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Act averts looming retirement crisis

A crisis is quietly growing in New Mexico. In 2018, researchers at the University of New Mexico released a report showing nearly 80% of New Mexicans working in the private sector have less than $10,000 saved for retirement. About two-thirds have nothing saved.

When these New Mexicans are no longer able to continue working, they will depend entirely on Social Security benefits. Unfortunately, the average benefit is only about $13,900 a year, while the cost of food, housing and health care averages more than twice that: $28,000 a year, according to the U.S. Bureau of Labor Statistics.

The biggest reason why New Mexicans are not saving for retirement is that they do not have access to retirement savings plans through their jobs. In fact, New Mexico has the lowest rate in the nation of workers with access to job-based retirement savings.

This matters because research shows that people are 15 times more likely to save for retirement when they are able to do so through their jobs, with the savings automatically deducted from their paychecks.

The reason why most private-sector jobs in New Mexico do not offer retirement plans is that businesses in our state tend to be very small, with most employing fewer than five people. The owners of these small businesses work incredibly hard to keep the doors open and make payroll, and they do not have the time, expertise or resources to set up 401(k) plans for their workers.

That is where the New Mexico Work and Save Act, House Bill 44, comes in. This legislation is sponsored by Reps. Tomás Salazar, D-Las Vegas, Gail Armstrong, R-Socorro, Christine Chandler, D-Los Alamos, and Sens. Bill Burt, R-Alamogordo, Michael Padilla, D-Albuquerque, and Bill Tallman, D-Albuquerque, and supported by Think New Mexico and AARP-NM, among others.

The New Mexico Work and Save Act creates a system of voluntary state-sponsored Individual Retirement Accounts (IRAs) that private-sector workers can contribute to through their jobs using automatic payroll deductions.

Participation is completely voluntary for both businesses and workers. Businesses choose whether they would like to offer the IRAs to their workers, and workers choose whether or not to participate and how much they would like to save from each paycheck. Employers pay no fees and provide no matching contributions. All a participating business has to do is share information about the program with their employees and set up the automatic payroll deductions.

These Work and Save IRAs would be similar to the 529 college savings plans that have been available in all 50 states for the past two decades. A 529 plan is an individual investment account where people can save for college expenses for their children or grandchildren.

Like 529 accounts, Work and Save retirement accounts would be overseen by a public board whose members have relevant financial and investment management qualifications. The board would select default investment options for participants, like diversified target retirement accounts, and provide financial literacy tools. The cost of the program will be covered by small fees on the accounts, capped at 1%, not taxpayer dollars.

Several other states are already achieving promising results with similar programs. For example, in Oregon, which began implementing a Work and Save Act in 2015, over 2,600 employers signed up and more than 52,000 individuals saved $10.9 million in the first three years.

With over 336,000 New Mexicans currently lacking access to job-based retirement savings, it is urgent that we act now to prevent the next generation of seniors from falling into poverty. Visit www.thinknewmexico.org to urge your legislators to pass the New Mexico Work and Save Act – House Bill 44.

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