The Small Business Retirement Marketplace is being launched under a bipartisan bill signed Monday by Washington Governor Jay Inslee. The measure will give companies with fewer than 100 employees an easily accessible option for employees to save in a tax-advantaged account.
The state estimates 1.5 million Washington workers lack access to a workplace-based retirement savings account. Illinois recently passed a similar program to support workplace retirement savings that industry observers described as the first program of its kind to be implemented in the states.
A new marketplace director will work with the private sector to establish a program to connect eligible employers with qualifying plans. Employers are free to choose from an array of voluntary private retirement plan options, including life insurance plans designed for retirement purposes. The program will offer at least two kinds of savings plan: a plan modeled on the SIMPLE IRA that takes employer contributions, and a plan similar to an individual retirement account funded through payroll deductions, which doesn’t take employer contributions.
The bill’s sponsors, Sen. Mark Mullet (D-Washington) and Rep. Larry Springer (D-Washington), are themselves small-business owners who know firsthand about the retirement savings challenge. The two see the marketplace as a much easier solution to what is now a complex effort.
The number of Washingtonians who lack adequate retirement savings is unsustainable, said Rep. Springer, and is leading to an enormous strain on the state’s resources if they wind up on public assistance. The marketplace is a viable alternative, and one that’s easy for small-business owners to use.
NEXT: Retirement marketplace gets a wide nod of support.
“Employers do not have to do anything but deduct and forward the money, the same way they handle taxes,” Springer said. “We know people are very unlikely to save for retirement if they are not offered a plan through work. The Small Business Retirement Savings Marketplace will allow more workers access to a safe, easy, and affordable way to retire in dignity.”
Sen. Mullet noted that it’s not just retirees in the near term who must be prepared for retirement. “We also need to make sure 20- and 30-year-olds are saving,” he said. “We have to break a cycle of people reaching retirement age who are not able to keep working but are too poor to retire.”
Small businesses often lack the information and resources available to find the right retirement savings plan for their employees, said Marin Gibson, managing director of the Securities Industry and Financial Markets Association (SIFMA). She lauded the program for its expected access to low-cost, low-fee options that are fully portable and provide the same investor protections available to private investors.
Washington’s legislation is part of an AARP national initiative called Work and Save, supported by a number of organizations, including AARP Washington, the Economic Opportunity Institute, Russell Investments, Small Business Majority and SIFMA.
The Small Business Retirement Marketplace will be designed and managed by the Department of Commerce, including developing criteria for private-sector financial services firms to participate. The Department of Commerce will identify and promote existing federal and state tax credits for employers participating in this plan.
The state of Washington will carry out various supportive measures, including:
- Identifying financial services firms willing to offer specific retirement plans and investments,
- Establishing a marketplace website for employers to learn about the firms and their products,
- Publishing performance data on investments; and
- Enforcing agreements of the marketplace.
The marketplace plans to offer features including:
- No cost for a business to participate;
- Employees pay fees no greater than 1% of their account balance;
- Employers may contribute either a flat 2% of salary or match employee contributions up to 3% of a worker’s salary;
- Employers can choose a plan with employee contributions only;
- Employees decide how much to contribute and choose their own investments; and
- Plans on the marketplace will have very minimal paperwork for employers.
The text of the Small Business Retirement Marketplace (SB 5826) is here.