An estimated 1 million workers in Oregon do not have a retirement plan at their job, and many others do not have adequate retirement savings. Oregon is responding to these challenges with a significant effort to address retirement insecurity: a program called OregonSaves, designed to provide every working Oregonian access to a private retirement account.
Americans typically rely on employer-sponsored plans for retirement savings, yet nearly half of U.S. firms—and 70 percent of small businesses—provide no 401(k) or similar retirement benefit to their employees. This lack of access to a savings plan at work is one of the main reasons why so many Americans are not saving enough.
In the OregonSaves plan, a percentage of each paycheck is automatically deposited into a Roth individual retirement account, also known as an auto-IRA plan. OregonSaves will begin enrolling participants this month and will give every Oregon worker without access to a workplace plan the opportunity to save—making Oregon the leading state to launch this kind of effort. No Oregonian is required to participate, and those who do can change their contributions at regular intervals.
The program is a public-private partnership overseen by the Oregon Retirement Savings Board and run by a financial service provider from the private sector. The employee is the sole owner of the account, and the state has no claim on and never holds the funds. OregonSaves has the advantage that when employees change jobs, the retirement account moves with them. Like most retirement accounts, the program has default investments designed for workers at different stages of their career, but employees can make their own investment decisions.
OregonSaves is also designed to appeal to employers who don’t offer a qualified retirement plan—and are concerned that offering such a plan will impose financial or administrative burdens. Under OregonSaves, the role of employers is limited to facilitating their employees’ contributions through the payroll system. Additionally, OregonSaves may help level the playing field for employers, by allowing businesses that don’t offer plans to compete fairly for talented employees with businesses that do offer plans.
The Pew Charitable Trusts, while neither supporting nor opposing state programs such as OregonSaves, has produced extensive research—including a recent national survey of over 1,600 small and medium-sized businesses, in which most business owners expressed support for the auto-IRA concept. More specifically, when asked about auto-IRA plans funded entirely by employees that use automatic enrollment and pre-determined deductions from pay, 86 percent of employers who currently don’t offer plans either somewhat or strongly agreed with the concept.
About half of surveyed businesses said they opposed a government-run plan, but 82 percent supported sponsorship by a mutual fund company. Because state programs designed in the same way as OregonSaves partner with mutual fund companies or similar firms, employer support for these programs may increase.
Pew also surveyed workers without a retirement plan at small to medium-sized employers and found broad support for an auto-IRA program similar to OregonSaves. After details of hypothetical program—including state sponsorship—were fully explained, 63 percent said they would participate in the program. Only 13 percent would opt out, with nearly a quarter of respondents unsure. More significantly, there was no meaningful difference in reactions between workers who were told they would be automatically enrolled at 3 percent of their pay and those who were told they would be automatically enrolled at 6 percent of pay.
OregonSaves began piloting the program in July. According to the Oregon Retirement Savings Board, those who participated in the pilot saved more than $150,000 in just a few months—over $100 per worker. The official launch, initially enrolling workers at larger businesses, begins this month. Additional enrollments will continue every six months through June 2019.
Since 2012, lawmakers in 40 states have introduced measures to either create or study state-sponsored retirement savings plans for employees who otherwise wouldn’t have them; legislation has passed in California, Connecticut, Illinois, and Maryland. Oregon is in the vanguard, and OregonSaves could be a model for a viable and sustainable savings solution.
John Scott directs The Pew Charitable Trusts’ retirement savings project.