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Why State Retirement Plans Are Good for America’s Workers and Private Sector Plans

by | Jan 29, 2024

By John Sullivan, Chief Content Officer at the American Retirement Association

It’s a massive problem—according to the Aspen Institute nearly 60 million Americans lack access to a workplace-based retirement plan. That scary statistic, combined with Social Security solvency concerns and increasing longevity, is frustrating financial professionals, fueling the public’s anxiety, and catching the attention of concerned politicians.

Yet it comes at a time when more businesses are offering a plan, and more workers are choosing to save than ever before. The Wall Street Journal, citing data from the Pew Charitable Trusts, credited the increase to a relatively strong job market, increased federal tax breaks for adopting a new retirement plan, and new state laws mandating businesses have a retirement plan.

That last solution, new state laws requiring businesses over a certain size to offer any type of retirement plan for workers, is proving to be helpful in closing the coverage gap.

While initially viewed as controversial and far from an end-all solution to this serious problem, these laws are contradicting naysayers and winning support as the data pours in showing the positive impact the laws are having in increasing retirement savings among the once uncovered working population.

Here are four important points to know about state-backed private retirement plans:

1. More States Are Putting Coverage Programs in Place

According to the Center for Retirement Initiatives (CRI) at Georgetown University’s McCourt School of Public Policy, since 2015, at least one or two states each year have enacted laws to create new state-facilitated retirement savings programs. As of June 30, 2023, a total of 19 states have enacted such laws.

During the 2023 state legislative sessions alone, at least 25 states and the District of Columbia introduced legislation to establish new programs, amend existing programs, or form study groups to explore their options. California, Oregon, and Illinois were among the earliest states to pass a coverage mandate law that also authorized the creation of a state retirement program. Today these states have operational programs in place along with Colorado, Connecticut, Maryland, and Virginia.

2. The Type of Plans Vary

Currently, 15 states have mandatory auto-IRA programs, meaning businesses that employ more than a certain number of workers (typically five or more employees but the threshold varies by state law) are required to offer some type of retirement savings plan or enroll their workers in the state program. Other states have created voluntary state programs, and encourage businesses and workers to participate.

For example, Missouri passed a new law this year authorizing the creation of a voluntary multiple employer (MEP) 401(k) arrangement intended to be offered only to Missouri small businesses. In contrast, Minnesota enacted a new mandatory auto-IRA program. Vermont, which previously offered a voluntary 401(k) MEP, converted to a mandatory auto-IRA program in April.”

“States that mandate an auto-IRA are those in which employers are required to ‘do something’,” according to Angela Antonelli, CRI’s Executive Director. “If an employer is not offering a plan, they must do something—they can go out to the private sector and adopt a plan or allow their workers the opportunity to be auto-enrolled in the state-facilitated auto-IRA.”

3. State Plans Complement Private Sector Plans

Financial professionals within the retirement plan industry initially feared that state programs would unfairly compete with private plans. They feared the scale and potentially unfair state incentives would encourage employers to discontinue private 401(k) plans and prompt them to enroll their workers into the state program.

This could disrupt retirement savers and the retirement plan industry marketplace, leaving the workers on their own with little in the way of retirement planning, education, and guidance they currently enjoyed while saving in a private 401(k) plan.

However, plan adoption data in states that fully implemented plans show the fear was overblown, and private plan coverage has in fact increased. Pew reported that new 401(k) plans in California, Oregon, and Illinois—the first three to launch state programs for uncovered workers—were established at rates equal to, or exceeding, states without such programs.

“In all three states examined, the rate of introduction for new plans, as a share of existing plans, remained higher than before each introduced its savings program,” Pew noted.

4. It’s a Public/Private Sector Partnership

Voluntary state programs are not yet seeing significant adoption, yet they act as “seeds” for something more significant, such as mandatory auto-IRA programs where employer participation is higher, which leads to higher private plan adoption, as well. For example, Vermont recently converted from a voluntary open MEP to a mandatory auto-IRA program.

“It’s a perfect example of a public/private partnership,” Brian Graff, CEO of the American Retirement Association, noted.

Ultimately, adopting state-based plans appears to have encouraged a corresponding adoption of private-sector plans. Combined with a heavy SECURE 2.0 focus on smaller plans, the retirement plan industry finally has a real shot at closing the coverage gap and helping more Americans save for retirement.

About the Author

John Sullivan is Chief Content Officer at the American Retirement Association, a nonprofit organization that advocates on behalf of the private pension system and hardworking Americans. An experienced financial services content executive specializing in creative new media delivery, he has previously served as Editor in Chief of 401(k) Specialist Magazine, Investor Advisor Magazine, and Boomer Market Advisor Magazine.

The views expressed in this article are those of the author and do not necessarily represent the views of PenChecks Trust®, its subsidiaries or affiliates.



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Each year, approximately five million Americans with small retirement accounts (currently defined as having balances of less than $7,000) change jobs – and at that point are forced to make a decision.

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Take it or Leave it

Each year, approximately five million Americans with small retirement accounts (currently defined as having balances of less than $7,000) change jobs – and at that point are forced to make a decision.


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