Workplace has no 401(k). Could states help?

Earlier this year, Massachusetts passed legislation authorizing a state-administered 401(k)-type plan for employees of smaller nonprofit organizations. This limited-scope plan still needs approval from the Internal Revenue Service, however. It doesn't include a guaranteed payout for retirees.

On the federal level, Sen. Tom Harkin (D) of Iowa this summer published a report on a plan called Universal, Secure, and Adaptable Retirement Funds. Employers without another retirement plan would enroll their workers in an automatic payroll-deduction plan, overseen by a board of trustees but managed by private money managers. Employers would make a "modest" contribution. Low-wage workers would be eligible for a refundable retirement savings credit contributed to their account. Although there would be no legal guarantee on the payout benefit, Senator Harkin's report said that participants or their survivors would get "a benefit paid over the course of their retirement."

Experts note that the plan goes much further than the Automatic IRA proposal that has been floating around Washington and endorsed by President Obama, which would require employers with more than 10 workers to withhold and place 3 percent of workers' pay in an Individual Retirement Account.

Some business groups worry about the impact of the newer, broader plans on the private sector.

"There already are a lot of vehicles that help small employers set up retirement plans," says Lynn Dudley, senior vice president of policy at the American Benefits Council, a trade association for retirement and health-plan sponsors based in Washington. "We shouldn't just abandon those in favor of a new idea. Along with looking at new designs, we should refine those that exist already."

Already, any low- and middle-income taxpayer can contribute to a conventional or Roth IRA. These allow workers to shelter money from taxes either when they make the investment or pull the money out. Unlike Social Security, IRAs don't provide guaranteed income.

"The current retirement system … is inadequate," says Jim Davis, owner of Iowa Title & Realty Co. in Charles City, Iowa, who provides his three employees with a retirement plan. "Too many people are ill-prepared for retirement."

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