Benefits June 12, 2024

Rhode Island Becomes 20th State to Pass Retirement Savings Program

Private-sector employers with five or more employees would be required to offer a retirement plan under the bill.

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The Rhode Island legislature passed a bill to launch a new auto-IRA program—the RI Secure Choice Retirement Savings Program—making it the 17th auto-IRA program in the nation and the 20th retirement program for private-sector employers. 

The bill passed on Tuesday with bipartisan support, 35-1 in the Senate and 65-8 in the House. It now goes to Governor Daniel McKee for further action.  

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First introduced on January 12, the bill, SB 2045, established the Secure Choice Retirement Savings Program to be administered by the general treasurer for the purpose of “promoting greater retirement savings for Rhode Island private-sector employees in a convenient, voluntary, low-cost and portable manner.” 

Under the bill, Rhode Island private-sector employers with five or more employees would be required to offer a retirement plan to their employees, which can be satisfied by offering any type of retirement plan, such as a 401(k).  

The bill is sponsored by Senators Meghan Kallman (D), Frank Lombardi (D), Dominick Ruggerio (D), Melissa Murray (D), Sandra Cano (D), Jonathon Acosta (D), Gordon Rogers (R), Mark McKenney (D), Dawn Euer (D) and Tiara Mack (D). 

The treasurer would be in charge of collecting contributions to any auto-IRAs through payroll deductions and investing those funds in accordance with best practice for retirement savings vehicles. 

The act becomes effective for all eligible employers within 36 months of the program enrollment opening, following a phased implementation period.  

According to Georgetown University’s Center for Retirement Initiatives, around 189,000 private-sector employees in Rhode Island lack access to a retirement savings plan at work. Out of the 412,000 private-sector employees in the state, this signals a 46% access gap.  

This issue is particularly prevalent among those who work for the smallest employers, as about 96,000 workers at companies with less than 25 employees do not have access to a retirement plan.  

The CRI also found that expanding access would grow workers’ savings, estimating that an auto-IRA program that does not exclude employers with less than 10 employees would provide access to 109,000 additional savers, with average contributions of $2,710, totaling to around $300 million in contributions by the year 2040. Savings could be further enhanced through other incentives, such as the refundable federal Saver’s Tax Credit. 

As of May 31, state programs across the U.S. have accumulated more than $1.5 billion in assets administered in more than 879,000 funded accounts and 214,000 registered employers. 

According to Angela Antonelli, executive director of the CRI, as of June 11, ten state programs are currently open to all eligible employers and workers in their states. 

Two additional auto-IRA programs, in Delaware and New Jersey, are currently in pilot phases and will be open to all eligible employees on July 1 for Delaware and June 30 for New Jersey.   

Administration June 11, 2024

CPI-E More Generous, But Less Accurate, Congressional Research Service Says

A new report explains that the consumer price index for the elderly would need to be revamped before it could be used for any official purpose.

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The Congressional Research Service issued a report on the hypothetical use of the CPI-E, or the consumer price index for the elderly, to calculate annual inflation adjustments for Social Security benefits. In summary, the researchers found that using the measure for cost-of-living decisions would create more generous Social Security benefits, but also risk being less accurate.

The Bureau of Labor Statistics tracks several measures of inflation. The price index used to calculate the cost-of-living adjustment for Social Security currently is the CPI-W, or the consumer price index for urban wage earners and clerical workers.

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The CPI-E is another measure of inflation that focuses on the spending habits of the elderly and uses a different weighting system based on how those aged 62 or older tend to spend their money, since they have different spending habits. The CPI-E is higher most years than the CPI-W because it is weighted more heavily toward health expenses, and inflation in health care has outpaced most other industries.

According to the CRS report, the CPI-W adjustment from 1985 to 2024 was 188%, but it would have been 211% had the CPI-E been used instead. The report also notes that the COLA for 2024 was 3.2%, but would have been 4% under the CPI-E. This would have increased the average monthly benefit from $1,907 to $1,922, though researchers note that, depending on other factors, the CPI-E would not always outperform its CPI-W counterpart.

Some advocate that this measure should be used to calculate the COLA for Social Security, and there is pending legislation to do just that. The Social Security Expansion Act, introduced in February 2023 by Senators Bernie Sanders, I-Vermont, and Elizabeth Warren, D-Massachusetts, would require the use of CPI-E for Social Security COLA.

Joel Eskovitz, the senior director of Social Security and savings at AARP, says that “AARP supports using a CPI-E as a more accurate measure to calculate the Social Security COLA.”

However, there are some methodological issues with its use and the CPI-E currently has no official usage, despite being tracked by BLS since 1982, according to researchers. Those include:

  • The CPI-E is a measure of weighted inflation for those aged 62 and older and not those collecting Social Security per se;
  • the weighting system for the CPI-E is also based on the Consumer Expenditure Survey, which does not specifically sample those 62 and older, resulting in a small sample size and higher sampling error; and
  • the CPI-E also does not account for the geographic distribution of those 62 and older, which is non-random, and it does not account for senior discounts.

Eskovitz explains that “the CPI-E is only experimental, and is subject to a higher sampling error because the BLS uses a much smaller subset of data to create this index than it does for CPI-W.”

He adds: “We support a COLA that more accurately reflects the spending patterns of older Americans, and for the BLS to better develop a measurement that meets that standard.”

Eskovitz cautions that “the CPI-E is not always a more generous measurement than the existing CPI-W. In some years, it underperforms the CPI-W.” However, “the true impact of the COLA is not felt on a year-to-year basis, but instead is felt over time by the compounding effect, and there it is clear that older Americans would certainly benefit in the long run from a switch to a CPI-E because of its increased accuracy.”

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