The state of Hawaii could help more than 200,000 residents begin planning for their retirements under a proposed program in the state Legislature.
House Bill 2046 and Senate Bill 3289 would establish a Hawaii Retirement Savings Program that would provide a state-managed payroll deduction retirement plan to employees who do not have access to employer-sponsored retirement plans.
Keali‘i Lopez, director of AARP Hawaii, said more than 215,000 Hawaii residents do not have access to employer-sponsored retirement plans and noted that the average worker is unlikely to open an individual retirement account, or IRA, on their own.
“The bills most benefit the employee, since so many don’t have any access to retirement savings through their employers,” Lopez said. “But it also benefits small businesses that find it too costly or too complicated to set up their own retirement plans. And also, it benefits the state, since if people save up enough, they won’t have to rely as much on state support.”
Under the bills, eligible businesses would automatically enroll into the program beginning July 1, 2024, and employees would have 5% of their paychecks withheld to be deposited into an IRA.
In order to be eligible, a business would have to operate in the state for at least two years, have at least one employee, have not maintained a retirement plan for all of its employees for those two years, and not be federally or state-operated.
“It still gives employees control over their own finances, because they can opt out if they want, and they can control how much gets deducted,” Lopez said.
Lopez said 14 other states have passed similar legislation, three of which — Oregon, Illinois and California — have already begun implementing their own state retirement programs.
So far, she said, the programs appear to be successful, with 70% of eligible employees in Oregon opting to remain in the program.
A task force set up by the Legislature last year to investigate the possibility of implementing such a program reported that workers are 15 times more likely to save if they can do so through payroll deduction.
But the task force also warned that the state will see an estimated $1 billion increase in social spending needs because of a lack of retirement savings among residents by 2035.
The bill would allocate $813,600 to fund the formation of the program and its administrative board, but Lopez said the program would be able to pay for itself within a few years of operation through unspecified administrative fees.
Small businesses, meanwhile, would be able to help their employees without the expenses associated with providing retirement plans.
Barbara Franklin, who operates a Honokaa law office, said she is not sure if she can provide a retirement plan for her two employees without it being extremely cost-inefficient.
“You’ve got to figure out what sort of program you want, and then talk to planners, and you can spend hours just considering all the different options, and that’s time you could be spending doing other work,” Franklin said.
Honokaa florist Alison Higgins said she has had a hard time finding a certified public accountant on the Big Island who can even set up retirement plans at all — at least two who had been able to do so have since retired, she said.
“At least a third of my employees are under 25, so they’re not really thinking about saving for retirement yet, even though they should,” Higgins said.
Lopez said she could think of no compelling reasons to reject the bills.
“It’s a good program, it doesn’t cost the state much to administer, and it will save the state billions over a few decades,” she said.
Franklin, who has represented residents in bankruptcy cases, said she is disturbed by how many people are living on minuscule benefits upon retirement.
“I know of a bus driver, for example, who is only living on Social Security benefits,” Franklin said. “There are former sugarcane workers with not enough money saved to afford groceries, people who can’t afford even a meager lifestyle. … In the long run, I think it’s better to empower people to be able to set their own retirement.”
Email Michael Brestovansky at mbrestovansky@hawaiitribune-herald.com.