Much Ado About Nothing

There was an eye-popping headline on CNBC’s website, “Workers at private companies have amassed more than $400 million (my emphasis) in state-run retirement programs”. Sounds great, doesn’t it? That’s until one realizes that more than 430,000 accounts have been opened in California, Oregon, and Illinois since 2017’s initial launch. Regrettably, that equals ONLY about $930 per participant. That sum won’t get you much of a dignified retirement.

I believe that the only way for most individuals to save is through an employer-sponsored program. If one doesn’t exist, and it is estimated that roughly 57 million Americans don’t have access to an employer-sponsored plan, these state-sponsored programs could be useful in filling the void. More shocking to me than the minuscule account balances is the fact only 3 states have actually adopted legislation and implemented a program as of today. According to the article, 46 states have either adopted or “considered” legislation to sponsor a supplemental retirement program since 2012. Well, we know that three have implemented a program. What’s going on with the other 43? Furthermore, why are the other four not considering something at this time?

According to Vanguard’s latest report, workers appear to need all the help they can get, as the median account balance for individuals nearing retirement — those ages 55 to 64 — is only $84,714. Try living off the income produced from that account balance (roughly $1,700) in today’s low-interest-rate environment. I applaud the efforts of those that have engaged in this activity to provide a means to retirement security, but we need a greater sense of urgency if we are actually going to help the 57 million Americans who’ll find themselves at retirement’s door with few financial resources.

I remain convinced that the only way that we are going to have a majority of our workers ready for retirement is to have them participate in an employer-sponsored defined benefit plan (DB). As important as the effort is to provide workers with a state-sponsored retirement program, we are still asking untrained individuals to fund, manage, and then disburse a benefit with little knowledge on how to accomplish that objective.

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