Fears of State IRA Plans Overtaking Private Not Realized, Data Shows      

States that have implemented retirement savings programs for employees have not crowded out private plans, new research from the Pew Charitable Trusts shows.

Building state-facilitated retirement savings plan for private sector workers without workplace plans may have a positive effect on the creation and retention of private plans, according to a Pew research article that cites Department of Labor data. 

Businesses in California, Illinois and Oregon—three of the first states to launch programs to help private sector workers save for retirement—continued to create new plans in 2021 at rates similar to or surpassing those in states without programs, the research finds.

“Evidence from California, Oregon, and Illinois continues to indicate that automated savings programs complement the private sector market for retirement plans such as employer-sponsored 401(k)s,” states the Pew article with research findings. “Several years of data now suggest that states with automated savings programs can help fill the gap for employers who may not be ready or able to provide their own plans—without hindering the private market in those states.”

Programs in California, Illinois and Oregon have been taking contributions to the accounts for at least four years. Oregon first enrolled workers in its program in 2017, followed by Illinois in 2018 and California in 2019.

The three state programs are automatic-IRA programs. Employers covered by an automatic savings program can choose to either enroll their workers in the government-built initiative or exempt themselves by adopting their own retirement plans.

State Programs Are Complementary

Pew examined the effects that building these state programs have private market plans and whether eligible businesses would ditch their own defined contribution plans or terminate existing plans as a result.   

The shifts in the share of new plans pre- and post-implementation of the state programs aligns with national trends and in some cases proves larger than the national change, the Pew article finds.

The share of new plans in the U.S.—excluding California—increased from an average of 6.4% before 2019 to 7.3% from 2019 to 2021, Pew data shows.

In the three states examined the rate of introduction of new plans, as a share of existing plans, remained higher than prior to each launched its savings program.

  • In California, the share of new plans increased from an average of 8.1% between 2013 and 2018 to an average of 9.4% from 2019 through 2021, when the CalSavers program was enrolling workers.
  • In Illinois, the average share of new plans increased from 5.3% between 2013 and 2017 to 6.2% after Illinois Secure Choice started enrolling savers in 2018 through 2021.
  • In Oregon, the average share of new plans increased from 6.7% on average between 2013 and 2016 to 8.5% on average in the years after OregonSaves started operations in 2017.

Termination Rates in States

Pew also examined whether states that are building state programs would encourage employers with existing private plans to drop them to enroll works in the state programs   

Each of the three states had plan termination rates below the rate for the nation in 2021 and the changes in states with automated savings programs appear to be like the overall national trend, states the Pew article.  

Nationally, the rate of plan terminations increased by .23 percentage points between 2020 and 2021 after decreasing the previous year, data shows. Termination rates increased in both Illinois, by .27 percentage points and Oregon by .41 percentage points. and the rate of plan terminations in California remained flat, falling just .03 percentage points in 2021, Pew finds.

The three state auto IRA programs are the largest state programs by assets. CalSavers comprises $435.9 million total, OregonSaves comprises 180.9 million and Illinois Secure Choice $106.8, according to data compiled by the Center for Retirement Initiatives at Georgetown University’s McCourt School of Public Policy.

States Step In

Nearly half (48%) of American private sector workers ages 18 to 64 almost 57 million people, work for an employer that does not offer a retirement savings plan, AARP research shows. Across the U.S., 18 non-federal government entities have enacted retirement savings programs: 16 states and two cities, Georgetown data shows.

Angela Antonelli, research professor and executive director at Georgetown, stated to CNBC she expects shortly, state program assets to exceed $1billion, following publication of a December Pew report that found significant growth of new 401(k) plans in states that have adopted auto-IRAs.

North Carolina lawmakers introduced House Bill 496 to the state’s general assembly to help more workers save for retirement, last month.

Data sources for the Pew report are Form 5500 annual reports filed to the DOL. Pew sourced data from Form 5500s and Form 5500-Short Forms, from 2013 through 2021.

The report was authored by Pew  staff including Theron Guzoto, principal associate, retirement savings research, Mark Hines, principal associate retirement savings research and Alison Shelton, senior officer, retirement savings research.