11-27-2024
According to AARP, about 57 million American workers do not have access to a retirement plan through their jobs. Policy experts predict this lack of savings will result in a retirement crisis. Only the highest-income baby boomers are expected to have a sustainable retirement income (CNBC.com). A bigger pool of older adults with insufficient income will burden states and their ability to provide public assistance.
Relatively new state-sponsored plans may offer help. The first state IRA plan started in 2017. Now, 17 states have enacted auto-IRAs (only ten are currently in effect, with more to come in 2025). Data from eight states with these plans shows that more than 900,000 workers have amassed savings of over $1.7 billion (CNN.com). Other data found broad-based benefits from the plans, particularly for low-to-middle-income workers. Workers in these states are 20% more likely to save for retirement. Workers earning a median income increased their savings rate “from 2.2% to 3.4%” with these plans, which results in a retirement income increase of “$150 per month.” (CNN)
The seventeen states with the plans are California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maine, Maryland, Minnesota, Nevada, New Jersey, New York, Oregon, Rhode Island, Vermont, Virginia, and Washington. Certain size employers must either have their own 401k plan or commit to the state-run plan. Workers at employers without private workplace plans can be automatically enrolled. While the rules differ among the states, most require employers who opt to have their employees use the state-run plan to withhold a pre-set savings rate of a worker’s each pay period. They are structured like Roth IRAs in that contributions are made with after-tax dollars and can be withdrawn tax-free from retirement. Employers do not make matching contributions. These state-run plans will not help everyone. Gig workers generally will not have access to these plans.