The first state-based auto-IRA account program is “off to a promising start,” according to the Center for Retirement Research (CRR) based at Boston College.
The center analyzed data from the OregonSaves program designed to provide retirement savings accounts for workers who are not offered a retirement plan at their workplace because it doesn’t exist or they’re ineligible or are self-employed without a retirement savings plan.
To date, about 1,800 employers have signed up for the program ahead of the mid-December deadline, but only about one-third (644) have begun to submit employee contributions to the program. Still, almost 22,000 employees of those 600-plus employers have saved more than $10 million in assets since the program began as a pilot launch in August 2017.
Slightly more than 62% of roughly 39,000 eligible employees are participating in the program, including those employees whose contributions haven’t been submitted yet. About one-third have chosen to opt out of the program, which is permitted within the first 30 days.
“So far we’re seeing good news although it is taking a while for some employers to submit contributions,” says Geoffrey Sanzenbacher, a co-author of the CRR report and associate director of research at the center.
Under the OregonSaves program, 5% of a an employee’s pay is automatically invested in the retirement savings plan initially, and the contribution rate increases by 1% per year until it reaches 10%. The automatic contributions are designed to ensure that a 25-year-old participating in the program will save enough to retire at age 67 and replace 80% of her income.
For the first 30 days, however, the first $1,000 in contributions are invested in a capital preservation fund so that employees who opt out can reclaim their funds; the remaining deferrals are invested in an age-based target date fund.
Eventually as many as 500,000 employees will be eligible for the program on an opt-out basis. In addition, self-employed workers and employees at firms who are ineligible for their company’s 401(k) program will be able to participate on an opt-in basis.
Through mid-November, employers with 50 or more employees were eligible to participate in the OregonSaves plan, but as of mid-December employers with 20 or more employees will be eligible, followed by employers with even fewer workers.
The CRR report concludes that “important assumptions about how workers would react to the availability of auto-IRAs appear to be holding up,” but employers unfamiliar with the program could use some help “to provide timely and accurate data, process payroll deductions and stay on top of changes to employees and payroll deductions.”