Most Americans are not saving enough for retirement.
A survey conducted by Time last year reported that one in three Americans has saved nothing for retirement, and that 56 percent have saved $10,000 or less.
But starting now, one state is doing something about it — against stiff opposition from industry groups representing finanical companies that provide investment services.
In July, Oregon launched a new automatic Independent Retirement Account program to make both the power of automatic savings and the tax benefits of IRAs easily available to workers who currently don't have an IRA.
Under the program, money is automatically deducted from a person's paycheck and deposited in an employer-based IRA. Employers will often match a portion of that contribution up to a set limit. Individuals can also set up IRAs on their own. Either way, the money is placed in diversified investment portfolios that limit excessive risk, and any taxes on earnings are deferred until after retirement, when most people enjoy have a lower rate.
Without an employer IRA, many people find the process of setting one up and making contributions daunting.
The Oregon law will eventually require most employers to either offer an IRA deduction program or offer to sign employees up for an automatic IRA deduction program operated by the state.
The program was launched with 10 pilot employers and is scheduled to gradually phase in until all employers are required to participate 2020, Investment News reports. Other states that are phasing in automatic IRAs include Illinois, California, Connecticut and Maryland.
The Oregon program will eventually be mandatory for employers, but their involvement will be limited and automated, restricted to linking paychecks to Roth IRA accounts, which offer signficant federal tax and retirement planning benefits compared to standard IRAs. Employers will not be required to match employee contributions.
"The Roth IRAs that workers invest in are 'portable' and stay with them throughout their careers, regardless of where they work," The Fiscal Times reports. "Employers are not responsible for contributing to the retirement accounts, and their primary responsibility is passing along information about the program and handling payroll deductions."
"The automatic IRA has wide bipartisan support from the left and right and was endorsed in 2008 by both the McCain and Obama campaigns," the Heritage Foundation noted in 2010. "It is a simple, cross-ideological, and practical solution to a serious problem."
One might think that any policy embraced by President Barack Obama and the Heritage Foundation would find few enemies. But one would be wrong.
Automatic IRAs have been strongly opposed by the financial services industry. And after a flurry of lobbying in May, the GOP Congress passed and President Trump signed a law reversing regulations to protect companies that participate in state-run automatic IRA programs.
"The Obama-era regulation overturned by Trump would have granted protection to employers who establish these accounts for their workers, essentially saying that companies wouldn’t expose themselves to certain legal risks if they provide a conduit for regular paycheck deductions for a plan they're not sponsoring," Money reported.
At Investment News, Greg Iacurci grants that some objections from the financial services industry should be addressed, but argues that many of the arguments against automatic IRAs "appear a bit flimsy upon closer examination."
For now, the politics of automatic IRAs remain murky. As noted, opposition from the financial industry, channeled through the GOP Congress and President Trump, have put a damper on state-level adoption of the new policy.
But the concept retains cross-ideological appeal, and if Oregon's experiment proves successful, the approach could expand quickly.