Chances are if you run a small business, you do not have a retirement savings plan for yourself or your employees.
A new initiative has been proposed that would help over 1.2 million private sector employees in Massachusetts get access to retirement savings plans. That’s
Most of these employees work for small businesses that cannot afford to have retirement plans in place or do not have the bandwidth to take on the administrative burden of managing these plans.
The Massachusetts Secure Choice Savings Program Act would take care of this by enabling the automatic enrollment of workers into less expensive and less admin-intensive retirement plans through payroll deductions.
Overview of the Massachusetts Retirement Savings Challenge
Many small businesses in Massachusetts struggle to offer retirement savings plans to their employees due to high costs and administrative burdens. This situation leaves a significant portion of the workforce without a reliable way to save for retirement.
Current Solutions
Some small businesses manage by not offering any retirement plans, while others might try to provide less comprehensive options. However, many workers remain without any plan at all.
Non-profits in the state currently have access to the “Connecting Organizations to Retirement” (CORE) Plan.
This is a retirement savings initiative designed specifically for non-profit organizations with 20 or fewer employees. Introduced in 2017, the CORE Plan helps these small non-profits offer 401(k) retirement savings plans to their employees.
The CORE Plan simplifies the process of creating retirement savings plans by providing a group 401(k) plan that these organizations can join, thereby reducing administrative burdens and management costs.
It enables employees of participating non-profits to save for retirement directly from their paychecks, similar to employees in larger organizations that can afford private sector 401(k) programs.
As of early 2021, the plan was looking to expand by removing the cap on the number of employees, allowing more non-profits to participate regardless of their size.
Proposed Legislation
The Massachusetts legislature is considering bills (H.B. 998 and S.B. 624) to create a state-facilitated retirement savings program. This program would automatically enroll employees in a payroll deduction retirement plan, which employees could opt out of if they choose.
Public Invovlement
Led by the AARP, The Massachusetts Secure Choice Coalition has been formed, bringing together organizations that want to advocate for the expansion of the state-facilitated retirement savings program. They hosted an online information session in April 2024 where members of the public were invited.
If you would like to get involved, send an email to: ma@aarp.org.
Do we have any precedent?
So far, 15 states have passed similar bills:
These are California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maine, Maryland, Minnesota, Nevada, New Jersey, New York, Oregon, Vermont, and Virginia.
If you want to geek out on what this law might look like it it passes, take a look at: General Business Law Article 43, New York State Secure Choice Savings Program.
The challenges ahead
For this new act to succeed, a few challenges have to be overcome:
Administrative and Operational Complexity
Implementing a new retirement savings program requires managing numerous administrative tasks and ensuring compliance with regulations.
Read more from The Pew Charitable Trusts.
Cost Concerns
Some business owners worry about the potential hidden costs associated with the program. Among them is Christopher Carlozzi, National Federation of Independent Business Massachusetts Director, who said: “With the costs for health insurance, taxes, mandated leave benefits, energy, and unemployment insurance higher in the Commonwealth than in most other states, the available resources of small business owners for support of employee retirement savings are diminished.”
Details are discussed by 401k Specialist Magazine.
Participation Rates
The effectiveness of the program depends on high participation rates, yet there is a risk that employees might opt out.
Pew Charitable Trusts provides insights on this challenge.
Political and Legislative Hurdles
The program needs legislative approval, which can be a significant hurdle.
Details on the legislative process can be found on the Mass Legal Services website.
Public Awareness and Education
Ensuring that both employers and employees understand the program is crucial.
Given the massive amounts of information that people have to deal with, bigger budgets and more targeted strategies may be needed to get the right awareness.
Legal and Regulatory Compliance
The program must align with existing retirement savings regulations.
Information on legal standards and compliance can be read on ERISA guidelines from the U.S. Department of Labor’s website.
FAQs
Q: What is the main goal of the proposed retirement savings program?
A: The program aims to provide all workers in the private sector without access to employer-sponsored retirement plans a way to save for retirement through payroll deductions.
Q: How would the program affect small businesses?
A: It would allow small businesses to offer retirement benefits without the high costs and administrative responsibilities, potentially making them more competitive employers.
Q: Can businesses opt out of the state-facilitated program?
A: Yes, businesses would be able to offer their own plans at any time instead of participating in the state program.
Q: What are the concerns of small business owners regarding the proposed program?
A: While many support the program, concerns remain about the costs associated with setting up and managing retirement plans.
Q: What benefits do small business owners see in the proposed program?
A: Owners believe it would help in attracting and retaining employees by offering competitive benefits and help reduce financial stress among workers.
More Information
- AARP supports Work and Save retirement plans in Massachusetts
- Small Businesses in Massachusetts Support State-Facilitated Retirement Savings Program
