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.