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State savings plan no threat to investment industry

Oregon has done it again with a first-in-the-nation law that other states now hope to emulate. The Oregon Saves program gives workers whose employers don’t offer a retirement plan a low-cost way to save their own money toward retirement. And, perhaps not surprisingly, not everyone is pleased.

It’s hard to see how anyone could find fault with the program. It automatically enrolls Oregon workers in a Roth IRA if their employer does not offer a retirement plan. Employees are free to opt out if they wish.

All employers have to do is link their payroll system with Oregon Saves to allow payroll deductions to flow into employees’ accounts. There is no cost to the employer, and participating employees pay a fee of just 1 percent of the total invested.

That’s considerably less than plans offered by private investment firms — and that, of course, is where the opposition comes in.

The financial industry argues that government plans unfairly compete with plans offered by banks and investment firms, and that the private sector already offers options for workers. But the fees charged by those private-sector companies are the main reason more employers don’t offer plans to their employees.

The Center for Public Integrity reported that private-sector fees can be far more than what state plans charge. The center’s report profiled a hair stylist in Portland who is using the Oregon plan to put away 10 percent of her pay each month. The owner of the salon where she works had tried to find a private plan but the fees were too high. The state fee his employees pay is 20 percent of what the private plans would have charged.

Research by the Pew Charitable Trusts found workers who have an employment-based plan are likely to save more than those using individual IRAs. And those without a work-based plan are likely to be those in the low-wage service and hospitality industries, who need retirement savings the most.

Bottom line: With the state plan, many workers will save who otherwise wouldn’t. Without the state plan, most won’t. That means the private sector isn’t getting their business, anyway. And that winds up costing taxpayers in the long run when those workers reach retirement age without sufficient resources, becoming a burden on public assistance programs.

Oregon and a few other states have managed to enact and implement savings plans, but other states are facing furious lobbying campaigns by the financial industry, which is fearful that low-cost state plans will eat into their highly profitable private business.

Oregon also faced a lawsuit from an employee-benefits trade group, the ERISA Industry Committee, representing 100 large employers. Oregon’s law requires employers to certify to the state that they provide retirement savings plans or enroll their workers in the state plan. Employers objected to that requirement, arguing that multi-state companies would be burdened by complying with differing requirements in different states. Under a settlement announced last week, companies will be exempted from the reporting requirement if the state confirms they are members of the trade group.

With that challenge out of the way, Oregon can proceed to help workers save their own money for retirement at no cost to the taxpayer or the employer. That’s what I’d call a good deal for everyone concerned.