When state-run auto-IRA programs began to proliferate in recent years, there were concerns that they would “crowd out” the private market, discouraging employers from adopting their own 401(k) plans or encouraging businesses to terminate existing 401(k) plans.
So far, it appears those fears are unfounded, according to recent research from Pew Charitable Trusts.
A Dec. 21 Pew report, “New State Retirement Savings Programs Prompt Increased Private Plan Adoption,” found there has actually been significant growth of new 401(k) plans in states that have adopted auto-IRAs.
In the one year after the first three auto-IRA programs launched—Oregon’s OregonSaves in 2017, Illinois Secure Choice in 2018 and California’s CalSavers in 2019—there was a remarkable 35% higher growth rate among new 401(k) plans at private businesses in those states compared to other states.
To find this out, Pew examined U.S. Department of Labor data from 2013 to 2020 to see how the private market had interacted with those first three state programs. The analysis compared new plan adoption and plan terminations both before and after the programs started.
The data also found that in these three states:
• The state programs’ launch preceded an uptick in new private plan adoption by businesses without plans.
• Even after that first year, the private plan adoption rate remained higher in these states than before the state programs launched.
• Termination rates for existing plans, meanwhile, were slower than or comparable to the national average.
“This evidence from California, Illinois, and Oregon indicates that state programs complement the private sector market for retirement plans such as employer-sponsored 401(k)s,” the report states. “With active programs in these states, plus Connecticut and Maryland—and with additional states set to come online in the next few years—these state-facilitated programs fill an important benefits gap for employers that do not offer private retirement plans for their workers.”
When faced with a mandate, it appears a lot of employers prefer having their own 401(k). The state program
In the past 5 years, the Pew report notes five states have launched “auto-IRAs” that automatically enroll workers to save a portion of their pay in an individual retirement account. And another eight states have passed program legislation. These initiatives are gaining momentum nationwide; 18 states considered program bills during the 2021-22 legislative session, demonstrating that policymakers understand the need to expand access to retirement savings.
“On average, we’ve seen one to two new state programs enacted each year and expect that trend to continue in 2023,” Angela Antonelli, executive director of Georgetown University’s Center for Retirement Initiatives, told CNBC recently. “We should see program assets soon exceed $1 billion, and more than 1 million saver accounts soon in 2023, and then more rapidly continue to grow as other states open.”
Maryland and Connecticut launched their auto-IRA programs in 2022, while Colorado and Virginia are launching in 2023. New Mexico will start its program in 2024. Several other states are still in the planning stages while nearly all states have taken action to study or launch their own auto-IRA programs.
SEE ALSO:
• Yet Another State IRA Program Set to Debut Mid-2023
• Maryland’s State-Run IRA Is Different, Better, and Still Less Than Optimal
• OregonSaves has ‘Meaningfully Increased Employee Savings’
• State Mandated, Payroll-Deducted IRAs
• BlackRock, State Street Named Investment Managers for Colorado Auto-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.
