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State-sponsored retirement savings proposal advances at capitol

Kevin Schneider from Pixabay

A report from the Hawaiʻi Retirement Savings Task Forcefound that in 2020, 92,000 senior households in the islands had less than $75,000 in retirement income. That income consists of retirement savings and social security.

Based on current savings and demographic trends, the report projects 57% of seniors in the state will have less than that in retirement in 2040.

"Hawaiʻi, over a 20 year period, is facing social assistance costs of $1.7 billion," said John Scott, head of the retirement savings project at Pew Charitable Trusts — which provided technical assistance to the task force.

Scott says when people don't save enough in their retirement, they tend to rely on additional assistance from the state. And as more Hawaiʻi residents reach retirement age, the burden could fall on the active workforce.

"The idea is that when there are insufficient retirement savings, it's taxpayers — working-age taxpayers — that are likely to have to foot the bill at some point," he said.

While a heavier tax burden on the workforce is a direct impact, Scott told HPR there are potentially indirect impacts to the community. He notes the state has one of the highest life expectancies among residents in the country, and there will be a higher ratio of older residents than younger, working-age population.

At the state Capitol, legislators are considering a measure to create a retirement savings program to help residents. Senate Bill 3289 would create a state-sponsored payroll-deduction enrollment for qualified, private sector workers — whose employer may not offer a retirement plan. The money deducted from an individual's paycheck will go into a Roth IRA, where they can manage their retirement portfolio.

Last month, the Senate's Labor, Culture and the Arts committee discussed the measure, and heard public testimony.

"The fact is only one in 20 people will go out on their own to do the research and complete the process to set up IRAs for themselves," said Craig Takamura, who supports the measure. "More importantly, studies show that workers are 15 times more likely to save for their future, if they can save through payroll deduction at work."

While many agreed saving for retirement is critical, there are concerns and opposition to the measure.

Cynthia Takenaka testified on behalf of the National Association of Insurance and Financial Advisors, which opposes the measure. She advised lawmakers should consider financial literacy education before establishing a state retirement program. Takenaka also noted the program would be costly to the state, and would take years to see any benefit.

"[Another] concern is the ALICE household and low-income workers that could get disqualified from their government benefits and subsidies, since these kinds of retirement accounts will be considered assets, and could trigger income tests and disqualify them from their benefits," she said.

SB 3289 crossed over the state House last week. If approved, Hawaiʻi would join California, Oregon and Illinois in having a state-sponsored retirement savings program.

Casey Harlow was an HPR reporter and occasionally filled in as local host of Morning Edition and All Things Considered.
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