Many studies have found that when employees have access to a retirement plan, they save more. However, only about half of U.S. employees have access to a company retirement plan. But that is changing as states have turned to mandatory auto-enrollment plans for small and other businesses.
Oregon completed two pilot programs in 2017, according to the Georgetown University Center for Retirement Initiatives. California and Illinois also moved early to enact auto-enrollment retirement programs.
The performance metrics of the first three programs have been positive. From Oct. 31, 2020 to Oct. 31, 2021, total assets grew 197%, while total registered employees grew 60%, according to the Georgetown University Center for Retirement Initiatives.
A National Bureau of Economic Research study released earlier this year, Auto-Enrollment Plans for The People: Choices and Outcomes in OregonSaves, found that although participation in the program was just over 62%, “significantly below” levels in firm-sponsored 401(k) plans, it still “meaningfully increased employee savings by reducing search costs.” That said, there were limits to the program in certain industries that had low wages and high turnover rates, the researchers found.
However, as Jamie Hopkins, managing partner of wealth solutions at Carson Group, recently told ThinkAdvisor, “we need to find an automatic and easier way for small business to get into the savings market for their employees, because we know it’s just access, right? If you have access to a retirement plan, you save more money. It’s not rocket science, but how do we get people there?”
A growing number of states have mandatory auto-enrollment retirement plans in place or have laws in place and are rolling out these programs over the next few years.