We know they do things a little differently in Hawaii, but one recent decision is raising some eyebrows.
Hawaii is the latest state to approve the creation of a state-run IRA program to encourage residents to save for retirement, but unlike programs in most other states that have them, the Aloha state’s program will not mandate auto-enrollment for those eligible to participate.
Instead, workers at employers with five or more employees that lack a workplace retirement savings plan will have to sign up for the Hawaii Retirement Savings Program, which was passed by the state legislature earlier this month. Self-employed individuals also would be able to take part.
Exhaustive retirement industry research has shown auto-enrollment is extremely effective in helping workers save at an earlier age and boosting savings rates. One stark example of the effectiveness of auto-enrollment comes from South Dakota.
A 2018 research analysis found that enactment of legislation to automatically enroll new South Dakota public employees in the state’s supplemental retirement saving plan “substantially increased participation.” The data indicated that first-year participation rates for government employees with automatic enrollment exceeded 90%, while the rate at public employers without automatic enrollment averaged just 5%, providing a window into human behavior and indicative of what happens with opt-out versus opt-in retirement plan processes.
Yet unlike what other states adopting state-run IRA programs have done—mandating auto-enrollment for eligible participants—Hawaii’s bill will allow employees to decide whether to participate rather than automatically enrolling them.
Employers are also not be required to contribute or match contributions to the accounts, which is not so unusual for state-run IRA programs. The bill does set aside $25 million for a $500 match for the first 50,000 participants, Keali’i Lopez, AARP’s Hawaii state director, notes. The bill also would require the state to invest $1 million in outreach and education.
The program would be administered by a yet-to-be-formed formed Hawaii Retirement Savings Board, which upon its creation would work with the state’s Department of Labor and Industrial Relations and the Department of Budget and Finance. The board would provide the state-facilitated payroll-deduction plan to private-sector employees beginning on a date to be established by the future board.
Hawaii Gov. David Y. Ige has until July 12 to sign the bill into law or veto it, and he must notify the state legislature by June 27 if he intends to veto the bill.
The Hawaii Retirement Savings Task Force delivered a final report to the state legislature back in December, recommending that Hawaii adopt an auto-IRA program. The report noted the fast rate of growth of the elderly population in Hawaii, one of the highest in the nation, and how that growth could increase fiscal stress on the state.
To help more residents prepare for retirement and to reduce the potential impact on state finances, the report recommended setting up an auto-IRA program for workers at employers with five or more employees. Self-employed individuals also would be able to take part.
SEE ALSO:
• Connecticut Launches State-Run Retirement Savings Program
• What Mandatory Auto-Enrollment IRAs Actually Mean
• Further Proof that Auto-Enrollment is Key to Saving Earlier for Retirement
• Colorado, New Mexico First to Partner on State-Run IRA Program
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
