In light of the new federal individual retirement account (IRA) program initiated in President Donald Trump’s executive order, a Morningstar analysis examined how a federally managed automatic enrollment retirement plan could help workers without access to workplace benefits.
The research, led by Morningstar’s Retirement Studies’ Associate Director Spencer Lok and Director Jack VanDerhei, observed that while offering a federally administered auto-enrollment program helps narrow the retirement coverage gap, the program’s structure is just as important for policymakers to consider.
Using the Morningstar Model of U.S. Retirement Outcomes, the research simulated several policy design choices, from differences in default contribution rates to impacts from the federal government’s Saver’s Match.
The study showed the effects of simply defaulting workers into a savings account. According to Morningstar, auto-enrollment at a 3% contribution rate increases average retirement wealth by 28%, compared with 13% of workers who save under voluntary enrollment. At 6%, participants can see their average retirement wealth rise by 49%.
These wealth increases are even more pronounced with single females, Gen Z and Millennial workers, lower- and middle-income employees, and Hispanic and non-Hispanic Black workers, Morningstar found.
“These results clearly indicate that auto-enrollment is a desirable feature of any program aimed at meaningfully increasing retirement savings among uncovered workers,” Morningstar’s Lok and VanDerhei said in the research.
Saver’s Match changes could amplify retirement outcomes
Morningstar’s analysis also examined how policy touch-ups to the Saver’s Match can further improve these challenges.
The Saver’s Match, which takes effect in 2027, will allow the federal government to contribute as much as $1,000 per year to eligible lower- and middle-income workers who contribute to a retirement account.
While the provision can increase savings for workers, it doesn’t offer an actual retirement account for participants to initially enroll in—workers must already be enrolled in a savings vehicle. Therefore, the analysis reinforced the idea of pairing the Saver’s Match with stronger coverage plans for participants to enroll in.
Morningstar’s study also drew concerns over potential pre-retirement withdrawals with the Saver’s Match, and its “relatively narrow” income eligible thresholds that could “limit its reach” to other workers.
Restricting early access to Saver’s Match funds until age 62 could further support long-term savings, Morningstar researchers said. By doing so, average gains could increase between 35% to 56%, up from 28% to 49% with baseline auto-enrollment scenarios. Expanding and doubling the match rate to 100% raises these gains by as much as 77%, with “particularly dramatic gains for lower-income and younger workers,” reported Morningstar.
Expanding income eligible thresholds and increasing the match rate can also improve savings, Morningstar projected. Those eligible for the Saver’s Match will have a modified adjusted gross income of $20,500 and $35,500 for single filers and between a MAGI of $41,000 and $71,000 for joint filers.
Under the hypothetical provisions, Saver’s Match eligible would extend to workers with a MAGI of up to $50,000 to $60,000 for single filers and $100,000 to $120,000 for joint filers. Morningstar’s model also raised the match rate to 100% and the maximum annual match to $2,000.
“These changes broaden the program’s reach and strengthen its savings incentives for lower- and moderate-income workers,” Lok and VanDerhei said.
The firm’s model estimated anywhere between $635 billion to $983 billion in additional retirement wealth over 10 years from auto-enrollment alone, and up to $1.35 trillion with these Saver’s Match provisions.