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Blue States Experiment with New Retirement Models

Walter Russell Mead

One way government can help encourage innovation and growth in a post-blue model era is by weakening the link between employment and benefits. We can already see a labor market emerging where people cycle through several short-term jobs, or work more than one part-time job at once, or freelance for a living, or self-employ, or work one principal job while driving for Uber on the side. In the context of this new economic reality, tying benefits like healthcare and retirement security to employment makes workers less flexible and labor markets less competitive. So we are intrigued to see some (mostly blue) states taking a modest step toward making benefits portable. The Wall Street Journal:

In July, Oregon became the third state to enact legislation creating automatic individual retirement accounts for workers who don’t have retirement plans at work. The plans are an attempt to cushion the blow for millions of workers who could someday find themselves too old to work but short of savings, state officials said. They are also an attempt to protect taxpayers in the future, said Oregon Treasurer Ted Wheeler. […]

The gradual but broad shift away from old-fashioned pensions—which provided lifetime retirement payments to retirees—has left millions of Americans unprepared for retirement, experts say.

In the private sector, nearly 44% of prime-age workers don’t have access to a retirement plan at work, according to Labor Department figures analyzed by Nari Rhee, a researcher at the University of California, Berkeley. […]

California was the first state to pass legislation in 2012 setting the stage for automatic retirement accounts for workers without coverage. Illinois enacted a similar law in January. Connecticut’s plan could be in place by next year, and legislation is pending in New Jersey and Massachusetts. In some states, such as Maryland and Maine, efforts have foundered in the legislature. For now, only Democratic-controlled legislatures have enacted the plans.

It’s important to make it as easy as possible for workers to save for retirement, and the auto-enroll IRA-type plans (where a percentage of your paycheck is automatically sequestered into a retirement account unless you opt out) make sense for many workers and industries. After all, retirement security is a public concern as well as a private one: it is in the public interest for people to build up savings for retirement so that they are not dependent on income-support programs after they are too old to work.

The government role in such programs should be as small as possible: more setting up the architecture of the system than administering or micromanaging it. One reason so few employers offer retirement plans is that well-intentioned regulations have made the system incredibly expensive and cumbersome to operate. Clearly a state-encouraged retirement system needs some regulation; just as clearly, overregulation and the creation of slush funds of capital managed by politically appointed officials would be costly and dangerous. At the same time, private investment firms can’t be allowed to take unreasonable risks or impose excessive costs on unsophisticated workers, many of whom will lack experience in investing or managing assets.

Plans of this kind are going to play a larger role in the 21st-century labor landscape as more people job-hop and part-time their way through long stretches of their careers. Getting them right is important; we need different states to try different models to see what works best.

Red states need to think about alternative models for encouraging saving in the post-blue economy. Helping moderate and low-income people prepare for a secure retirement shouldn’t be a partisan concern.

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