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State-sponsored retirement accounts? Colorado Senate panel rejects Democratic plan

Democrats say a government-backed option is needed

Brian Eason of The Denver Post.
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On one thing all sides agree: the state of retirement savings is dismal.

In 2015, 29 percent of Americans reached age 55 with no retirement savings, and no pension fund to fall back on, according to a Government Accountability Office study. And among those that do save, the typical household between the ages of 55 to 64 has just $104,000 — the equivalent of $310 a month for retirement.

Meanwhile, 46 percent of all Coloradans don’t have access to a plan through their employer. And that number rises to 8 in 10 for those who work at the smallest businesses, according to an AARP study.

But ideological differences — coupled with heavy lobbying by the financial industry to preserve the status quo — have combined to make any attempts to find a solution at the Colorado Statehouse elusive.

The latest proposal, a state-sponsored retirement savings account for people whose employers don’t offer them, was defeated along party lines Wednesday in a GOP-led Senate committee, after clearing the Democrat-controlled House of Representatives earlier this month.

Modeled after pilot programs in five other states, House Bill 1290 would begin setting up a program to automatically enroll small business employees in a state-administered, workplace IRA, a sort of retirement plan similar to a 401(k). Like the typical workplace retirement plan, it would be portable, and funded by payroll deductions. Employees could opt out, or change how much they contribute.

Democrats say the government-backed option is needed to give more Coloradans access to an automatic savings plan through their employer.

“This is an incredibly important issue for my generation,” said bill sponsor Rep. Brittany Pettersen, D-Lakewood. “(Millennials) are not offered retirement plans at work like previous generations have been. Unfortunately, that means we’re highly unlikely to save.”

And, unlike Colorado’s pension for public employees, it wouldn’t cost taxpayers a dime. Administrative fees would be covered by plan participants, and the costs would be capped at 1 percent or less to ensure the bulk of an employee’s investment returns are contributing to their retirement. There’s no employer match, and proponents insist the administrative burden on businesses would be minimal.

Republicans counter that it’s a solution in search of a problem. Retirement savings accounts are already available on the open market, even for those who can’t get them through their employer.

“This isn’t government’s role,” said Sen. Owen Hill, R-Colorado Springs, who said forcing people to save was like forcing someone to ride a bike or to learn how to garden. “The right premise is how do we provide options for free people to make decisions for themselves.”

Leading Colorado business groups have lined up against it, including area chambers of commerce and the National Federation of Independent Business. They argue the answer lies in financial literacy. People can invest in retirement accounts today, but they choose not to — either because they don’t understand the importance of it, or they simply don’t have the money to spare.

Individual business owners who testified at Wednesday’s hearing were split. A restaurant owner argued it would help him attract employees, while a farmer, Robert Sakata, said it would impose new compliance headaches on his business.

“I am the payroll administrator. I am the HR department,” said Sakata, who also spoke on behalf of the Colorado Fruit and Vegetable Growers Association.

The financial industry, meanwhile, has its own concerns — government intruding on a private-sector product that has long been its turf. By capping administrative fees to maximize the returns that participants can receive, the government would potentially be offering a competing product at a lower cost.

The banking industry and Wall Street have lobbied heavily against such programs at both the state and national level, where Congress is targeting for repeal federal regulations intended to protect such plans.

“We feel there is some strong competition that is going to be presented here, with government directly competing against private industry,” said Kevin Ross, a spokesman for the National Association for Insurance and Financial Advisers, at a committee hearing earlier this month. “The products are there. People have the opportunity to save.”

Proponents counter that the financial industry isn’t serving the bulk of people who would benefit from the state plan today.

“Our argument is, we’ve had the free market for the last 40 years. We’ve made it easier for employers to offer accounts … and if you look at the data, it hasn’t moved the needle,” said Rich Jones, the policy director at the left-leaning Bell Policy Center, which helped craft the plan. “Forty percent didn’t have access in the late 1970s. Forty percent don’t have access now.”

Other efforts to address retirement savings in recent years have been a non-starter at the Statehouse. Pettersen withdrew a similar proposal last year after encountering bipartisan resistance to the plan’s implementation, and a 2015 proposal to study the issue was rejected.

This year’s version would have been phased in over time, beginning with businesses that employ 100 or more people. Participants would only qualify after 120 days of employment. The program would be overseen by a board appointed by the governor, and administered by private financial firms selected through competitive bidding.

Phil Steckley, a retired financial adviser, argues it could actually benefit the financial industry in the long run. By encouraging more people to save, it could expand their future customer base, because people will have more assets to invest.

“I have no doubt about it that the private program that is offered by the private sector is a better product than what’s offered by (the legislation),” Steckley said. “It’s just not being offered” to everyone.