Michelle Rivera, policy director with Progreso Latino Inc., a nonprofit that does not offer retirement benefits to its employees, struggled with the process of setting up a private account on her own.
“It’s been really confusing,” she said.
Rivera is not alone. As companies work to sweeten the pot with added perks to compete for talent in a shrinking labor pool, there remains a large swath of smaller businesses that lack the resources or wherewithal to offer workers retirement savings accounts.
According to the Wharton Pension Research Council, more than 170,000 Rhode Island workers, representing 40% of the workforce, are not offered any retirement plans such as the individual retirement accounts or pensions that are now commonplace in the corporate and public-sector world.
Sen. Meghan E. Kallman, D-Pawtucket, and Rep. Evan P. Shanley, D-Warwick, have introduced legislation to reverse this trend by creating a state-controlled fund available to small businesses – defined as those with five or more employees – whereby employees can contribute up to 8% of their salaries to individual savings accounts through payroll deductions, at no cost to their employers.
Workers would be able to take their savings with them when they change jobs. Twelve states have similar programs in place.
The fund would be administered by a newly created public corporation with a board appointed by the governor and approved by the Senate. Board members would guide investment policy and select one or more third-party financial firms to provide “appropriate long-term retirement-oriented investments” determined by the State Investment Commission. The agency would be overseen by an executive director.
The legislation has the backing of R.I. General Treasurer James Diossa, who has been barnstorming the state with a series of visits to small businesses to drum up support.
“While some financial institutions offer similar retirement products, few actively market those products to low- and middle-income workers,” said Michelle Moreno-Silva, Diossa’s director of communications. “Individuals in lower income brackets are considerably less likely to save for retirement or know about the retirement savings products offered by private businesses than those with higher income.”
The fund would still be vulnerable to market volatility, but Moreno-Silva said the policy “would include a risk management and oversight program, assuring adequate safeguards.”
This is not the first time such legislation has been pushed in the General Assembly. House Speaker K. Joseph Shekarchi was the primary sponsor of a similar bill in 2017.
Banking and investment representatives have criticized the proposal for expending public dollars for what they say is a phantom problem. In testimony to the House Corporations Committee on Feb. 28, William A. Farrell, a lobbyist and head legal counsel for the Rhode Island Bankers Association, told lawmakers they need only to open the state’s history books.
“Rhode Island has less than a stellar history over supervision of the state’s consumer financial protection responsibilities,” he said, citing as one example the collapse of the Rhode Island Share and Deposit Indemnity Corp. that resulted in consumers losing close to $1 billion in savings “due to negligent oversight by the Rhode Island regulators.”
“There is no shortage of competitive retirement programs available offering our citizens ample opportunity at very competitive costs,” Farrell said. “It [seems] difficult to imagine how a state-sponsored program could provide any greater benefit to the employees of Rhode Island than what is presently available from the private sector.”
The Rhode Island Business Coalition voiced similar concerns in written testimony, citing what it called “a tremendous burden on small-business owners,” particularly those without human resources departments to manage compliance.
But supporters insist the time is ripe for change. They argue the proposed system will not only achieve the primary aim of providing a semblance of financial security to Rhode Island’s working class but would also give business owners a new recruitment tool.
The costs to the state remain an open question. The American Council on Life Insurers says Oregon has already paid more than $5 million setting up its program, with total costs estimated at $23 million.
Morena-Silva says the R.I. Office of Management and Budget has not assessed the bill’s financial impact, but she argues the costs would be worth it.
“While there will be a negative cost impact on the state, any impact is well outweighed by the long-term financial benefits,” she said.
Forgoing a financial nest egg is not only costly to individuals but to the state as well, says Desiree Hung of the Pew Charitable Trust, which supports the legislation. She said the lack of retirement savings is projected to cost the state $456 million in social safety net assistance over the next 20 years.
According to smartasset.com, the average return on a Roth IRA over the last two decades has run between 7% and 10%. An account opened in 2013 with annual maximum contributions would be worth $83,000 today and $500,000 in 2043. Such a sum would make a retiree ineligible for public assistance programs.
Rivera, at Progreso Latino, says financial literacy and language barriers have historically played a role in Rhode Island minority communities failing to invest in their own retirements.
Neither one of her parents ever had a retirement account, which she said contributed to her family being now left to financially support her mother.
Rivera doesn’t want her descendants to go through the same struggle.
“We want a better life for the generations that are coming after us,” she said. “We really didn’t have that safety net.”
