A bill that would establish a state-managed retirement fund program for employees might be dead on arrival unless proponents make fundamental changes to how it operates.
Senate Bill 3289 would enroll every worker in the state whose employer has not provided them with an individual retirement plan into a program that would automatically deduct part of their paychecks and deposit it in a state-managed account. Workers would be allowed to opt out of the program at will.
The bill garnered a lot of support during its committee hearings in the Senate, with very few voicing opposition to the proposal. However, after crossing over into the House, it faces a tough skeptic.
Hilo Rep. Richard Onishi is chair of the House Committee on Labor and Tourism, which SB 3289 must pass to survive the House. But Onishi already refused to put an identical companion bill, House Bill 2046, on his committee’s agenda in January, causing that bill to die on the vine.
Onishi told the Tribune-Herald on Friday that his opposition to the proposed Hawaii Retirement Savings Program mostly stems from its opt-out feature.
“The bill has some language about educating employers about how the program works,” Onishi said. “But there’s not necessarily anything about educating employees.”
Without education for employees, Onishi said he fears workers could unknowingly be enrolled in a program that deducts wages they cannot afford to live without.
The latest draft of the bill sets the contribution amount between 5% and 8% of an employee’s salary or wages, which Onishi said could be untenable for many households, particularly with the effects of the COVID pandemic and skyrocketing gas prices.
Three other states — Oregon, Illinois and California — already have set up similar IRA programs, and Onishi said about 20% of the eligible workers in those places have opted out of deductions.
“I’ve asked for statistics about that,” Onishi said. “I’m not sure if that data exists, but I want to see who’s opting out. Is it the lower-income people who are doing that?”
Furthermore, Onishi said there is no immediate countermeasure to alleviate the reduction in workers’ paychecks. The bill will not affect a worker’s gross income — which determines eligibility for programs like the Supplemental Nutrition Assistance Program — only a worker’s net income, meaning that workers will be paid less without the possibility of increased eligibility for other benefits.
But the bill is not necessarily dead. Onishi said he has given advocates of the measure an ultimatum: He will put the bill on his committee’s agenda if they agree to make the program opt-in instead of opt-out.
“I could just change it to opt-in myself, but the (bill’s) proponents don’t want it to be opt-in,” Onishi said, adding that an opt-in program would probably have lower enrollment, and the program might not be financially sustainable without high enrollment numbers.
Onishi said he made that offer to bill supporters last week, but has not heard a response yet. However, he said they have to give an answer by this week or else the bill will miss its next deadline.
A statement by AARP Hawaii noted that failing to pass the bill will cost Hawaii residents a lot of money in the long term.
According to the statement, Hawaii taxpayers will pay $1.72 billion over 20 years for social service programs to support residents who reach retirement age without sufficient savings. An estimated 215,000 workers in the state do not have access to 401(k)s, and the ratio of elderly to younger workers will only continue to skew older over time.
AARP Hawaii State Director Keali‘i Lopez previously told the Tribune-Herald that the opt-out nature of the program is important because, statistically, most people will not seek out retirement savings options on their own.
Lopez could not be reached for comment Friday.
Email Michael Brestovansky at mbrestovansky@hawaiitribune-herald.com.