Employers Embrace State Programs That Automatically Enroll Private Sector Workers in IRAs

Many employers that do not provide retirement benefits are signing up at the first opportunity for innovative state programs intended to help private sector workers save for their futures. In addition, responses to a survey in Oregon indicate that business owners see advantages for their employees in the state’s new individual retirement account program

These savings programs—known as auto-IRAs because eligible workers are enrolled automatically—are public-private partnerships with state oversight and private financial firm management. They operate at no cost to employers: If businesses do not sponsor a plan of their own, employees can make regular contributions from their paychecks, with the ability to opt out at any time.

Seven states—California, Colorado, Connecticut, Illinois, Maryland, New Jersey, and Oregon—have adopted auto-IRA programs, and several others are considering them. Support among employers is a critical positive signal to policymakers weighing such initiatives.

Several indicators demonstrate significant receptivity among employers. In 2017, Pew surveyed small-business owners across the country, asking their opinion of a hypothetical auto-IRA program. Overall, 87% of those without their own company plan either somewhat or strongly supported such an initiative, with 27% stating that they would be very supportive.

That 2017 survey coincided with the start of the first state auto-IRA, OregonSaves, which now covers all private sector employers in the state that do not provide their own plans. Pew surveyed participating employers in 2019 and 2020 to assess how they experienced the initial registration and ongoing payroll contribution processes. Nearly 3 in 4 (73%) said they were either satisfied or neutral about the program.

OregonSaves does not charge businesses any participation fees, and 79 percent said that they have not experienced any related out-of-pocket costs. Those that have faced additional costs said office supplies and payroll processing time were the most common. Eighty percent also said that they are hearing only “a little” or “no questions at all” from their employees about OregonSaves. One reason for that may be that workers are offered assistance directly from the program’s client service team.

This positive reaction among employers to a no-cost retirement benefit can also be seen in California, where the Legislature approved an auto-IRA program known as CalSavers in 2016. The state had set a Sept. 30, 2020, deadline for larger employers—those with at least 100 employees—to register for CalSavers if they did not have a retirement plan of their own. As of Aug. 31, 2020, at least a month before the program’s first enrollment deadline, 2,249 firms employing nearly 100,000 workers had enrolled. More than 700 companies had started processing payroll contributions, and the program had amassed over $8.7 million in assets.

Why the demand? According to Pew’s 2017 survey, many employers want to offer retirement benefits to their workers but say they cannot because of high startup costs and limited administrative capacity. Some said they see offering retirement benefits as a way to attract and retain workers, but 67% of those who supported auto-IRAs said they felt such a program simply “would help my employees.”

In the more recent survey, responses to an open-ended question reflect similar sentiments about OregonSaves. Among the answers were:

• “It has been an easy and transparent method for our employees to begin saving for their future. As a very small business it has been so appreciated as other options seemed out of reach for us.”
• “It is great having a free option for savings for our employees. We eventually want to offer our own program, but this is nice for the time being.”
• “I do appreciate the program overall. It helps younger staff start saving early. From a small business that can’t afford to have a retirement plan it is a nice option for our team.”

Of course, business owners aren’t monolithic in their attitudes, and views on auto-IRAs run the gamut from strong backing to firm opposition. But it’s clear from the work of Pew and others that there is significant small business support for a public-private partnership that can help employers facilitate a benefit at no cost that helps workers build a secure retirement.

John Scott is the director of The Pew Charitable Trusts’ retirement savings project.