Study Shows State-Built Retirement Programs Complement Private Plans

States that have implemented retirement savings programs for private-sector employees have not crowded out employer-provided plans so far, new research from the Pew Charitable Trusts shows.   

In fact, state-facilitated retirement savings plans for private sector workers that do not have workplace plans may have a positive effect on the creation and retention of private plans, a Pew research article states, basing its analysis on Department of Labor data.

Businesses in California, Illinois and Oregon—three of the first states to launch programs to help private sector workers save for retirement—continued to create new plans in 2021 at rates similar to or surpassing those in states without programs, the research found.

“Evidence from California, Oregon, and Illinois continues to indicate that automated savings programs complement the private sector market for retirement plans such as employer-sponsored 401(k)s,” the Pew article accompanying the research findings stated. “Several years of data now suggest that states with automated savings programs can help fill the gap for employers who may not be ready or able to provide their own plans—without hindering the private market in those states.”

Programs in California, Illinois and Oregon have been taking contributions for at least four years. Oregon first enrolled workers in its program in 2017, followed by Illinois in 2018 and California in 2019.

The three state programs are automatic IRA programs. Employers in those states can choose to either enroll their workers in the government-built initiative or exempt themselves by adopting their own retirement plans.

State Programs Are Complementary

Pew examined the effects the state programs have had on private market plans and whether eligible businesses would ditch their own defined contribution plans or terminate existing plans as a result.  

The shifts in the share of plans created, pre- and post-implementation of the state programs, aligns with national trends and in some cases proves larger than the national change, the Pew research found.

The share of plans created in the U.S.—excluding California—increased from an average of 6.4% before 2019 to 7.3% from 2019 to 2021, the Pew analysis showed.

In the three states examined, the rate of introduction of plans, as a share of existing plans, remained higher than prior to the year when each launched its savings program.

• In California, the share of new plans increased from an average of 8.1% between 2013 and 2018 to an average of 9.4% from 2019 to 2021, when the CalSavers program was enrolling workers.
• In Illinois, the average share of new plans increased from 5.3% between 2013 and 2017 to 6.2% with Illinois Secure Choice enrolling savers from 2018 to 2021.
• In Oregon, the average share of new plans increased from 6.7% between 2013 and 2016 to 8.5% on average in the years after OregonSaves started operations in 2017.

Termination Rates in States

Pew also examined if the creation of state programs would encourage employers with existing private plans to drop them to enroll workers in the state programs.  

Each of the three states had plan termination rates lower than the nation’s overall rate in 2021, and the changes in states with automated savings programs appear to follow the national trend, the Pew article stated.  

Nationally, the rate of plan terminations increased by 0.23 percentage points between 2020 and 2021 after decreasing the previous year, data shows. Termination rates increased in both Illinois, by 0.27 percentage points, and Oregon, by 0.41 percentage points. The rate of plan terminations in California remained flat, falling just 0.03 percentage points in 2021, Pew found.

The three state auto IRA programs are the largest state-built programs by assets. CalSavers comprises $435.9 million total, OregonSaves comprises $180.9 million and Illinois Secure Choice $106.8 million, according to data compiled by the Center for Retirement Initiatives at Georgetown University’s McCourt School of Public Policy.

States Step In

Nearly half (48%) of American private sector workers ages 18 to 64—almost 57 million people—work for an employer that does not offer a retirement savings plan, according to separate AARP research. Across the U.S., 18 non-federal government entities have enacted retirement savings programs: 16 states and two cities (New York City and Seattle), according to Georgetown University’s Center for Retirement Initiatives.

Angela Antonelli, executive director at Georgetown’s CRI, told CNBC she expects state program assets will soon exceed $1 billion following publication of a December 2022 Pew report that found significant growth of new 401(k) plans in states that have adopted auto IRAs.

New states may be joining as well, after North Carolina lawmakers introduced House Bill 496 to the state’s general assembly to help more workers save for retirement last month.

Data sources for the Pew report are Form 5500 annual reports filed to the DOL. Pew sourced data from Form 5500s and Form 5500-Short Forms from 2013 through 2021.

The report was written by staff in Pew’s retirement savings research department, including Theron Guzoto and Mark Hines, both principal associates, and Alison Shelton, a senior officer.