State Auto-IRA Policies Increase Private-Sector Employment, Wages

After analyzing the effect of state auto-IRA policies in Oregon, Illinois and California, research analysts at Georgetown University’s Center for Retirement Initiatives found, in a new working paper, that these state retirement policies can improve labor supply and wages. 

The paper, “How Do State Retirement Savings Policies Affect Labor Supply?” identified that state programs that require private employers to either enroll in the state program or provide other retirement benefits, increased private sector jobs between 1.8% and 2.3%.  

Results also indicated a potential increase in wages of between 2% and 4% after the introduction of auto-IRA programs. 

The potential wage increases could have resulted from some workers increasing their earnings through part-time work, working multiple jobs or increasing the number of hours worked to compensate for lower earnings as a result of having some earnings diverted into an auto-IRA, according to the paper. 

Adam Bloomfield, one of the paper’s authors and a non-resident scholar at Georgetown CRI, said in a recent webinar that these increases in private sector employment and annual wages have potential policy implications. 

He said policymakers should keep in mind that requiring workplace retirement savings options appears to influence the labor market and that they may wish to consider potential shifts in employment status, sector or competition when contemplating retirement policies. However, Bloomfield said more research is needed to see how these effects persist as more states begin to roll out similar auto-IRA programs. 

There are currently 19 states that have taken steps to adopt auto-IRA programs, though most are not yet implemented. The three states that the paper focused on—Oregon, Illinois and California—account for the most of IRAs opened and assets saved (97%) through state-auto IRA programs. 

Illinois and California See Success with State Auto-IRAs 

Christine Cheng, executive director of the Illinois Secure Choice retirement savings program, spoke about her program’s progress during the webinar.  

Illinois was the first state to enact legislation related to retirement security and the Secure Choice Program officially launched in 2018. The program currently has almost 150,000 individuals participating, as well as more than 25,000 registered employers. Assets are currently valued at more than $180 million. 

Angela Antonelli, research professor and executive director of the CRI, said whether access to retirement savings is being expanded through these state plans or through the creation of more employer-sponsored plans, it’s all good news. 

“From a policymaker’s perspective, it’s been about getting more people covered, and it’s not about having to do it necessarily through the state programs,” Antonelli said. “If the private sector and private providers have plans and they’re suitable, and small businesses are interested in those plans, [and] we see new plan formation through the adoption of employer-sponsored plans, that’s all good. It’s not about who’s doing it, it’s about getting everybody covered.” 

David Teykaerts, executive director of CalSavers, also spoke about his program’s progress. CalSavers recently surpassed $1 billion in contributions to savers’ accounts and has more than 134,000 employers registered. Teykaerts said CalSavers is currently focused on helping the smallest employers—those with one to four employees—provide access to the state plan, as recent legislation expanded the mandate to include small employers. 

Teykaerts added that private providers have been supportive of the program, especially because it is helping smaller employers offer retirement savings. 

“The honest feedback that I’ve gotten from folks is that given the demographics and the size of accounts that we’re dealing with right now, with [account balances] somewhere between $15,000 and $20,000, … these are not really profit centers for the existing industry right now,” Teykaerts said. “So [the 401(k) providers] are happy to have us be that entry point into retirement savings.” 

He said the people participating in the auto-IRA tend to be younger workers, early in their careers with small account balances. 

Positive Sentiment About State-Facilitated Plans 

Meanwhile, a new report by the National Institute on Retirement Security found that that after surveying a total of 1,208 individuals aged 25 and older, the vast majority (77%) agreed that state-facilitated retirement programs are “good idea.” NIRS also found that there is high support for the programs across political party and generational lines, with support highest among Millennials. 

In addition, 82% of Americans surveyed said they would participate in a state-facilitated retirement program, up from 75% in 2020. Many also view key features of these programs as highly favorable, such as the idea that the programs would provide higher returns than other safe investments in today’s market and that the programs would have low fees. 

The NIRS report further argued that it would be worthwhile to monitor if these state programs spur growth in 401(k) plan offerings, especially given the SECURE 2.0 provisions that make it easier for small businesses to offer retirement plans.  

The National Bureau of Economic Research argued in a research report last year that state plans could be a catalyst for firms in states that mandate them to offer their own 401(k) plans, likely because there are some limitations to the state programs, as they do not permit employer matching contributions like 401(k)s do. Contribution limits in auto-IRAs are also significantly lower than in 401(k) plans.