Lawmakers aim to provide retirement saving accounts for more employees

By Matt Bittle
Posted 6/11/21

DOVER — Retirement is supposed to be a chance for individuals to use their free time as they wish, relying on decades of savings, plus some government benefits, to support themselves without worrying about making ends meet.

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Lawmakers aim to provide retirement saving accounts for more employees

Posted

DOVER — Retirement is supposed to be a chance for individuals to use their free time as they wish, relying on decades of savings, plus some government benefits, to support themselves without worrying about making ends meet.

But for many, that’s not the case.

More than half the employers in Delaware do not offer a retirement plan like a Roth individual retirement account, while around 38% of workers in the state lack access to employer-sponsored retirement plans. That gap especially impacts women and people of color, exacerbating existing disparities, which have only grown over the past 15 months.

Those who do not have some form of financial peace of mind beyond Social Security are forced to pinch pennies, seek extra government aid, rely on assistance from friends and family members, go back to work or some combination of the four.

House Bill 205 aims to resolve that.

Introduced by Rep. Larry Lambert, D-Claymont, the measure is the product of years of work by Delaware Treasurer Colleen Davis.

The bill would create a program called Delaware Expanding Access for Retirement and Necessary Saving, essentially a retirement savings initiative run by the state, potentially with help from a contracted firm, for employees in the private sector. The measure is specifically intended to allow those working at small businesses to help build up money for retirement, offering them financial stability in old age.

It was crafted with the aim of not costing employers anything, as they would simply indicate an employee’s deductions while filling out payroll. Individuals would be free to opt out of the program, which would not cover those working for government entities.

The program would initially be run by a panel of state officials and residents appointed by the governor, with duties being transferred to the preexisting Plans Management Board in a few years.

It would cost the state about $1.1 million over the first three years, according to an estimate, with major savings on the back end.

Under the legislation, the default contribution rate would start at 3% and increase for a few years. The funds would be Roth IRAs (named after Bill Roth, a longtime U.S. senator from Delaware). Roth accounts differ from traditional IRAs in tax deductions and ease of withdrawal.

The bill mentions surveys that have indicated many Delawareans do not have a retirement account or the ability to use one and cites a 2021 study from the National Institute on Retirement Security, which states that more than two-thirds of Americans believe the average worker cannot save enough on his or her own to comfortably retire.

“The greatest benefit that I see is retirement with dignity,” Ms. Davis said.

The average Social Security benefit for elderly Americans is about $24,000, she said, while the cost of basic necessities like food, utilities and health care alone totals around $27,000 annually.

Rep. Lambert, who previously partnered with Ms. Davis to tackle “banking deserts” in the state, sees the bill as an extension of that work on financial literacy and security.

“People will be able to save up for rainy days that we know will come around,” he said, noting that it should particularly help close the wealth gap women and minorities face.

The measure is supported by AARP Delaware, which fears a “looming crisis” due to the fact that many businesses no longer offer pensions or other retirement benefits.

In addition to helping individuals, the bill should enable small businesses to better compete with larger employers for talented workers, according to AARP Advocacy Director Sheila Grant.

“There is a cost to doing nothing,” she noted.

Three states have similar programs, while 42 others are either studying or implementing versions, Ms. Grant said.

The bill has a host of co-sponsors, including nearly three-quarters of the Democrats in the General Assembly and a few Republicans. Rep. Lambert is hopeful it will receive a vote this month before lawmakers break for the year come July.

There is some opposition: An unknown entity recently conducted a messaging campaign, sending out texts urging people to oppose the plan. However, studies, such as the one from the National Institute on Retirement Security, reveal that pensions and similar benefits are broadly popular with Americans, many of whom fear being unable to support themselves or loved ones in retirement.

“There’s a lot of momentum there,” Ms. Grant said.

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