No 401(k)? A proposed NC plan would give those who work for small businesses a way to save for retirement

shows several empty rocking chairs on the porch of a nursing/ retirement home

By Michelle Crouch

If you work for a large company, you probably have a 401(k) or a similar program that allows you to automatically deduct money from your paycheck to save for retirement. You may even get a match from your employer.

But about half of North Carolina’s private sector employees – more than 1.8 million people – don’t have a way to save for retirement through their jobs, according to an AARP analysis. Many of those workers are employed by small businesses that lack the resources to provide and manage a competitive retirement plan.

To close the gap, a bipartisan group of state lawmakers are proposing to create a state-run retirement savings program, called a “work-and-save plan,” to give those employees a way to save directly through their paychecks.

Small businesses and their employees could choose whether to participate, and there would be no cost associated with enrolling, according to the legislation that would create the program. It would also be available to those who are self-employed.

It would mirror similar public-private programs in more than 20 other states.

15 times more likely to save

With Social Security providing only a limited safety net, work-and-save programs are a way to help workers achieve greater financial security in retirement, said Chris Brandenburg, associate state director for advocacy for AARP North Carolina, which is advocating for the program.

“This gives folks a way to save more of their hard-earned money, so when they reach retirement age, they are better prepared and can truly choose the way they age,” he said.

While those without a workplace plan can always set up an IRA on their own, AARP research shows Americans are 15 times more likely to save for retirement when they have a workplace plan with payroll deductions, Brandenburg said.

Rep. Jarrod Lowery (R-Lumberton), who introduced the House bill to create the program, said it would support the workers who keep North Carolina moving, such as farmers, contractors, landscapers and electricians. Social Security alone is not enough for most retirees, he said.

“When you’re retired, you really shouldn’t have to be worrying about: Can I make the car payment? Can I pay for my medications? Can I go on vacation?” he said. ”If you’re just living off Social Security, that’s your reality today.”

In addition to encouraging people to save, the program has the potential to save the state money, Lowery said, because if more North Carolinians save for retirement, fewer retirees will need state-funded assistance in the future.

For those who sign up for the program, the default package would be a Roth IRA invested in target-date funds, with a contribution of 5 percent of their salary, according to the legislation. But participants could adjust their contributions and investment choices.

The plans would also be portable and could be rolled into other plans if an employee changes jobs, Lowery said.

When The Charlotte Ledger/ NC Health News shared details of the proposed program with Charlotte small business owner Sally Brewster, who owns Park Road Books, she said she was all for it.

She explained that while she fully covers healthcare, dental and vision benefits for her seven full-time employees, she hasn’t been able to set up a retirement plan for them.

“I would jump all over this,” she said. “I think this would really help out. With the cost of everything increasing, anything we can do to help people save for their retirement would be wonderful.”

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Will this be the year it’s approved?

AARP North Carolina has been advocating for the state to consider a work-and-save program since at least 2018. Both Lowery and Brandenburg said they are optimistic about its prospects this year.

“There’s a lot of support,” Lowery said. “Based on the discussions we’ve had on the House side and even with some of my Senate counterparts, I really feel we have a solid chance of getting work-and-save legislation across the finish line this year.”

One previous hurdle – determining which state agency would oversee the program – has now been resolved, he said. According to the legislation, the program would be housed in the state treasurer’s office but administered by a 12-member board that would select a private financial firm to manage its investments.

Former state treasurer Dale Folwell had opposed the program, arguing that the state’s involvement was unnecessary, since many private businesses already offer retirement savings products. He also said the treasurer’s office should focus on its core responsibility of administering the health and retirement plans for state employees.

However, new state treasurer Brad Briner has been open to the idea, Lowery said.

Also helping to boost the legislation’s chances is new research highlighting the success of similar programs in other states, Brandenburg said.

Since Oregon launched the first such program in 2017, about 800,000 workers across seven states have already invested more than $1 billion into work-and-save programs, according to a Pew Charitable Trusts report.

North Carolina would set aside $1 million over the next two years to cover the program’s setup costs, but then it would be self-sustaining, Lowery said. The legislation calls for the plan to launch by July 2027.