000 businesses have already saved over $322 million, and these numbers are growing rapidly.
Under the new Maine law, employees of small and medium-sized businesses that do not currently offer a retirement savings plan will be able to save an amount they choose from each paycheck and watch their contributions grow in a Roth IRA until retirement. Their savings will be “portable” and stay with them if they change employers or relocate outside Maine.
Workers are in control: any individual who does not want to participate can opt out or can opt for a different contribution level or investment option.
This new program won’t burden business owners, either. In the current tight labor market, employers are seeking creative ways to attract workers. Maine’s “Work and Save” automatic IRA law can help business owners compete for the employees they need without matching employee contributions or taking on any fiduciary responsibilities.
If a business already offers a 401(k) or other retirement savings plan option for its employees, this new program will not apply to or affect the employer or their existing plan. The employer is simply a conduit for employees to save their own money in an IRA, with no responsibility for setting up the IRA and no involvement in investing the funds. As confirmed by a Pew Charitable Trusts focus group, business owners recognize that by helping workers save, they may see additional benefits in their ability to attract and retain valued employees.
An important Maine sector with a history of limited opportunity for retirement savings is the 10 percent of Mainers who are self-employed, including farmers, fishermen, contractors, artists, foresters and loggers. Nationally, self-employed workers ages 50 to 64 have lower rates of participation in workplace retirement plans. The new Maine retirement savings program will make it easier for these workers to save.
Finally, there is a benefit for Maine taxpayers and the financial health of our state and communities. The AARP Public Policy Institute estimates that Maine could save $23 million over a 14-year period by helping people save for their own retirement. The taxpayer savings would come from reducing the costs of programs such as Medicaid, Supplemental Security Income, Supplemental Nutrition Assistance and housing assistance. In addition, after a brief start-up period, the new retirement savings program is expected to involve no continuing administrative costs to the state.
Thanks are due to the state Legislature for seeing the value in this important “Work and Save” automatic IRA concept for Maine, and to the tireless efforts of Vitelli; Sen. Trey Stewart, R-Presque Isle, Treasurer Henry Beck, Attorney General Aaron Frey, and to the many small-business owners who stepped forward in support of the bill this session. Enabling working Mainers to make automatic contributions to retirement savings will ultimately be of benefit to us all.