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State-Mandated Auto-IRA Programs – Boosting Retirement Readiness

 Recently, Spectrum spoke with Nathan Glassey, Director of Federal and State Legislative Affairs and Executive Director of the National Tax-Deferred Savings Association with the American Retirement Association, about how state-mandated Auto-IRA programs seek to address this issue.

According to Nathan, “These state-mandated Auto-IRA programs were introduced to address the retirement plan coverage gap, especially for small businesses that struggle to set up their own retirement plans.” Nathan also noted that research shows people are more likely to contribute to retirement plans if they have access to a plan sponsored by their employer.

How These Plans Started
The genesis of state-mandated Auto-IRA programs can be traced back to Oregon in 2017 when the state implemented the first program. The success of this program encouraged other states to adopt similar initiatives. Please see the accompanying map for an overview of participating states. Nathan notes that the implementation timeline for these programs varies for each state, with some already up and running, while others are still in the early stages.

The overarching goal was to provide a retirement savings option for small business employees who otherwise would not have access to such plans. Interestingly, as states started to adopt these Auto-IRA programs, an increase in new employer-sponsored retirement plans also occurred as employers took steps to move forward with their own retirement plans.

The sweet spot for state-mandated Auto-IRA program participation is generally considered to be businesses with fewer than 50 employees. However, the plans can be implemented for companies of all sizes.

Nathan notes, “While traditional 401(k) plans offer more customization and higher contribution limits, state-mandated Auto-IRA programs provide a valuable option for small businesses and individuals who otherwise would not have access to employer sponsored retirement plan savings.”

A number of benefits for participating employers and employees encouraged state program adoption, including the following:

Participant Benefits:

• State-mandated programs help close the retirement plan coverage gap for many Americans, particularly those working for small businesses who may not have previously had access to one.

• Participants can contribute to the program through payroll deductions, making it convenient and easy to save for retirement.   
   
• Participants can choose their investment options within the program, although the choices may be more limited than those in traditional 401(k) plans.
   
• The programs encourage financial literacy and retirement readiness by providing access to retirement education and resources.

Employer/Plan Sponsor Benefits

• Employers may receive financial incentives or subsidies from the state to cover the initial costs of setting up the program and costs are typically minimal.
   
• The programs are designed to be user-friendly, with simple setup processes.
   
• State-run websites provide resources and information to help participants manage their accounts and make informed decisions about their retirement savings.

Programs like these can help boost retirement readiness for employees working for smaller employers throughout the US. While a highly customized employer-sponsored retirement plan, such as those provided through Spectrum, makes sense for many employers, for smaller employers with limited resources, a state-sponsored Auto-IRA program may prove a useful solution.