by Rob Roper
Until I read an op-ed by Vermont State Treasurer, Mike Piecack, yesterday celebrating its passage, I had no idea this bill (S.135) establishing the “Vermont Saves” program was even a thing. How did I miss such major legislation? This new law requires employers who do not already provide a retirement savings plan to enroll their employees in a government-run individual Roth IRA retirement savings account. The state will then automatically deduct 5 percent of said employees’ paychecks (increasing to 8 percent over time), putting the money into that account – without the employees’ consent!
Now, the law does allow for the employee to later opt out of the program or modify their participation percentages after being enrolled — but the employee has no choice about first being enrolled in this program. Nor does the law make it clear exactly how one can opt out if one wants to. Details to come, we hope.
This scheme is lifted pretty much wholesale from the classic book on behavioral economics, Nudge, by Richard Thaler and Cass Sunstein. The theory behind it is that most people are lazy and will go along with whatever default setting the government decides for them rather than do anything to change their situation. If people have to actively opt in, they mostly won’t. If people have to opt-out, they mostly won’t. So, if you want a lot of people to be in and stay in the program, make them have to do the work to opt out. The theory has proven correct (How many “free” trial subscriptions to streaming services are you now paying for despite the option to opt out at any time?), but it’s a really dirty way to manipulate people.
The Vermont Saves program does attempt to address a real problem: not enough people save enough money, or any money in many cases, to prepare for retirement. When they fail to do so, it falls on the rest of society to shoulder the costs of providing for them in their old age. And this, of course, is not fair — making the conscientious ants pay for the indolent grasshoppers per the old fable. So, I do get the motivation though I seriously question whether it is the proper role of government in a free society to make these decisions for adult citizens without their affirmative consent.
But back to my opening question, how did I miss this major policy initiative as it passed through the legislature? This is a program that will affect as many as 88,000 workers, primarily lower income earners making $50,000 a year or less who are, according to the presenters of the bill, disproportionately minorities and women. Five percent of $50,000 is $2500 which will suddenly disappear from all these people’s disposable (or non-disposable as the case may be) annual income. This is a huge amount of money.
$2500 is nearly two month’s rent (if you’re lucky in Vermont). It’s about 75 percent of the average Vermonter’s annual grocery bill. It’s a burden 50 percent larger than their state income tax rate of 3.35% The lawmakers who passed S.135 are assuming that people in these financial situations can afford to have 5 to 8 percent of their paychecks automatically redirected for any reason, even a good one. Surely a lot of time and effort went into figuring out if this policy is compassionate or cruel.
Six committees considered S.135, two policy committees (House Government Operations & Military Affairs and Senate Economic Development, Housing & General Affairs) and four money committees (both House and Senate Appropriations and Ways & Means). They spent a grand total of eight hours and twenty minutes taking testimony on and discussing this bill. The two policy committees responsible for crafting how the law would actually work spent less than five hours on the bill — combined.
They took testimony from just six people: three from the Treasurer’s Office (Mike Piecack, Gavin Boyles, and Ashlynn Doyon, who never opened her mouth), which will be responsible for running the program. Legislative Council, responsible for writing the bill but offering no opinion or insights into its merits, Senator Randy Brock (R-Franklin), who presented the bill on the senate floor, and Greg Marchildon, Vermont Director for AARP, who was the only person from “outside the building” to weigh in. His single page of testimony in a nutshell: Saving for retirement is good.
S.135 passed both the house and senate without so much as a roll call vote in either.
And that, folks, is how I missed it! It’s probably why the rest of the Vermont media mostly missed it too. (A news search shows a just four Vermont based stories on the topic before passage, only two of which have any real meat on them.) There was virtually zero discussion about a program that aims to redirect hundreds of millions of dollars’ worth of mostly lower income workers’ money away from what they are currently spending it on to survive in a state experiencing a prolonged, well-acknowledged “affordability” crisis.
Lawmakers took no testimony from the employers who will be forced to enroll their employees into this program. They took no testimony from any of the workers who will be impacted by this. After making a big deal out of the notion that this program will supposedly benefit women and people of color, they took no testimony from the Office of Racial Equity, the Vermont Women’s Coalition, or any such similar group. There was no public outreach, public hearing, or organized requests for public input.
Advocates cited a dozen other states that have implemented similar programs, but lawmakers didn’t bother to take testimony from any representatives of those state programs. Worthy of note, those states are California, Illinois, New York, Oregon, Hawaii, New Jersey, Connecticut, Maryland, Delaware, Maine, Colorado, and Virginia. With the exceptions of Colorado and Virginia, this is veritable clown car of state fiscal mismanagement that should be a policy red flag, not a beacon.
One thing they did do that should tell you something is they exempted government employees from the automatic enrollment into the government-run plan mandate. So, there’s that.
Whether or not Vermont Saves a good idea, a bad idea, or an idea that could be improved (It’s certainly a better model than the Ponzi scheme that is Social Security), any way you slice it, this is not a good or responsible way to make law.
And herein lies the lesson. The people who think they know better than you do how to spend your money and “invest” in your future don’t know diddly squat about your situation. Moreover, if they care at all, they really don’t take the time to find out. Even bills that do get publicity, a public hearing, and some in-depth debate are decided by lawmakers who spend very little time looking at limited information about which they more often than not have little or no expertise to intelligently evaluate. This is not a criticism, just the reality of a popularly elected, citizen government.
That being the case, do you really want your retirement future decided by people who spent less than a single business day researching the program that they are all but going to force you to participate in? Or might you be in a better situation to decided what your needs are and how to most efficiently spend/invest the money that, by the way, you earned?
Thomas Jefferson said, “That government is best which governs least.” This is why he said it.
- Rob Roper is a freelance writer with over twenty years’ experience in Vermont politics and policy.