The Washington PostDemocracy Dies in Darkness

Opinion Virginia makes saving for the future easier

(Jakub Jirsak/istock)

David J. Toscano, a Democrat from Charlottesville, was minority leader in the Virginia House of Delegates from 2011 to 2018.

Progressives criticize our nation’s increasing inequality of wealth and income. Conservatives rail against the nation’s seeming inability to save for the future. Both worry about whether Social Security will provide the proper safety net in retirement. And both recognize the importance of building wealth so that people can enjoy a better life and pass assets to their families. When Virginia passed House Bill 2174 this session, it took a small step in addressing these concerns.

Under the bill, Virginia employees working more than 30 hours per week who have no access to an employer-provided retirement plan are automatically enrolled in a state-facilitated individual retirement account (IRA) savings program. The program will begin in 2023. Unless employees opt out of participating, they will contribute a preset percentage of their wages or salaries to the IRA in their name.

With the passage of H.B. 2174, Virginia will join states such as California, Illinois and Oregon in creating this type of supplement to Social Security. Maryland, Massachusetts and Washington are in the process of implementing similar programs.

The major ways wealth is created in our society are through homeownership and investments. Although there has been a slight uptick in the past several years, homeownership has generally declined, both in Virginia and nationally, in the past several decades. The commonwealth has typically reported rates several points higher than the national numbers, but the Federal Reserve Bank of St. Louis has shown a steady decline in the Virginia homeownership rate from a high of 75.1 percent in 2000 to 66.0 percent in 2018 (in 2020, it inched up to 70.4 percent). The problem has been more acute for African Americans, with the rate falling to 40.6 percent, a 15-year low, in 2019. Rates for the group also have been trending down in the commonwealth, falling from a height of 51.1 percent in 2000.

Despite the recent increase in our national savings rates that occurred during the pandemic, which is likely to be short-lived, these, too, have languished for decades. And for many in the country whose wages have stagnated, there has been little disposable income from which to generate savings.

Few Americans save for retirement outside of the workplace, and about a third work in companies that have no such plans. Many younger people either have been unable or unwilling to save for the future. And saving rates are even lower in communities of color. This is understandable; budgets of the young and minorities are more challenging, especially recently, as they have experienced a squeeze on wages and the economic ravage of the pandemic.

A recent study conducted by the commonwealth found that most employees not covered by a retirement plan are between 18 and 54 years of age, and nearly a third are Black, Asian or Hispanic employees. More than half work in the construction, health-care, retail, hospitality and food service industries.

Reports by CNBC and project that a 20-year-old who saves just $100 per month could accumulate between $160,000 and $439,000, depending on the market, by age 67, a hefty sum to complement Social Security. Increasing this monthly savings to $250 per month would make the investor a millionaire by retirement. The reason? The value of assets compound over time. This is one way wealth is created in the United States, and HB 2174 will allow more Virginians to generate savings for the future.

For states, the greater the savings of its residents, the lower the possibility that state resources such as Medicaid will be needed to support them later in life.

Each of the state plans differs slightly in its requirements. California’s plan applies to all employers with at least five workers, and the required contributions are higher than in Illinois or Oregon. But unlike traditional employer benefit plans, the employee investments are portable — they can be carried from one job to the next, an attractive option for employees who may have many jobs during a career. And they provide yet another example of how states are acting as “laboratories of democracy” in finding solutions that do not emanate from Washington.

There are those who criticize this initiative because employees are automatically enrolled and employers must participate. Significantly, and unlike Social Security, employees are permitted to opt out of the program if they desire. Experience with similar programs in other states suggests that some will, but that many enthusiastically embrace it, recognizing that the benefits can be dramatic; a recent Pew study of the OregonSaves program showed high rates of satisfaction among both employers and employees.

States continue to develop innovative approaches to address significant problems. HB 2174 is yet another example of how Virginia is a leader in these efforts.

Read more:

Teresa Ghilarducci and Kevin Hassett: Everyone should have the retirement plan federal employees enjoy

George F. Will: America’s utterly predictable tsunami of pension problems

Helaine Olen: Retirement in America is already uncertain. Republicans want to make it worse.

Robert J. Samuelson: The elderly aren’t so poor after all

Tom Daschle and Tommy Thompson: Who will care for America’s aging population?