Limited assets: most states have regulations that shut out low-income workers from retirement savings.(news)

Millions of working poor who rely on food stamps, Medicaid and other forms of public assistance are liquidating their savings or abstaining from employer-sponsored retirement plans in order to meet average state guidelines limiting household savings to $3,000 or less.

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Low-income workers hit hardest by household savings limits in 47 states live near the $16,090 and $19,350 federal poverty lines for families of three and four, respectively. These workers often decline access to 401(k) plans offering matching funds to protect their benefits.

Public policy experts and non-governmental groups say many household asset tests, which vary from state to state, were designed to prevent low-income families from gaming the system but are now hindering many working poor from transitioning into middle class by accumulating emergency funds or retirement nest eggs. Instead the laws require many low-income workers receiving public assistance to deplete their savings and avoid setting aside discretionary income.

"If you did have a 401(k) and have anything close to the amount of savings that could sustain you in retirement, it would be well over the asset limit," said Zoe Neuberger, a senior policy analyst at Center on Budget and Policy Priorities, a Washington D.C.-based research group. "People who work in the retirement savings side of things are completely shocked when they see these rules because they run completely counter to promoting saving for retirement."

Contrary to popular misconceptions stereotyping low-income workers as poor savers, research suggests the opposite is true. Ben Mangan, president of Earned Assets Resource Network, a San Francisco-based non-profit that helps the working poor accumulate assets for home purchases and starting small-businesses, said during the past three years 1,000 area residents who participated in EARN programs managed to save 5.5 percent of their gross incomes. "There is a common misperception that working poor make poor economic choices," Mangan said. "But when poor people have an incentive to save, they do so at higher rates than national savings rates."

Some of the most stringent state asset testing guidelines predate a national shift to 401(k) from defined benefit plans dating back more than 20 years. The retirement landscape has evolved in recent years but benefits guidelines have largely remained the same. Older defined benefit plans were largely funded directly by companies and accumulated wealth for pensioners without inflating personal balance sheets eyed by state benefits administrators.