Committee urges state to offer public retirement plan

Beth Pearce

Vermont State Treasurer Beth Pearce. File photo by Amy Ash Nixon/VTDigger

A committee chaired by the state treasurer is recommending Vermont set up a publicly managed retirement plan to help people who work for small businesses put away savings.

The committee, which includes representatives from the Department of Labor and the Department of Disabilities, Aging and Independent Living, says not enough Vermonters are saving for retirement.

The Legislature created the committee in 2014 to consider the feasibility of creating a public retirement plan — separate from any state employee pension plans — as a way to help private sector workers save their money.

States such as California, Connecticut and Oregon have already enacted publicly administered plans, and Massachusetts has a plan geared toward small nonprofits. The committee used lessons from those plans as guidance for the recommendation.

In Vermont, only 48.3 percent of workers age 21 to 64 participate in an employer-based retirement plan — the lowest percentage in New England — according to the Corporation for Enterprise Development. An AARP study says 104,000 Vermonters work for companies that do not offer a retirement plan.

The committee says low-income people are disproportionately unprepared for retirement, that small businesses often find it onerous to set up retirement plans for their employees, and that many employers that do offer retirement plans do not allow part-time workers to participate.

“From my end, there’s a savings gap for retirement in this country, and frankly people have not put enough aside,” said Beth Pearce, the state treasurer. “My generation, the baby boomer generation in particular, has put very little money aside to save for retirement.”

Pearce said having too many Vermonters retire without their own savings would put pressure on the state budget in the future to provide social services, including income assistance. On the flip side, “when people have more money in retirement, they buy more goods and services” and contribute to the economy, she said.

The committee is recommending that the Legislature pass a law this year setting up the framework for the retirement plan. Pearce said the plan could be active within two years.

Vermont’s plan would work like this, according to Pearce: Workers at businesses with 50 or fewer employees — which are about 97 percent of Vermont businesses — would be automatically enrolled. They would still be able to opt out of participating in the retirement plan, but the auto-enrollment would make it easier for them to participate.

The state would replace the current study committee with a formal board that would oversee the plan. The board would then hire a third-party administrator to run the plan. But participants in the plan would pay for administration through fees, so the state would not spend any money.

The board would decide which types of accounts people can choose from, such as 401(k)-style plans and individual retirement accounts, or IRAs. The board would also vet investment products and allow participants to decide to invest in a variety of low-cost, best-in-class investments, according to Pearce.

“It offers a program for those who do not have coverage, and we do not anticipate any liability to the state in the process,” Pearce said. “It’s a win for the employer, it’s a win for the employee, and it’s a win for the state of Vermont.”

The Public Assets Institute, a liberal think tank in Montpelier, endorsed the idea in a September report called “A Framework for Progress.” The report said automatic payroll deductions into a publicly administered plan would provide economic security for families.

Additionally, the think tank referenced a 2015 study from President Barack Obama’s Council of Economic Advisers warning that people who go to firms by themselves to open retirement accounts could end up saving less money for retirement because the salespeople receive commissions for selling more expensive products.

“If this is administered by the state, I think that’s some protection from outside influences,” said Jack Hoffman, a senior policy analyst for the Public Assets Institute.

Erin Mansfield

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  • I’ve got a public retirement plan also. Freeze pay and benefits and stop all hiring for a two-year period.

    • Walter Carpenter

      “Freeze pay and benefits and stop all hiring for a two-year period.”

      What good is that going to do since it is the benefits that will enable a working person to retire in some semblance of decency, no matter if they work in public or the private sphere.

      • My point is that’s the best retirement, cut the size of state government.

  • edward letourneau

    A better retirement plan is to get out the taxes, fees and state sponsored living costs, by moving to a state that cares about such things.

  • Teddy Hopkins

    Where would this extra money ultimately come from to fund the retirement, another business tax and cost?

    • Walter Carpenter

      “Where would this extra money ultimately come from to fund the retirement, another business tax and cost?”

      Either that or you will have to pay the taxes for our social services or to build the homeless shelters across the state for the hundreds of thousands of us who work for businesses (or are self-employed) that cannot or will not offer retirement plans for their workers when we are too infirm or old to work anymore and we have nowhere else to go because wages are too low and costs too high. It’s either one or the other. Which one do you want?

      • David White

        Open you own account , Make your own choices

    • edward letourneau

      This idea has merit as a vehicle, if the implementation was set up as a organization that provided a 401K type program that will never cost the taxpayer anything, has almost no fees, allowed members to deduct their contributions from taxes, and earns more that any other investment. — but in reality its just a hope for fairy tales that come true.

  • John Grady

    #1 Nearly 7 out of every 10 Americans have less than $1,000 in savings. That means that about two-thirds of the country is essentially living paycheck to paycheck at this moment.
    approximately two-thirds of all Americans are living paycheck to paycheck. More than a third of all Americans have a debt that is at least 180 days past due
    http://themostimportantnews.com/archives/its-a-retail-apocalypse-sears-macys-and-the-limited-are-all-closing-stores

    They need to start putting $5,000 a year in a IRA, it’s only $100 a week.

    • Victoria Rhodin

      Stating the obvious — a full-time worker earning the minimum wage earns around $400/week before taxes. Then subtract rent (which will eat more than half of what’s left) and other housing-related expenses, groceries, child-care, vehicle. *There isn’t $100/week left to put into an IRA.* That’s a lot of why a retirement plan (or a health-care plan, for that matter) that relies on low- or moderate-wage workers saving enough doesn’t work.Q

      • Kim Fried

        Make it 25 or 50 dollars what ever is affordable. Saving can become a habit when a small nest egg is visible. The State and employer’s will have to sell such a program,but in the end it’s a win win. Finally a good idea from Montpelier, thank you.

