(Bloomberg) — More than a third of full-time private-sector workers in the U.S. don't have a way to save for retirement on the job. That's why the Department of Labor recently offered a new way to fill that gap: Let cities and counties get involved.
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A new rule would clear regulatory barriers that might otherwise stop large municipalities such as New York from setting up plans for all workers — not just those who work for local government. Officials in the Big Apple, as well as in Seattle and Philadelphia, have already expressed interest.
The outgoing Democratic administration of President Barack Obama had wanted to create automatic individual retirement accounts that would follow workers through their careers. That went nowhere in the Republican controlled Congress, but then states started exploring the idea of launching their own, so-called auto-IRA programs.
Now five states — California, Oregon, Illinois, Maryland, and Connecticut — are setting up state-run options. They'll be requiring employers who don't offer their own plans to connect workers to state auto-IRAs. The goal is to sign up workers and deduct contributions from payroll in ways that make saving much easier. Almost 7 million people could end up enrolling in California Secure Choice Retirement Savings Program.
The Labor Department gave its final blessing to these state plans in August. The U.S. government made clear that state auto-IRAs were legal and wouldn't be subject to the very complicated federal rules that govern other retirement plans.
Now officials are amending that rule to let local and municipal governments get in on the act.
Not every city or county could set up an auto-IRA, however. Out of almost 90,000 local governments in the U.S., the Labor Department estimates that only about 88 would be eligible. First, jurisdictions would need authority under state law to set up the program. They also couldn't overlap with an existing statewide retirement plan, so Los Angeles and San Francisco couldn't set up their own plans.
Finally, they'd need to have a population greater than the least-populous state. (That's Wyoming, population 586,000.)
