State market fills big retirement need for low wage workers

Many low-wage workers in the U.S. earn no retirement benefits from their jobs. One big barrier is the cost and bother for small businesses to get in-house programs up and running.

In Washington alone some 62 percent of workers are unable even to get access to a retirement plan funded by payroll deductions at their place of employment.

“That is a problem,” says Carolyn McKinnon, a policy director for the state Department of Commerce who also has a new role trying to address that retirement gap in the Evergreen State.

DOC launched its Washington Retirement Marketplace on Monday in a bid to help both employees and employers get into the retirement-preparedness game. The Legislature allocated about $268,000 a year for its operation.

About nine states and the city of Seattle have taken steps either to set up retirement markets or to mandate that employers provide pensions or let workers sign up for a self-funded plan.

Washington is the first with a functioning market, according to the Center for Retirement Initiatives at Georgetown University. Washington’s online marketplace – located at http://www.retirementmarketplace.com – is entirely voluntarily and designed to let employees participate individually and for employers to shop and secure plans for their workers.

The retirement accounts sold through the marketplace by private companies are designed to be portable, which is helpful for the “gig” economy that includes high-tech workers or even ride-sharing workers.

McKinnon, the marketplace director, said two firms have qualified so far though more than a half-dozen have applied. Saturna Trust Co. is providing five 401(k) plans at no cost to employers and Finhabits is providing a standard IRA and a Roth IRA.

To participate, investment firms must hold their yearly fees under 1 percent for participants, and state financial experts review the investment firms each year for compliance.

The plans let employers set up automatic payroll deductions and some allow employer contributions into workers’ personal accounts.

The marketplace concept was a national project by AARP , and Sen. Mark Mullet, D-Issaquah, sponsored legislation in 2014. Senate Bill 5826 was eventually passed into law by the 2015 Legislature.

Oregon’s pioneered an approach different than Washington’s called a “secure choice” option. This requires private employers to either provide retirement plans or let workers participate in a payroll-deduction program and a handful of states have adopted them.

None of these plans is a panacea for the growing risk of poverty that Americans face in old age. The risk is growing as fewer workers are covered by employer-sponsored pensions and the sufficiency of Social Security continues to be in doubt.

It remains to be seen how many small employers or low-wage workers tap use the Washington Retirement Marketplace. Commerce isn’t setting a goal or target for enrollment, but McKinnon cites the need.

She said the state has 131,000 private employers – most of them small – which do not offer a retirement plan option for their workers.

It seems obvious that getting even a small share of them to participate could make a big difference for thousands of workers in our state.

However the marketplace works out in practice, it is an appropriate step for government to step in where the private financial markets have not yet gone.

And if the program takes off, Washington could eventually join with other states taking the same step and create a consortium. That might lower the state’s program costs and lead to reduced fees for participants.

This story was originally published March 20, 2018 at 5:01 PM with the headline "State market fills big retirement need for low wage workers."