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Retirement Planning > Saving for Retirement > IRAs

Debate: Do State Auto-IRA Programs Benefit Taxpayers?

By Robert Bloink By William H. Byrnes

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While the U.S. government has taken many steps to encourage business owners to offer retirement savings options for employees, employers are not obligated to offer a retirement plan under federal law.  

As a result, at least 19 states have enacted their own laws to create a retirement option to allow all employees within the state to save for retirement.

Gov. Jay Inslee of Washington, for example, signed a bill in late March creating such a program.

While the program will vary depending on the state, the most common state programs require private employers who do not offer retirement savings options to automatically enroll employees in IRAs funded through payroll deductions. The state itself oversees and administers the program — commonly known as an auto-IRA program — and the investments are managed by private companies.

We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about whether state-facilitated retirement account requirements have a positive impact for taxpayers.

Below is a summary of the debate that ensued between the two professors.

Their Votes:

thumbs up Bloink
Byrnes

Their Reasons:

Bloink: The vast majority of individual taxpayers say that they would participate in a state-facilitated auto-enrollment retirement plan if they were enrolled. Anything that state governments can do to encourage taxpayers to take control and save for their own retirements is a positive. 

States that have provided auto-enrollment IRAs have seen the balances in these accounts grow dramatically since the programs were initiated. According to some reports, over 845,000 funded accounts under state-mandated auto-IRA programs now exist.

Byrnes: The patchwork of state-based retirement programs only serves to confuse taxpayers about the situation and what they should expect from their retirement savings. 

In today’s fluid situation where taxpayers frequently move between states and change jobs, we need a federal-level rule that provides retirement income security regardless of the taxpayer’s state of residency.  

Bloink: Hundreds of thousands of American taxpayers today participate in retirement plans only because of state-mandated auto-enrollment features. By making retirement planning options mandatory at the state level, we’re educating taxpayers about their options and needs. 

We’re also making participation easy because these taxpayers aren’t required to seek out a financial institution to sponsor independently established IRAs.  

Byrnes: Yes, state-level programs do have the effect of educating taxpayers who may otherwise be unaware of their retirement planning options, but we must be focused on a more widely impactful federal level program that will give taxpayers the tools they need by making retirement savings options mandatory at the federal level. 

These state-sponsored IRAs simply don’t offer the same level of benefits provided by workplace plans.

Bloink: What the states are doing with these auto-enrollment IRAs is having a profound impact on the retirement security landscape. Auto-enrollment combined with payroll deduction features make it easy for employees to save for retirement when their employers choose not to provide robust retirement savings options. 

Auto-enrollment IRAs also offer significantly higher returns than those that taxpayers can expect from a typical bank account. These programs essentially level the playing field, especially for lower-income taxpayers who are the least likely to have access to a valuable employer-sponsored retirement savings program.

Byrnes: Countless Americans today continue to rely on the federal Social Security program as their primary source of anticipated income during retirement. For many, those benefits are simply not going to be enough. We’re also talking about the employees who are the least financially able to fully fund their own retirements. 

These state-facilitated programs may offer benefits, but they are no match for a fully operational nationwide employer-based retirement savings system, especially when em]ployer matching contributions, which are not available under the state-run programs, are considered.

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Image: Adobe Stock

Robert Bloink

William H. Byrnes

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