Looming Social Security cuts have prompted Indiana lawmakers to make retirement savings accounts accessible to Hoosier workers. Senate Bill 513, introduced in January, sought to create a state-administered retirement program for private sector employees. The bill died, however, after not being heard in committee.
Though SB 513 won’t see more legislative action this session, there’s a chance it could serve as precedent to give state government a better understanding of how a state-administered retirement program could look in Indiana. This issue has previously been brought up to legislators, as millions of Hoosiers do not have access to retirement savings plans through their employers, but hasn’t yet progressed through the Senate.
The bill would have created a board, likely based in the Indiana Treasurer’s office, to design and operate a retirement program for private sector employees in Indiana. The board would have contracted with either private financial institutions or investment managers to provide employees with access to Auto Individual Retirement Accounts, or Auto IRAs.
Under the bill, employers who had not offered their employees a qualified retirement plan within the past two calendar years would have been required to adhere to the program, automatically opting their employees in.
Sen. Fady Qaddoura, D-Indianapolis, a co-author of SB 513, said the bill posed a fiscal issue for the state. He said Indiana will undergo limited revenue growth over the next two years, or the lifespan of the biennial state budget.
Qaddoura said the approach of Republican supermajority fiscal leaders has been to refrain from adding new programs into legislation that could possibly cost the state more money. This is part of why the bill died.
Ambre Marr, AARP Indiana state legislative director, said AARP has tried to workshop a solution to the lack of accessible workplace-provided retirement plans across multiple states for many years.
She recalled that during the first seven years she worked at AARP, her team pushed for a state administered retirement plan in Indiana. When the idea did not progress, her team took some years off their efforts. Sen. Vaneta Becker, R-Evansville, later talked to Marr about bringing the idea back to the Indiana legislature, resulting in SB 513.
“Most of the time, if individuals do not have access to a retirement savings plan through their job, they don’t go out and find one on their own,” Marr said. “So, we know that to help people save for retirement . . . making sure that employers can offer a retirement savings plan is very important.”
People are 15 times more likely to save for retirement if they are given access to a retirement savings plan through their workplace, according to the Center for Retirement Initiatives at Georgetown University speaking to Indiana Economic Digest. Still, Hoosier employees at varied income levels are left without those employer-provided retirement savings plans, according to the AARP Public Policy Institute.
About 886,000 working Hoosiers with annual incomes of $53,000 or less are not provided with a retirement plan by their employer. The same applies to about 200,000 employees who make more than $53,000 a year. About 42% of all private sector employees in Indiana are not offered retirement plans through their workplace.
Providing a state administered retirement program, Marr said, would especially help small businesses who cannot otherwise afford to create or set up a plan on their own. Giving small businesses a plan to provide for their employees, she added, could help with their employee recruitment and retention.
Greg Geisler, a clinical professor of accounting at the IU Kelley School of Business, echoed that small businesses feel the greatest impact of Indiana’s lack of a statewide workplace retirement program. He said such a program would be much less expensive for employers than providing 401k plans to their employees.
According to the AARP Public Policy Institute, smaller businesses are less likely to provide their employees access to a retirement plan. About 72% of workers at Indiana workplaces with less than 10 employees do not have access to a retirement plan through their employer. The same goes for about 57% of employees at companies with 10-24 employees and over 549,000 employees at companies with under 100 employees.
Marr also said the program would help not only senior Hoosiers, but all working Hoosiers to “take control of their own financial future.”
“We want to make sure that this is also something that we’re fighting for: this is for everybody, and not just for aging Hoosiers,” she said. “We know that Social Security was not meant to be the sole source of retirement income for anyone, so anytime we can encourage savings, we do.”
Geisler said over time, the U.S. government has collected more Social Security tax than it has paid out in benefits. However, in the next decade, the Social Security Board of Trustees predicts that the reserve funds will run out and there will not be enough Social Security taxes collected to fully cover scheduled benefits. This is partly due to the aging population in the U.S. and many workers being at or near retirement age. If lawmakers do not make a change within the decade, there will be a predicted 17% cut in annual Social Security benefits by 2035.
If Social Security does begin to run out of money, having accessible retirement savings accounts would be especially important for working Americans, Geisler said. Helping retirees rely less on benefits would also help decrease the financial pressures on Social Security.
As for the potential impact of a state administered retirement program on the Indiana government, Marr said that by helping workers save, the financial burden on the local government and on taxpayer programs would lessen.
Though the bill died, Marr said there may be an opportunity for the state legislature to do a study on the topic, looking into what other states are doing successfully and what might work for Indiana. She said it is unlikely that this specific bill will be revived, but that a state administered retirement program could be written into a future budget or another bill. She said a study is the “best we’re probably going to get right now.”