More than half of Nevadans working in the private sector lack the ability to automatically deduct retirement savings from their paychecks.
That’s a problem that will catch up to folks — and to the state’s social service programs — once they hit retirement age.
“This problem is not going to solve itself,” says Jessica Eckman, the senior legislative representative with AARP.
One solution now under consideration by the Nevada State Legislature is the creation of an automatic retirement savings program for private sector workers. Senate Bill 200 passed the Senate Government Affairs Committee on April 5 and is currently awaiting a finance hearing.
If passed, workers who don’t have access to an employer-based retirement plan would be automatically enrolled into a state-facilitated private individual retirement account (IRA) program and save a set percentage of each paycheck. If the worker wants, they can opt out of the auto-save retirement program at any time.
On their end, employers would be required to distribute state information on the program and would run the payroll deduction, similar to how they deduct things like federal taxes, social security contributions and health insurance premiums.
In Nevada, 57% of private sector workers — or 557,000 people — are employed by businesses that do not offer a retirement plan, according to the AARP. The percentage is even higher among employees who work for small businesses.
While anyone has the ability to establish an IRA or other form of savings on their own, only a fraction of people ever do.
“To expect to know the difference between Vanguard, MassMutual, Fidelity — and an ETF (exchange traded fund) versus a mutual fund — is a very, very high burden,” said state Sen. Dallas Harris (D-Las Vegas), one of the bill’s two sponsors. “We know most people save through their employers. That’s the easiest way to get it done — before it hits their pockets.”
Employees are 15 times more likely to save by having access to a workplace retirement plan and 20 times more likely to save when deductions are automatic, according to the AARP Public Policy Institute.
A dozen states, including Oregon and California, have launched auto-save retirement programs for private sector workers.
Illinois launched their version, SecureChoice, in 2018. Program Director Courtney Eccles told Nevada lawmakers their program currently serves 85,000 workers and has resulted in more than $55 million saved.
The average monthly contribution is $100.
Eccles said Illinois believes many of the people enrolled are first-time savers and low-income earners who have welcomed the feeling of “relief and security” that comes with having even a minimal amount of savings for the future.
Harris acknowledged that beyond the convenience factor of automatic deductions and the financial literacy skills needed to be able to enroll yourself in a private IRA, other factors may also be affecting workers’ ability to save.
“I am very cognizant of the fact there are people who need literally every dime of what they make,” said Harris.
She continued on to say the program would include provisions that allow workers to get their automatically deducted money back penalty free within a set period of time — 60 or 120 days, for example.
“This will be designed to have a very long off ramp for anyone who takes a look at the impact and says, ‘I simply can’t do that,’” added Harris.
AARP estimates Nevada would save millions on public assistance programs if lower-income retirees could increase their retirement income by $1,000 more per year. According to the group, the average social security benefit in Nevada is $19,000 annually while the average cost of food, utilities and health care alone for older families averages $23,000 annually.
Eckman of AARP told lawmakers that many historically disadvantaged groups are disproportionately impacted by a lack of access to employer-based retirement plans. Women, for example, have a higher rate of part-time employment, which can affect eligibility for employer-offered plans. People of color are also significantly less likely to have employer-sponsored plans or IRAs.
SB200 has received support from progressive groups. It is being opposed by several business groups.
The American Council of Life Insurers said in their oral testimony and written comments that they believe federal legislation passed in December 2019 offers a better path to boosting access to retirement plans. That law, called the SECURE Act, focuses on market-based incentives, such as significant tax cuts, to encourage auto-enrollment retirement plans and pooled employer plans.
The Las Vegas Chamber of Commerce offers a pooled 401k plan for its smaller members, as does the Reno-Sparks Chamber of Commerce.
Opponents also raised concerns about businesses being burdened by the cost of upgrading their software to comply with the auto-deduction and the impact the legislation could have on businesses that currently sell retirement savings plans.
Nevada has considered an auto-save retirement program before. A bill introduced by then-Assemblywoman Ellen Spiegel during the 2019 Legislature passed its originating committee but failed to get a hearing during the chamber’s ways and means committee.