State-Based IRAs Help States Save on Medicaid

Those standing in favor of state-based IRA programs include many retirement plan advisers and other service providers. 

By John Manganaro | March 08, 2017
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GOP lawmakers in the House and Senate are moving to dial back Department of Labor (DOL) rules adopted under former President Barack Obama that encourage states to set up individual retirement account (IRA) payroll deduction retirement programs for private sector workers whose employers do not offer tax-deferred workplace savings opportunities.

Given the recent Republican sweep of the federal government, it seems likely the lawmakers will eventually succeed if they remain focused on the effort. Just this week Senator Orrin Hatch, R-Utah, well known for his work on pension and retirement issues, introduced a joint resolution in the Senate “disapproving the rulemaking,” matching a previous move in the House.

Their concerns, broadly stated, are that small businesses will be discouraged from offering their own retirement plans to employees, and that employees put into state-run plans will not have the protections of the Employee Retirement Income Security Act (ERISA) and will have limited control over their retirement savings. It remains to be seen how such a seemingly pro-ERISA stance will be squared with the parallel effort among GOP lawmakers and the executive branch to overturn the DOL fiduciary rule, which would have the effect of broadly expanding ERISA’s protections to IRAs. 

As the Republican Congress seeks its footing, there are still many who are arguing in favor of the Obama-era rules—and not just opposition Democrats. Those standing in favor of state-based IRA programs include many retirement plan advisers and other service providers. 

According to research provided by Segal Consulting, one powerful argument they are sharing with Congressional leaders is that state-based IRA programs can allow private sector workers to enhance their retirement security while the state also saves on Medicaid costs because fewer people would need to rely on Medicaid. The savings on Medicaid, some argue, can even go a long way to offset the cost of the IRA programs in the first place.  

“With retirement savings falling short of what many workers need, several states have taken steps to establish workplace individual retirement account programs for workers who do not have access to an employer sponsored retirement plan,” the firm explains. “These states are also asking how a population better prepared for retirement would affect public safety-net programs. Of most interest, given its growing presence in state budgets, is Medicaid, where there are clear potential savings.”

NEXT: Serious savings for the states