Who says we all can’t get along? Surely not the folks in statehouses enacting auto-IRA programs.
Three new auto-IRA programs were passed this year by state legislatures in Minnesota, Nevada, and Vermont, plus one new multiple-employer plan in Missouri. Tally it all up and, as of mid-June, a total of 19 states had ratified new programs for private-sector workers, with 15 of them auto-IRA program states.
An auto-IRA program requires employers that don’t offer retirement plans to allow their workers to be automatically enrolled in plans facilitated by the state. With state auto-IRA programs, the employer’s role remains entirely administrative, restricted to signing up workers and enabling payroll contributions. Employers are also prohibited from contributing to their employees’ accounts.
Going back to 2012, at least 47 states have implemented new programs, studied program options, or considered establishing state-facilitated retirement savings programs.
Not a bad run, right? And that’s not all. The great auto-IRA push is not only winning votes from state representatives across the country but it’s doing so across the aisle as well.
That’s right, auto-IRAs have become — wait for it — a bipartisan issue.
The votes in Nevada and Vermont were cross-party, with Republicans joining their Democrat colleagues to pass the new programs. The bills were signed by Republican governors in both states, where Democrats command legislative majorities.
Vermont’s program will affect employers that haven’t offered a qualified retirement plan in the preceding two years. The accounts will be structured as Roth individual retirement accounts, but the state’s treasurer is authorized to provide an option to contribute to a traditional IRA instead.
As for implementation, the VT Saves program starts July 1, 2025, for businesses with 25 or more employees. It will kick in on Jan. 1, 2026, for businesses with 15 to 24 employees, and finally on July 1, 2026, for those with 5 to 14 employees.
“VT Saves will transform the long-term financial well-being of tens of thousands of Vermonters,” Mike Pieciak, Vermont’s Democratic treasurer, said in early June as the bill was signed into law. “We know that employees are 15 times more likely to save for retirement when they have access to a plan, which will help more people have a secure retirement, benefit our economy, and take pressure off our state budget.
“I want to thank the Governor and the legislature for their bipartisan support of VT Saves and helping address Vermont’s retirement crisis,” Pieciak added.
Vermont Gov. Phil Scott, a Republican, gave a shout-out right back at the state’s treasurer for his even-handed approach to the legislation.
“Ensuring that Vermonters are able to plan ahead and retire comfortably in our state is critical,” Scott said. “I appreciate Treasurer Pieciak for taking the lead on this issue and for his bipartisan work to launch VT Saves.”
Forget all the tree-hugging they say goes on in Vermont. That’s almost like real hugging.
Nevada’s mandatory program is slated to start on July 1, 2025. It will encompass employers with more than five workers that have been in business for at least 36 months and haven’t offered a tax-favored retirement plan or other qualified retirement plan within the current calendar year or in the preceding three calendar years. Employees will be able to opt out of the traditionally structured IRA accounts if they choose.
Missouri’s MEP program also had bipartisan support and is expected to be signed by the state’s Republican governor.
A state-facilitated “open” MEP is a type of 401(k) “group plan” in which otherwise unrelated employers in the state would be able to band together as part of the state-facilitated plan, as defined by the Department of Labor. This specific model is an employer plan, regulated by the Employee Retirement Income Security Act of 1974, that offers participants 401(k) plans with higher contribution limits and allows employers to match employee contributions.
Individuals will be able to begin contributing to the Missouri plan, called the Show-Me MyRetirement Savings Plan, on or before Sept. 1, 2025. The voluntary program will affect employers with no more than 50 employees, or ones that have had 50 or fewer employees in the last five years, that do not currently offer a plan. The accounts will be structured as pre-tax or Roth 401(K).
It’s worth remembering that a company could choose at any time to adopt a retirement plan of its own, instead of using the state program.
Angela Antonelli, executive director at the Georgetown University Center for Retirement Initiatives, cited a few factors that are at play in uniting previously polarized politicians on the topic of state auto-IRAs.
The first is the overall success to date of existing programs. According to Antonelli’s calculations, total assets in just three of the existing auto-IRA programs — California, Illinois, and Oregon — exceed $838 million, representing 660,000 savers accounts and almost 150,000 registered employers. She believes total assets across all state programs should break through $1 billion later this year.
In the meantime, Antonelli said some of the newer programs to launch — Colorado, Maryland, and Virginia — will propel faster growth in assets, employers covered, and new retirement savers, with still more programs to come online in 2024 and 2025, including the newest ones passed in 2023.
Put plainly, red and blue politicians are doing what they always do in “following the money,” only this time they’re watching it go into their constituents’ retirement accounts.
Moreover, the consequences of not doing anything to reinforce the U.S. retirement system have become so clear that even the fence-sitters feel the need to choose a side. A recent study by the Pew Charitable Trusts shows that over the next 20 years, costs to the federal and state governments are likely to surpass $1.3 trillion if the status quo persists.
“It may not be coincidental that we are seeing this shift as more of the retirement industry, namely plan providers and advisors, are benefitting from the enormous opportunities these state programs have now created for them, and in some instances are now actively lobbying in states for the passage of these programs,” Antonelli said.
The clarity doesn’t end there. The recognition of the significant inequities in the U.S. retirement system is also spurring state representatives of all political stripes into action.
The Georgetown University Center for Retirement Initiatives says white households have a median retirement account balance of $80,000, compared with $35,000 for Black households, and $31,000 for Latino households. Moreover, white households are significantly more likely to even have retirement accounts. Black households, on the other hand, tend to be burdened by greater levels of student loans and other types of debt.
The massive differences in the accumulation of wealth and retirement savings both by gender and race are difficult for even the most hard-hearted politician to disregard. And state programs like auto-IRAs are specifically designed to help these populations that are so often left behind help themselves.
“State legislators are finding it harder to ignore the data showing the costs to the federal and state governments of an aging population that lacks any retirement savings and disproportionately leaves behind women and people of color, while also having in front of them clear proof that these state programs are successful in closing these gaps,” Antonelli said.
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