State’s Auto-IRAs May Encourage Sponsors to Offer Savings Plans
In states that have created auto-IRA programs, employers with plans continue to offer them, and businesses without plans are adopting new ones at rates similar to before the state options were available.
Imagine that your employee benefits package does not include a savings plan for plan members. They want one, and you want them to have one too, since that’s how most U.S. workers put aside money for retirement. You happen to be in a state—say, California, Oregon, or Indiana—where the government has created a free employee retirement plan: a state-facilitated individual retirement account (IRA) with automatic enrollment, known as an “auto-IRA.” Would you offer the state plan to your members? Or would you be more likely to offer them a new private-market fund?
The Pew Charitable Trusts has been following the auto-IRA trend since the aforementioned states jumped into the business. Pew’s interest was piqued because some retirement experts wondered whether state programs “might ‘crowd out’ the private market for plans. Would businesses not adopt their own 401(k)s, or would some employers terminate existing plans? Alternatively, could these programs encourage employers to adopt new plans?”
The results from a larger study last year, and a recent update, suggest that auto-IRAs have yet to catch on. But their mere existence may be encouraging plan sponsors to add a retirement vehicle to their benefits packages.
Last year’s study revealed that, “among those whose companies had retirement plans, only 13 percent said they would drop theirs and enroll in such a program if one was available in their state. Among small employers without plans, 51 percent said they would start their own plan rather than enroll workers in the state-facilitated program.”
The 2022 update pretty much confirmed last year’s results: “The analysis suggested that, in those states that have created auto-IRA programs, employers with plans continue to offer them, and businesses without plans are adopting new ones at rates similar to before the state options were available.”
Very few plans were terminating existing savings vehicles in favor of the auto-IRAs. However, survey results from California, Oregon, and Indiana—states with auto-IRAs—found “the rate of introduction of new plans, as a share of existing plans, is higher than before these states introduced the savings programs.”
So perhaps the states are accomplishing, through role modeling, what they originally set out to do: equip more workers with savings plans.
From: BenefitsPRO