State lawmakers have begun looking at proposals that could create a new state retirement savings plan catering to small businesses and low-wage workers.
The Senate and House versions of the bill both direct the Department of Retirement Systems to design a plan that would put workers’ savings into funds managed by the State Investment Board, which also invests state employee pension funds. Gov. Jay Inslee is asking lawmakers for $250,000 to help secure a waiver for the savings plan from the Internal Revenue Service.
The proposal – called Save Toward a Retirement Today, or STaRT – is sponsored in each chamber by a Democrat who owns a small business, but also has Republican supporters.
“We’ve got disaster looking at us straight in the face when 460,000 or 470,000 Washingtonians age 45-65 have less than $25,000 in savings (for retirement),’’ said Rep. Larry Springer, a Kirkland Democrat who sponsored House Bill 2474 and cited data from AARP for his argument. “They’ll blow through that before they are 70 or 75 and then they’ll be here looking for help – with public assistance or long term care’’ paid by the state.
Springer owns a wine shop that has just a handful of employees and says he’s not been able to find a simple plan he can offer his workers. He and backers say the legislation would give employers a simple, low fee option that gives workers an easy way to put pretax dollars into 401(k)-style plans.
Springer’s proposal has half a dozen Republican co-sponsors, including Rep. Paul Harris of Vancouver. Harris runs a small business, which doesn’t offer a retirement savings plan, and said the proposal would be completely voluntary. He also hopes the bill pushes more financial firms to cater more effectively to the small business sector.
A similar bill from Democratic Sen. Mark Mullet of Issaquah – known as Senate Bill 6294 – was heard in the Senate a week ago. It also received criticism that it would compete with private sector businesses that are already trying to cater to the market.
Mel Sorenson, lobbyist for the National Association of Insurance and Financial Advisers and two insurers, told the Senate Financial Institutions, Housing and Insurance Committee that his clients share Mullet’s goal of helping more individuals prepare for retirement. But he said the industry “would quarrel with the idea” their agents are not interested in meeting the needs of small businesses.
Sharon Sparling, an independent financial agent in Mount Vernon, said the bill “is a direct intrusion into private industry.’’
And Amber Carter of the Association of Washington Business echoed that argument in comments this week to the House Appropriations Committee. Carter said a new savings plan offered by AWB already has 70 small businesses signed up.
But Springer, Mullet and supporters from the AARP say surveys show that three-fourths or more of small businesses in Washington offer no plan to workers. Ingrid McDonald, advocacy director for AARP Washington, said the result is that 1 million Washington workers do not have access to a retirement savings plan through their jobs, and that surveys show just 5 percent of people will set up an account on their own.
Some have pointed out that the state needs a federal IRS waiver to get any plan off the ground and others have questioned whether state dollars could be at risk. Springer said the waiver issue is a legitimate question, which has delayed a similar California proposal for retirement plans.
House staffers said costs to set up the program are $734,000 initially and about $1 million a year for marketing and administrative costs until the program becomes self-supporting. If it does not pencil out, the program can be closed down within 10 years.
Terry Gardiner, vice president of the national Small Business Majority advocacy group, said his experience as founder and owner of a fish-processing firm in Ballard is that small business owners are too wrapped up in the details of running a business to navigate the complexity of setting up a retirement plan for workers.
Gardiner said business owners need something that is simple, with low administrative burdens and lower costs. “If you look at what is available, it’s either complicated, high fees or a low rate of return,’’ he said in an interview.
Democratic Sen. Steve Hobbs of Lake Stevens is co-chair of the committee studying the Senate measure. He said the IRS waiver that hung up California's plan could be a big problem here.
So he said SB 6294 appears to be in limbo while it gets further examination.
Springer predicted a tougher road in the Senate if his version can win approval in the House. “I think everybody acknowledges the problem. Some of us disagree about how to go about it. I am just not convinced of the argument by the financial industry that they can actually meet the need. … If they are so successful, why do so many people not have retirement plans.’’