Cumulative assets across the first seven states to implement automated savings programs passed the $1 billion milestone in November and stood at $1.2 billion from 800,000 savers, as The Pew Charitable Trusts reported on Dec. 22.
And that’s actually based on only the first six states, as one of the seven programs—RetirePath Virginia—just launched in July 2023 and has not yet reported asset data.
Not surprisingly given its population, CalSavers is responsible for much of the totals. According to the Nov. 2023 Monthly Performance Trends in State-Facilitated Retirement Savings Programs report from Georgetown University Center for Retirement Initiatives, California held $688.6 million, or 62% of the $1.1 billion across all six state programs reporting data.
Meanwhile, in Oregon and Illinois, the only other two states with more than $100 million in program assets, OregonSaves stood at $228.8 million and Illinois Secure Choice at $145 million.
The Pew research notes that Since 2017, when Oregon launched a pilot for its OregonSaves program, momentum has been building around state-based automated savings programs for private sector workers who lacked access to a workplace-based retirement savings plan.
Six other programs have launched in the past five years—Illinois Secure Choice (2018), CalSavers(2019), MyCTSavings (2022), Maryland$aves (2022), Colorado SecureSavings (2023), and the aforementioned RetirePath Virginia (2023).
More state programs are coming online in the near term. Six more states will implement programs within the next two years. Maine is now in a soft launch and plans to officially launch its full program in January 2024. The Delaware EARNS board plans to launch that state’s program in 2024. Programs in Hawaii, New Jersey, New York, and Vermont, meanwhile, are in the early stages of development and are likely to launch by 2025.
The Pew report notes that lawmakers in Minnesota and Nevada passed automatic savings measures in 2023. Bills to create programs were introduced in Alaska, the District of Columbia, Massachusetts, Pennsylvania, Rhode Island, and Tennessee; and bills in Alaska, D.C., Massachusetts, and Pennsylvania are still active because of longer legislative calendars. In addition, according to the Center for Retirement Initiatives at Georgetown University, 22 state legislatures and D.C. introduced bills to establish or amend programs or form study groups to evaluate retirement options during the 2023 legislative session.
“With so much interest nationwide, and with $1 billion saved by what will soon be 1 million savers, it’s clear that automated savings programs are an important market addition,” writes Kim Olson, Senior Officer, Retirement Savings at The Pew Charitable Trusts. “They fill a gap not only for workers but also for the 195,000 registered employers who can now provide a valuable benefit, and for current and future taxpayers who are concerned about their state’s bottom line.”
State programs boost 401(k) interest
As other research has shown, the introduction of state-based retirement savings programs has actually led to increases in small businesses deciding to offer their own 401(k), with the help of financial incentives such as those included in SECURE 2.0.
A recent study from Gusto, an HR platform, found auto-IRA compliance deadlines are driving many employers to start offering a 401(k) plan. In Colorado, for example, lawmakers passed a requirement that companies with five or more employees had to participate in a public or private retirement plan by June 30. Ahead of that deadline, Colorado saw a 45% increase in the share of companies with five or more employees offering a 401(k) plan, from 25.3% to 38%. By contrast, neighboring states without an auto-IRA requirement—Arizona, Utah, Nevada, Kansas, and Nebraska—saw their shares remain nearly flat, moving from 20.4% to just 21.2%.
Similarly, in Oregon, the requirement (OregonSaves) that businesses with one to four employees must offer a plan or participate in an auto-IRA program has increased small firms’ adoption of 401(k) plans in the state. Between January and August, the state’s share of firms with one to four employees offering a 401(k) plan rose from 7% to 11%. Meanwhile, the share of firms with one to four employees offering a 401(k) in neighboring Washington ticked up much more slowly, from 7.7% to 8.6%.
Earlier this year, The Pew Charitable Trusts released another report showing that instead of enrolling their employees into mandated state options, many companies are choosing instead to start their own 401(k) plan.
Citing federal data for 2021, the Pew report showed that implementation of state-facilitated retirement savings plans for private sector workers without workplace plans is actually having a positive impact on the creation and retention of private plans.
The report says businesses in California, Illinois, and Oregon—three of the first states to launch state-mandated plans—continued to create new private 401(k) plans in 2021 at rates similar to or exceeding those in states without such programs.
SEE ALSO:
• State Auto-IRAs Driving Small Employer 401(k) Adoption
• State-Mandated IRAs Not Crowding Out Private 401(k)s: Pew Research
• Bridging the Gap: Staring Down the Retirement Industry’s Biggest Challenge