Americans are far more likely to save for retirement if their employers offer a savings plan, but nearly half of the working-age population is missing out on these benefits.
Smaller companies often do not offer retirement plans such as a 401(k), typically because they do not have the resources or the know-how to set up and run such a program. Now, in an effort to boost flagging savings, several New England states are setting up free retirement plans for employers who would not otherwise provide them.
In Connecticut, all employers with five or more employees are now required to offer a retirement program, either by setting up a traditional plan or using a no-cost state program. Maine launched a similar effort, and Vermont is in the process of doing so, while lawmakers in Rhode Island are considering it. Massachusetts offers a narrower program targeted toward small nonprofits.
“This is a way for us to close the retirement gap that exists in our society, of people not being able to afford retirement, and we’re doing it one Main Street at a time,” said Sean Scanlon, comptroller of Connecticut.
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While employees may choose whether to participate in these programs, policy makers hope to spur an increase in retirement savings, which across the nation remain dismally low. Unless more savers start to build a nest egg, state and federal governments will be on tap to spend an additional $1.3 trillion on public assistance programs in the coming years, according to a May 2023 report by the Pew Charitable Trusts in Philadelphia.
Maine launched its program, called MERIT Saves, in January, and some 540 businesses have signed up. Among them is Flowfold, a maker of wallets and backpacks that employs 15 people in Gorham.
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Like many small businesses, Flowfold has struggled for years to find a retirement plan it could afford. Companies with fewer than 100 employees typically don’t offer retirement plans due to the cost and administrative burden associated with doing so.
“For a small business, cost is always a consideration but there’s also the question of what product’s right for you and your employees,” said cofounder Devin McNeill.
Programs like MERIT are actually relatively simple from the company’s perspective. The state helps set up workers for automatic payroll deductions to be contributed to tax-advantaged retirement savings (unlike many 401(k) benefits, there’s no employer match). Employees can select from a handful of low-cost, passive investments, including funds designed to mature around an employee’s targeted retirement date.
The programs in Maine and around the region are part of a broader effort to manage gaps in federal retirement laws that have left small business employees with fewer savings options. All told, 19 states and two cities are offering or planning to introduce such benefits, often called Auto-IRAs, which have surpassed $1.34 billion cumulatively, according to Georgetown University’s Center for Retirement Initiatives.
For Bay Staters, there’s an existing voluntary retirement plan, dubbed CORE, for small nonprofit companies that employ fewer than 20 workers.
The CORE plan, launched in 2017 as a pilot with ten employers, currently includes some 200 employers and 2,000 savers. Now, lawmakers on Beacon Hill are pushing to expand CORE to larger nonprofits.
Among those seeking to build support for such an expansion is state Treasurer Deborah Goldberg, who said in a written testimony to legislative leaders that she is concerned about the “lack of retirement savings among nonprofit workers.”
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Some 18 percent — half a million individuals — of the state’s workforce works for the nonprofit sector, including arts, culture, education, and health care. Of that, even less than one percent is currently enrolled in CORE.
“We know that women, people of color, and millennials make up much of the nonprofit workforce,” Goldberg wrote. “These groups face greater challenges in accumulating retirement wealth due to factors such as lower wages, higher debt, and longer life expectancy.”
Goldberg has stopped short of pushing for an expansion beyond the nonprofit sector, though Andrew Napolitano, a spokesman for the treasurer, said her offices continue to have “productive discussions with our partners on how to best increase employee access to retirement options and address cost and regulatory barriers for employers.”
Suchita Nayar can be reached at suchita.nayar@globe.com.