About half of the U.S. private-sector workforce is covered by employer-sponsored retirement plans. But what about workers who don’t have this option? A number of states require firms that don’t offer a retirement plan to enroll their workers in a state-run program.
Academic researchers John Chalmers, Olivia S. Mitchell, Jonathan Reuter and Mingli Zhong, in a National Bureau of Economic Research study, Auto-Enrollment Plans for The People: Choices and Outcomes in OregonSaves, used the state program as a test case to analyze how it worked, the level of interest and how it affected retirement savings plans.
In 2015, the state of Oregon passed a bill to mandate OregonSaves for private companies that didn’t offer 401(k)s or similar programs.
The program is structured as a Roth IRA, and employees are automatically enrolled. The authors looked at who opted out of OregonSaves and why, how the program affected saving patterns for those who participated, and whether it meaningfully increased retirement savings.
What prompted OregonSaves, the study says, was that only 22.1% of employees who worked at a firm without a retirement savings program had actually opened an IRA, and only 7.6% were actively saving. In other words, opening and saving on their own wasn’t a popular option for employees.
The study posited three reasons for those without mandatory savings programs not to save: One was the “search cost,” another was “can’t afford to save” and the third was “don’t need to save.”