Americans face significant challenges when it comes to saving for retirement, and lack of access to employer-sponsored savings plans is one of the major obstacles. While people are more likely to save for retirement if their employers offer a savings plan, about half of the working-age population does not have access to these benefits.
This disparity is exacerbated at smaller companies, which often don’t have the financial resources or technical know-how to implement and manage a retirement plan, such as the popular 401(k). These kind of retirement plans are composed by pre-tax savings contributed by the employee and, in some cases, the employer will match with some extra funds.
New England States Are Trying to Give Retirement Savings a Boots
To address this gap in retirement savings, several New England states, including Connecticut, Maine, Vermont and Rhode Island, have taken steps to establish free retirement programs for employers who would otherwise be unable to offer these benefits to their employees.
These state programs are designed to be accessible and low-cost for small businesses, which are often forced to not offer retirement plans due to the high costs and associated administrative burden.
A notable example is the MERIT Saves program in Maine, which was launched in January and has attracted the participation of about 540 companies. This program simplifies the process for businesses by setting up automatic payroll deductions for workers to contribute to retirement savings with tax advantages. Unlike many 401(k) plans, in which the employer must also contribute, in these state programs the responsibility lies mainly with the employee.
The introduction of these free state retirement programs is a direct response to the need to increase retirement savings among American workers, which are dangerously low across the country. According to a Pew Charitable Trusts report, state and federal governments are projected to spend an additional $1.3 trillion on public assistance programs in the coming years if private retirement savings are not increased.
What You Need to Know About the Proposed Free Retirement Systems
The lack of retirement savings options also significantly affects employees of small businesses, as evidenced by the case of Flowfold, a wallet and backpack manufacturer in Maine. Prior to the implementation of the MERIT Saves program, Flowfold and many other small businesses were struggling to find an affordable retirement plan that they could offer to their employees.
The state of Massachusetts offers a voluntary retirement plan known as CORE specifically designed for small nonprofit organizations with fewer than 20 employees. This initiative was launched in 2017 on a trial basis with ten employers, and it has since grown to include approximately 200 employers and 2,000 participants. The CORE plan aims to provide a retirement savings option for workers in the nonprofit sector, addressing the prevalent issue of inadequate retirement savings among this demographic.
Lawmakers in Beacon Hill, where Massachusetts’ state government is located, are now advocating for the expansion of the CORE plan to encompass larger nonprofit organizations. State Treasurer Deborah Goldberg has been vocal in her support for this expansion, expressing concern about the significant number of nonprofit workers who currently lack sufficient retirement savings.
The nonprofit sector plays a vital role in Massachusetts’ workforce, with around 18 percent of employees —equivalent to half a million individuals— working in various fields such as arts, culture, education, and healthcare. Despite the sector’s size and importance, enrollment in the CORE plan remains relatively low, with less than one percent of nonprofit workers currently participating.
Importantly, these free state retirement programs not only benefit employees by providing them with the opportunity to save for their future, but also help close the retirement savings gap that exists in American society.
