Customer Identification Program (CIP) rules, created by the USA PATRIOT Act of 2001 and intended to prevent financial crime, are keeping states from enrolling millions of Americans into state-run auto-IRA programs, according to a recent brief from the Bipartisan Policy Center.
More than 2 million workers who were supposed to be enrolled in seven of the state programs launched prior to 2024 failed the CIP check.
The Oct. 23 brief, jointly produced by Kim Olson of the Pew Charitable Trusts and Emerson Sprick of the Bipartisan Policy Center, notes that 17 states have passed legislation establishing auto-IRA programs to provide a retirement savings tool for workers who do not have access to an employer-sponsored retirement plan, and nearly 1 million workers in eight states have amassed over $1.7 billion in savings.
But the CIP rules are preventing millions more from benefitting from these programs because they are not granted a common exemption for low-risk accounts.
While federally qualified retirement plans such as 401(k)s do not need to verify their participants under the CIP (as regulators exempted a variety of accounts that present a low risk of illicit activity), the state-run auto-IRA programs are not exempt from those rules.
The first state auto-IRA program (OregonSaves) launched in 2017, well after the CIP rules were finalized, the brief notes. As a result, the programs are subject to the rules even though their design does not lend itself to illicit activity.
In states with auto-IRA programs, employers that do not offer a retirement plan are required to facilitate the automatic enrollment of their employees by registering for the program and uploading employee information to an online portal. The program administrator—a third party hired by the state—must run a CIP check on the employees, and those who pass are automatically enrolled for payroll-deduction contributions into their own IRA.
But the BPC brief estimates that more than 2 million workers who were supposed to be enrolled in seven of the state programs launched prior to 2024 failed the CIP check, with about one-third being a result of being unable to verify an address—one of the four pieces of data required, along with name, date of birth, and Social Security number or Individual Taxpayer Identification Number (ITIN). Overall, BPC research found 29% to 46% of potential program participants fail the CIP check and therefore are not automatically enrolled.
“With three new state auto-IRA programs in 2024 and an additional seven in the implementation process, the number of CIP failures—and workers prevented from accessing a valuable retirement-saving tool—will only increase in the coming years,” the brief states.
The easiest way to address the problem, according to the brief, is to provide state auto-IRA programs with the same exemption that other exempt accounts such as 401(k)-type plans receive, via federal regulation or legislation.
An alternative approach would be to reduce or alter the information required to pass the CIP verification through legislation or regulation. Requiring state programs to match only three pieces of information (name, date of birth, and SSN/ITIN) or match a phone number instead of an address, the brief notes, could significantly reduce CIP failures.
State-run auto-IRA programs continue to gain traction nationwide as an effective solution to increase worker access to saving for retirement. Pew notes that in 2023, three states—Minnesota, Nevada, and Vermont—passed legislation authorizing auto-IRA programs. They were followed by Rhode Island and Washington in 2024, bringing the total number of states with such legislation to 17.
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• State Auto-IRA Assets Pass $1 Billion Milestone