  • Paul Richards

    Why? Because the plans carved out for the public sector unions are working so well? Ever heard of “unfunded liabilities”? About every state in the union suffers from this because someone made promises that could not be kept. Look at Detroit.
    How about we stop forcing all taxpayers to contribute to the discriminatory public sector union pension plans so they can contribute to their own IRA’s?
    I thought Social Security was supposed to solve this problem. Oh right, the government hijacked that plan, gave the money to someone else and fails to keep it on a path of solvency.
    No more mandated deductions for Social Security or for public sector union pension plans or any more new plans. Let the people keep and invest their money as they see fit. The government has proven that they are incapable of protecting ourselves from ourselves by taking our money and doing good with it. Time for us to protect ourselves from the government.

  • scott greene

    Excellent idea !!, Vermont has an excellent bond rating and is a great investment. This could also keep investment close to home where it is needed, recycle Vermont dollars more before they otherwise leave the state.

  • Jamie Carter

    I think this is a good plan if it’s done correctly. The big question however is do I trust the Legislature to do it correctly. I’m not convinced I do.

    • EXACTLY: Do I trust this legislature to do it correctly..no. Do I trust (yet another) well paid board to run this program responsibly..no. Do I trust there will be proper oversite at this time in our history..no. Does the government have a good track record in cost projections and project transparency..no.

      However…
      Would I be more willing to use limited tax monies to fund a much smaller pilot program to test the feasibility and work out all administrative , oversite and IT issues -that we know from recent multiple experiences- will inevitably come up..yes.

  • Kathy Callaghan

    This is an excellent opportunity for workers to put away needed money for retirement. I support the mandatory enrollment aspect. Years working in Human Resources with benefit plans have shown me that fewer people opt out of a mandatory enrollment plan than people opt into a voluntary plan. Years of compound interest will do the job if one saves even a little each week.

    If someone had told me when I was 25 or 30 that I would have to fund my own retirement, that there might not be any Social Security, or that Donald Trump/Paul Ryan might reduce my guaranteed Medicare benefits to premium allotments, you’d better believe that I would have saved a whole lot more. As it is now I’m worried about my future, which I thought was secure, and my peak earning years are well behind me. Save early and often. This is an excellent opportunity. The future is obviously not guaranteed.

    • Jim Christiansen

      I agree this an idea with merit. The trick will be insulating investor funds from the political whims of the day.
      As an exercise, I like to look back at how I spent money throughout my adult life and which decisions were financially wise and which were wasted.
      One thing is clear, our collective level of financial education and the concept of delayed gratification are sorely lacking.

  • David White

    who do people think its better give their hard earned money blindly to investment funds. maybe they might like to inquire why the current investment funds are all running out of money due to the models being based on 6-8% bond returns

  • A well intentioned idea, one that could help many Vermonters. Unfortunately politics will get in the way. Given the legislature’s history of raiding accounts and clever bookkeeping, I fear it would not be long before this fund was borrowed from, taxed and otherwise rendered ineffective by the occupants of the Golden Dome. While Ms. Pearce has earned our trust and respect as treasurer- and has come up with a good idea- I fear others will see a cash cow to be raided. Short answer: Until the legislature can be trusted, we ought not dangle carrots in front of them.

  • Paul Coates

    Once again, look at the number of tax payers in the other states that offer this. Vermont is too small and has too small of a tax base to pay for this. We can not afford this on our own. As well intended as this may be, It just doesn’t make sense. It will only serve to push more people out of Vermont as it will only add to the already unbearable cost of living here.

  • J Scott Cameron

    I agree that it would be great to have a publicly administered retirement plan which would allow employees to prepare for retirement through even small weekly personal contributions, especially if it was portable in the sense that whenever an employee changed jobs s/he could keep on funding the same retirement program. It would also be fine if employers could voluntarily assist with contributions or matching funds. However, it is hard to imagine that this wonderful idea would not morph into another Vermont mandate, with employees and small businesses required to fund this retirement plan through payroll deductions. Given our legislature’s affinity for solving all problems through taxes levied on businesses such a program would simply continue to make Vermont a less attractive place to start and grow a business.

  • Kyle Williams

    Oh I don’t know, how about not taxing our Social Security benefits, try to move us off the list of the 10 least tax friendly States for Retirees 20016. Where we won that contest by coming in first.
    http://www.kiplinger.com/slideshow/retirement/T037-S001-10-least-tax-friendly-states-for-retirees-2016/index.html

  • Vermont has around 8,500 teachers who receive generous retirement benefits which have become an unfunded liability for the state, the money is not there to pay for the retirement benefits that the NEA contracts demand. This means that the roughly 330,000 working Vermonters pay the monthly contributions for the teachers, and then will pay again for the underfunded retirement coffers when the teachers start collecting. 51.7 % of working Vermonters are forced to pay for this while not being able to save money for there own retirement. The promised insurance benefits compound the problem. Why do the state negotiators agree to contracts with the NEA that are unustainable?

    • Paul Richards

      Bingo! Finally someone more adept to explaining this clearly has done so. Thank You David Dempsey!
      Why are we forced to pay anything towards their retirement? I could put that money to use providing for my own family instead.
      This proposed plan seems like an attempt to essentially start a state run and controlled social security plan in addition to the one the feds have. Because that has worked so well… Here is an idea: how about we either eliminate the social security plan and trust people to manage their own hard earned money or we force the government to run their plan as designed? While we are at it; eliminate any and all funding, management and control of public sector union’s discriminatory pension plans.

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