A survey of workers not covered by an employer-sponsored retirement plan, conducted for the state of California, shows most think a state-run plan is a good idea.
Workers were told the California Secure Choice Retirement Savings Plan would automatically deduct a percentage of their pay and deposit it into an individual account for them; they would have the option to opt out or change the automatic enrollment percentage. Their accounts would be invested in an age-based fund managed by a private company selected and monitored by the state. At retirement, they could choose to convert their account balance into a lifetime annuity. Half were told they would be automatically enrolled at 3% of pay and the other half were presented with a 5% automatic deferral rate.
Six in seven of the 1,000 workers surveyed think it is a good idea, including 57% who say it is a very good idea. When shown an example of how savings in such a program could grow over time, 55% say it would be excellent or very good for them and another 26% say it would be good. Most respondents indicate they would participate in the program, with retention rates in the program higher for women than for men (77% vs. 71%) and the likelihood of staying the program increasing as personal income increases.
Automatically increasing contributions by 1% annually up to a maximum of 10% will not prevent most uncovered workers from participating—81% would stay in the program if it included automatic escalation. However, about one-third of workers would not participate if they could not access their money if they became seriously ill (32%) or if their spouse dies (32%). More than one-quarter would not participate if they could not access their money in the event of a job loss (28%) or a family member becoming seriously ill.
The study has relevance for states other than California that are starting or contemplating a state-run retirement program, and for the Department of Labor (DOL), which will soon issue guidance in support of this effort to expand retirement plan coverage for workers.
NEXT: Not all would embrace coverage
While the study found the vast majority of uncovered workers have the desire and the ability to put at least some money aside for retirement, not all would embrace coverage in a state-run plan.
They agree that saving for retirement is important (96% very or somewhat important), but retirement ranks second as an overall savings priority (45% rank it first or second out of six potential savings needs) after having an emergency fund. Nearly all indicate they could save at least some amount in a retirement savings plan available at work; however, two-thirds feel the most they could contribute is less than $100 per month.
When presented with the California Secure Choice Retirement Savings Plan, one-quarter of workers say they would opt out, regardless of whether the automatic enrollment deferral percentage is 3% or 5%. Eighteen percent would ask to have their deferral percentage changes. Of that group, 32% of those presented with a 3% deferral rate and 43% of those presented with a 5% deferral rate would ask that their deferral percentage lowered.
If the plan automatically escalated deferrals each year, one-third indicate they would ask their employer to stop auto escalation.
The leading barriers for not saving more for retirement include low earnings and the debt burden they carry—these two issues are the primary reasons for more than half of uncovered workers. Four in ten say a major reason is that they are more focused on their family, and nearly as many (36%) report that dealing with unexpected expenses is a major reason they don’t save more.
A report of study findings is here.