Some states move to help spur retirement savings

Survey after survey has shown the same dire forecast: Americans are dangerously ill-prepared for retirement. We haven't saved, we haven't planned, and some of us haven't even starting thinking about it.

Here's just a few of the warnings.

• A Wells Fargo survey of middle-class Americans said a third are not saving for retirement, and those who are have saved only a median of $20,000.

• The National Institute on Retirement Security said the average working household has "virtually no retirement savings." When all households are included — not just households with retirement accounts — the median retirement account balance is $3,000 for working-age households and $12,000 for near-retirement households, according to the report, "The Retirement Savings Crisis: Is it Worse Than we Think."

• A third of people in the U.S. have nothing saved for retirement, said a survey by Bankrate.com, a personal-finance website. It gets worse: 14% of people age 65 and older have no retirement savings; 26% of those 50 to 64; nearly a third of those 30 to 49; and 69% of those 18 to 29, the survey said.

That means many retirees will depend heavily on Social Security, and that's not much money. The average Social Security payment is about $1,300 per month — less than $16,000 per year.

President Obama responded to the crisis with his myRA, aimed at low- and middle-income Americans who don't have access to employer retirement plans. That's about half of all U.S. workers and 75% of part-time workers,

And this week, Sen. Susan Collins, R-Maine, chairman of the Senate Special Committee on Aging, will introduce bipartisan legislation to encourage small employers to offer retirement plans and provide incentives for employees to save more for retirement. The Collins-Nelson Retirement Security Act of 2015 is co-sponsored by Sen. Bill Nelson, D-Fla.

"Making it easier for smaller businesses to provide access to retirement plans for their workers would make a significant difference in the financial security of many Americans," she said. "That is why Senator Nelson and I have again joined together to introduce legislation that focuses on reducing the cost and complexity of retirement plans, especially for small businesses, and on encouraging individuals to save more for retirement."

But a number of U.S. states are taking the lead and tackling the problem themselves with retirement programs that will help employees who aren't covered by IRAs to begin retirement accounts and make it easy for businesses to offer them.

The most recent is Illinois, where Gov. Pat Quinn signed legislation approving the Illinois Secure Choice Savings Program. The program, which will go into effect in 2017, will act much like a Roth 401(k). It will establish retirement accounts for 2.5 million workers living in the state who don't have retirement accounts. Employers do not have to contribute and administration will be done by an investment company to be hired by the state.

There are a number of states that are studying similar legislation, according to the AARP — among them Oregon, Connecticut and California. Overall, the plans, called Work and Save, allow employees to save via payroll deduction. (They can opt out, if they chose.) And the companies are not saddled with the costs of administering the plan.

"This makes a lot of sense," said Ric Edelman, author, radio host and CEO of Edelman Financial Services "Why should your ability to save for retirement on a tax-deferred based be dependent on where you work? By creating plans unrelated to the workplace, more people will have access to retirement plans. Currently less than half of private-sector employees have access to a 401(k) plan."

"The real key with all these proposals is that states are recognizing the dire future consequences that Americans lack of savings will have on their economies, and they are working to do something about it," said David Bach, vice chairman of Edelman Financial. "One in three Americans right now have less than $1,000 in savings. The average Baby Boomer has less than $50,000 in retirement savings. Pensions are woefully underfunded."

Sarah Mysiewicz Gill, senior legislative representative with the AARP, said Illinois is on the right side of history. She said studies are in the works in Oregon, Minnesota and California. And Massachusetts is implementing its own plan, which only covers non-profits. Other states such as North Dakota, Utah and Indiana have bi-partisan sponsors lined up for proposals, she said.

"Right now, one out of two Americans don't have a way to save for retirement at work," she said. The average person only has $3,000 saved. The number one reason is access.

"It's a win, win, win" she said. "It's a win for taxpayers because people who don't have access will cost money down the line. For employers, it's a plug-and-play plan. And it's a win for employees who don't have a way to save."

Others aren't too excited about the state initiatives.

"We already have a system that works," said Joe Ready, head of Wells Fargo Institutional Retirement and Trust. "Today's most widely-used retirement saving system — the 401(k) — is a fantastic tool. People who have this, appreciate it; our research tells us that the vast majority of people agree that without access to a 401(k) plan, they would not have saved as much for retirement, and those in a 401(k) plan saved a median of 10 times more than those without a plan. This system can work for even more people with some modifications."

He suggests amending existing plans to include part-time and seasonal workers. And he favors another plan that would allow smaller companies that don't currently offer a retirement plan to go into one big plan — driving down costs and lessening the time commitment. "This, to me, would be the most effective route to pursue as we strive to bridge the retirement gap."

And adds David Lyon, CEO of Main Street Financial in Chicago:

"I think, certainly, it's another tool in the toolbox, so to speak, but it's not a silver bullet by any stretch. "I think in general, the focus needs to be on education, and really, a greater ability to access financial professionals. Not because I am one, but because people need to take a look at their overall life."

"The MyRA program is probably well-intentioned, but misguided," he said. "It's kind of creating another scenario for people who don't have access to a 401(k) to rely on this as the vehicle for retirement. That's concerning. Investing in Treasury bonds isn't going to yield people they return they need."

Katie Libbe, vice president for consumer insights at Allianz Life, said the Illinois plan is "a good thing."

"I like it better than the MyRA. It's more streamlined and less onerous for the employer. It seems like a step in the right direction for people to be able to build back their own pensions. The middle class really needs these types of programs focusing on companies that don't offer an easy way to save," she said.