3 More States Advance Auto-IRA Programs

Three more states—Pennsylvania, Vermont and Nevada—are entering the final stages of passing legislation to enact state-run automatic IRA programs, joining a growing list of states that are turning to such programs to increase access to retirement savings for workers lacking a workplace retirement plan.

During the 2023 state legislative sessions, there have been at least 22 states that have introduced legislation to establish new programs, amend existing programs, or form study groups to explore their options, reports the Georgetown University Center for Retirement Initiatives.

Since 2012, at least 47 states have now acted to implement a new program, study program options, or consider legislation to establish state-facilitated retirement savings programs.

Here’s a closer look at recent developments in Pennsylvania, Vermont and Nevada.

Keystone Saves

Pennsylvania’s House of Representatives passed a bill on May 24 that would create Keystone Saves, a state-run automatic IRA program, now under consideration by the finance committee of the state Senate.

If it becomes law, Keystone Saves is projected to help over 2 million Pennsylvania workers who lack access to workplace plans earn retirement savings through their jobs.

At no cost to employers, Keystone Saves creates an individual retirement account (IRA) program that automatically enrolls workers, who have the option to opt-out.

Nearly half of workers in Pennsylvania do not have access to a retirement plan at work, according to a new study released by AARP. Nearly 2 million people—41% of Pennsylvania’s private sector employees ages 18 to 64—work for an employer that does not offer a traditional pension or a retirement savings plan.

“Having access to a retirement plan at work is critical for building financial security later in life. And we know people are much more likely to save for retirement if they can do so automatically through their paycheck,” said Bill Johnston-Walsh, State Director, AARP Pennsylvania. “The 41% of workers in Pennsylvania that do not have access to a plan come from all walks of life and work in a range of occupations. We must make it easier for all workers to save for retirement so they can take control of their futures.”

Research shows that the share of Pennsylvania households with people ages 65+ with less than $75,000 in annual income—which indicates financial vulnerability—is expected to increase by 17% from 2020 to 2035. As these workers age, inadequate retirement savings will likely force reductions in retirement income and thus in the quality of life for many. At the same time, this shortfall in retirement income will increase state spending for Medicaid and other assistance programs.

“My Keystone Saves legislation allows retirees to retire with greater dignity and security,” said State Sen. Art Haywood (D-Philadelphia), the prime sponsor of the Senate version of the bill. “Keystone Saves will establish automated retirement savings payroll deductions that are then professionally invested. I have seen first-hand the struggle that people without retirement savings face when reaching their golden years. The work of those without employer-based retirement plans is no less valuable to our economy than any other profession, and their work is no less dignified.”

In a recent AARP poll, four in five small businesses in Pennsylvania agree that state lawmakers should support a state-facilitated retirement savings program, citing that offering a voluntary, portable retirement savings program helps local small businesses attract and retain quality employees and stay competitive. To date, 18 states, not including Pennsylvania, have enacted state-facilitated payroll deduction retirement savings or “Work & Save” programs.

NEXT PAGE: VT Saves

VT Saves

On June 1, Vermont Governor Phil Scott signed legislation unanimously passed by state lawmakers to establish a new auto-IRA program call VT Saves.

Under the bill, Vermonters 18 and older who don’t have access to a retirement savings program through their workplace would be automatically enrolled in a Roth IRA account overseen by the state treasurer’s office.

“Unfortunately, the reality is that so many Americans are not prepared for retirement, and that’s the same for Vermonters,” State Treasurer Mike Pieciak told Vermont Public. “We’re an older state. We have a lot of individuals that work multiple jobs; and we have a lot of individuals that don’t have access to a workplace retirement plan.”

According to state data, 45% of employers in Vermont don’t currently offer retirement benefits.

Pieciak says the state estimates that there are between 88,000 and 100,000 people who could benefit from the VT Saves program.

Under VT Saves, employers with five or more employees who don’t offer retirement benefits will need to enroll in the new program or face fines.

Proponents say the program won’t cost employers anything, and the enrollment process will be phased in. Employers with 25 or more employees will need to sign up first, by July 1, 2025. Employers with 15 to 24 employees will need to sign up by Jan. 1, 2026, and employers with five to 14 workers by July 1, 2026.

Per Vermont Public, residents would be able to opt out of VT Saves at any time. But if they don’t opt out, 5% of their take home pay would be automatically deducted each pay period and put into their retirement account. Under the plan, a worker’s payroll deduction would be automatically increased by 1% a year to a maximum of 8%. Participants, however, could change the amount they save at any time to whatever works best for them.

Lawmakers have budgeted $750,000 to get the program up and running, which would pay for a director and a staff person who would handle education and outreach. These funds would also cover start-up logistics with a third-party retirement fund vendor.

NEXT PAGE: Nevada Employee Savings Trust

Nevada Employee Savings Trust

While two previous attempts by the Nevada state legislature did not advance, the third time was the charm for establishing a state-run retirement plan in the Silver State.

After the state senate voted in favor of it on May 29, the Nevada Assembly passed SB305 to create a state-run retirement savings program on Sunday by a vote of 35-7, meaning the legislation now just awaits the signature of Nevada Governor Joe Lombardo.

The Nevada Employee Savings Trust would be directed by a board of trustees with the power to establish a retirement savings program and automatically enroll private employees who do not have a retirement savings plan available via their workplace. To be enrolled, an employee would need to be at least 18 years old, have worked at the same place for 120 days and have wages that are allocable to the state, although employees would be able to opt out.

“It is my opinion that if we don’t get people to start saving, our social programs are going to be in trouble in 30 years and 40 years,” said Nevada State Senator Dallas Harris, one of four primary sponsors, said during an April 5 hearing on the bill. “This program costs nothing to the state. It costs nothing to businesses. And it’s completely run on the fees of the participants.”

While the Nevada Chapter of the National Association of Insurance and Financial Advisors opposes the bill believing these “types of state-facilitated retirement programs do not address the foundational reasons Americans are not saving more for retirement,” it does have support from the American Retirement Association.

SEE ALSO:

• How States Define ‘Success’ for Their IRA Mandates

• State-Mandated IRAs Not Crowding Out Private 401(k)s: Pew Research

• State IRA Programs Boost Private 401(k) Plan Adoption