States Begin Auto-Enrolling Workers in Retirement Plans
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What new state policy on retirement savings is introduced at the start of the episode?
This is Your Money Matters from The Wall Street Journal. Welcome to Your Money Matters. I'm Charlie Turner in New York. There is disagreement over whether states should be allowed to bring retirement savings plans to residents who don't have access to them at work. Some states are forging ahead with plans to auto-enroll residents. Oregon this summer became the first state to start requiring employers that don't offer a retirement plan of their own to give employees access to a state-run plan. Oregon would do this by automatically enrolling them in IRAs invested in mutual funds. But this and similar initiatives will likely end up as the subject of lawsuits. Joining us is The Wall Street Journal's Ann Tergesen.
So, Ann, it seems like everyone, supporters and opponents of these plans, is watching how Oregon does with its plan.
Yeah, that's very much true. So there are eight states that have passed these programs, eight states that are putting them together. And there are more states that are interested in doing so. By some estimates, up to 20 more are thinking about doing this. So they're all looking. They want to know, how is this actually going to work in practice?
So eight states, including, I assume, some big states like California, Illinois?
Which states are moving ahead with auto-enrollment retirement programs and who is watching Oregon?
Yeah, California and Illinois are the next two to come live with these programs. They're expected to do that sometime in 2018.
What are the main reasons for support for these plans?
Sure. So there's a large percentage of Americans. The estimates range between like one-third to almost half who don't have access to retirement savings plans at work. This is especially a problem for employees of small businesses. And the data show that when people don't have access to a plan at work, they are significantly less likely to save at all. So the problem is that people There are many people who believe that we face a retirement savings crisis, and this is a major reason why people are not saving.
And obviously, there are opponents lining up against this. I assume there are local businesses and also people in the federal government who don't believe states should be the ones that administer them. Why don't you clear that up for me?
Right. There's a range of opponents. So you've got everything ranging from local businesses who are concerned that these state mandates are going to impose sort of burdens on them. The state programs are designed so that they are really a payroll pass-through program so that the employer simply has to sort of change their payrolls to deduct a certain amount of money from the paycheck and send it to the savings program. But nonetheless, there are employers who are concerned that that's going to create a burden on them. So that's one sort of category of opponents. Another category is financial services companies that sell 401K plans, particularly selling 401K plans to small businesses. They perceive this as competition from the government, and they don't like it.
The third category is, well, this year, Congress voted to do away with an Obama-era regulation that sort of facilitated these programs, made it easier for states to set them up. So, you know, there are lawmakers who believe that it should not be the role of government to get involved in private savings. And so Congress, by scrapping that regulation, kind of aligned themselves with the critics.
I'm speaking with Ann Tergesen of The Wall Street Journal. You're listening to Your Money Matters. Thanks for listening, everyone. Ann, how exactly does Oregon's plan work?
Okay, so Oregon's plan works. It's an IRA-based plan. So what it is is that all the employers in the state are going to be required on sort of a rolling basis to start to enroll their employees in the program. and to automatically enroll them so that they automatically deduct a certain portion, I think about 5% is the default amount, from the person's paycheck. And they funnel that through into an IRA that's managed by a private company, State Street Investments. in mutual funds, and it's held in custody by another private company, Bank of New York Mellon.
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Chapters
3 chapters
1
What new state policy on retirement savings is introduced at the start of the episode?
0:02–1:16
2
Which states are moving ahead with auto-enrollment retirement programs and who is watching Oregon?
1:16–4:37
3
How many states have passed or are considering state-run auto-enroll retirement plans?
4:37–6:23
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