Are State-Run Savings Plans a Good Idea?

Oregon is moving toward a new rule that could require small business owners to participate in a state run savings plan. The plan would offer employees without access to a 401(k) the opportunity to save tax free.

Of course this sounds like a great idea, because saving early and often is the best way to secure a comfortable retirement. However, there are some drawbacks to a savings system with the government so closely involved.

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Anne Tergesen writes at The Wall Street Journal:

Opponents—including some company owners, a trade group for small businesses and the main mutual-fund trade association—have lined up against the state initiatives. They argue that state-run programs may encourage companies to scrap 401(k) plans. They also say that lower-income workers who participate may wind up in worse financial shape if they run up debt to make up for the income they tuck away.

With several states considering legislation to authorize programs, “everybody is looking at how Oregon does,” said John Scott, director of the Pew Charitable Trusts’ retirement savings project. “If Oregon can get off to a good start, that will have a big impact” on confidence in these programs, he said.

By many accounts, Oregon’s program, called OregonSaves, has begun relatively smoothly. While only 160 employees are eligible to participate in the pilot program that launched July 1, the number is expected to surge by the Jan. 1 deadline for companies with 100 or more employees to enroll participants….

Luke Huffstutter, owner of Annastasia Salon in Portland, who was referred to The Wall Street Journal by the state, said “retirement savings is essential to morale. This is a relationship business. When a hairdresser is in a good place in life, they provide a better experience for customers.”

But other employers say they worry about the burdens the program could impose on them. Gary Peck, owner of five greeting-card and gift stores, said he spends about four hours every other week on his payroll. He said the payroll process is labor-intensive because all but five of his 35 to 40 employees work hourly and change their hours each week.

“Now I’ll have to take another step and submit money to OregonSaves,” said Mr. Peck, who is a member of the National Federation of Independent Business, which represents small employers and opposes state-based retirement savings programs.

E.J. Smith - Your Survival Guy

E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. His focus at all times is on preparing clients and readers for “Times Like These.” E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zildjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@yoursurvivalguy.com To sign up for my free monthly Survive & Thrive letter, click here.