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June 28, 2023 at 01:36 PM
What You Need to Know
- As of June, 19 states have implemented automated retirement savings programs for private-sector workers.
- A growing body of evidence shows that the development of these programs is already having a positive effect.
- Even workers who don't start saving until later in their careers can benefit by delaying the age at which they claim Social Security.
The list of states that are facilitating automated retirement savings programs for private sector workers continues to grow at a steady rate, with four significant actions already undertaken in 2023 and more on the horizon.
Specifically, as of late June 2023, laws creating three entirely new programs have been passed by the legislatures in Minnesota, Missouri and Nevada, which brings the total number of state-based retirement savings programs for private-sector workers to 19.
In addition, the state government in Vermont has changed its program from a voluntary multiple employer plan approach to an automatic enrollment individual retirement account system. Minnesota’s and Nevada’s new programs are also based on the auto-IRA approach, while Missouri is launching a voluntary multiple employer plan program.
Experts convened Tuesday for a panel discussion by the Georgetown University Center for Retirement Initiatives, noting that various states also are now actively exploring interstate partnerships, which they say can only help to make these programs even more efficient.
According to the panel, which included lawmakers and treasury officials from the aforementioned states that have taken action this year, the expansion of state-facilitated retirement savings programs coincides with the emergence of a growing body of evidence showing that the development of these programs is already having a positive effect on workers and their ability to save for retirement.
For example, according to a new paper published by the National Bureau of Economic Research, “How Do Firms Respond to State Retirement Plan Mandates?” auto-IRA programs and the adoption of other pro-savings policies — such as outright mandates for mid-sized and large employers to offer their own retirement plans — meaningfully boosts savings rates among private-sector workers.
Growing Evidence of Success
According to the NBER paper, these policies collectively increase the probability that any given individual in a state works for a company with a retirement plan by roughly 3%, while the probability that the individual participates in some kind of savings arrangement jumps by 33%.
As the Georgetown panel emphasized, this is all good news for the U.S. and its aging workforce, because the nation now appears to be heading for more of a retirement “catastrophe” than a retirement “crisis.”
To underscore the point, the experts highlighted one recent analysis from Pew Charitable Trusts that warns the collective cost to states and the federal government stemming from workers’ lack of retirement savings could amount to $1.3 trillion in the coming decades.
This whopping price tag comes from the fact that older Americans without sufficient savings and income from Social Security to meet their basic needs will have to rely on already-strained government safety net programs.
Lawmakers and state treasury officials agreed that such an outcome is both unacceptable and addressable via bold policy actions at the state and the federal levels, and they applauded Congress for its passage of both the original Setting Every Community Up for Retirement Enhancement (Secure) Act of 2019 and the follow-up passage of the Secure 2.0 package late last year.
