Portable Retirement Accounts Move Forward in Washington State

Policy Overview at Shriver Center Presents Ideas for Illinois

With the baby boomer generation approaching retirement and life spans growing longer, concerns over retirement savings have increased. Social security, the most important source of income for the majority of retired Americans, is not enough for a truly secure retirement. In Washington State the Economic Opportunity Institute has been developing universal retirement savings accounts that will make it possible for more low-wage workers to save for retirement. At the Shriver Center, Gary Burris, the institute’s senior policy associate, recently presented an overview of the organization’s plans.

Currently less than 47 percent of workers participate in an employer-sponsored retirement plan. This savings gap disproportionately affects low-income employees and those working at small or medium-sized businesses. According to the institute, only 18 percent of those earning less than $20,000 and 20 percent of those employed by a business with fewer than 10 workers have pension coverage. Low-wage workers and small businesses often find pension plans unaffordable and complex to implement.

Washington Voluntary Retirement Accounts offer simplified options. These state-sponsored, universal, portable, 401(k)-style, defined contribution plans would have a positive impact on retirement security, business competitiveness, and national economic performance. The institute envisions a two-tiered system, with a workplace-based individual retirement account open to all workers, and a deferred compensation 401(k)-type or SIMPLE IRA-type (Savings Incentive Match Plan for Employees Individual Retirement Account) program open to all employers who choose to participate for their employees. The accounts would be available to any worker who elects to have tax-deferred contributions deducted directly from each paycheck. Employers may choose to contribute to employee accounts independently or match employee contributions, and all accounts would be portable when workers change jobs. Participants would be able to choose from a number of investment options, ranging from conservative to aggressive funds. More information on Washington Voluntary Accounts can be found here.

The Washington State Department of Retirement Systems would handle many in-house administrative functions but would subcontract with private companies for services such as record keeping and investment education. These plans would not displace private pension providers since the plans target those not served by the private pension market.

The Shriver Center is bringing together a number of parties to discuss the future of voluntary retirement accounts in Illinois. Several other states, such as Maryland, West Virginia, California, and Pennsylvania, have shown interest in similar state-level retirement plans.

For more information on Washington Voluntary Retirement Accounts and the Shriver Center’s work to introduce similar pension programs in Illinois, contact Dory Rand at doryrand@povertylaw.org or Brian Clappier at brianclappier@povertylaw.org.