Compliance April 14, 2023

Study Shows State-Built Retirement Programs Complement Private Plans

New state-facilitated initiatives may boost private sector plans, not crowd them out, a Pew analysis of federal data shows.

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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.

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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.  

Data and Research April 13, 2023

HSA Assets Surpass $100 Billion Milestone

Research shows that assets in health savings accounts continue to rise, growing to reach a landmark threshold last year.

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Health savings accounts surpassed $100 billion in total assets for the first time in 2022, and accounts experienced robust asset growth early in 2023, new research from HSA consultant Devenir Group LLC shows.

Total assets in health savings accounts were buoyed by strong market returns and the influx of January contributions, reaching $112.5 billion at the end of January, up 8% since year-end 2022, the Devenir January 2023 Supplemental Survey found.

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“Despite significant market headwinds, we saw more health savings accounts utilizing investments than ever before as account holders continue to recognize the long-term growth potential that HSAs offer,” stated Jon Robb, senior vice president of research and technology at Devenir, in a press release.

Holders fund the HSA accounts through payroll or individual deferrals, much as they contribute to a workplace retirement plan or IRA. Employers can seed the accounts with annual contributions and offer matching contributions when employees contribute, while employees contribute individually.

With health care costs rising, many employers are  managing employee health care expenses with a high-deductible health plan, in which workers pay a lower monthly premium but a higher deductible. High-deductible health plans can be paired with health savings accounts as an additional benefit for employees.

Looking Forward From Last Year

At the end of 2022, accounts held $104 billion in 35.5 million accounts—a year-over-year increase of 6% for assets and 9% for accounts—according to the “2022 Year-End Devenir HSA Research Report.”

Invested account dollars—HSA assets not held in cash deposits—were $33.8 billion at year-end 2022, compared to $34.4 billion a year earlier and $23.8 billion at the close of 2020, Devenir found.  

“The pace of account growth remained strong throughout 2022 after the COVID-19 pandemic and related impacts to the employment market began to subside,” the report stated.

At year-end 2021, total HSA assets were $98 billion held in 32.5 million accounts, with $63.6 million in cash deposits, data shows.

HSA providers project asset growth of 13% in 2023, forecasting their own business will increase by 17% for the period, the Devenir report found. The firm projects the HSA market will near 43 million accounts by the end of 2025, holding almost $150 billion in assets.

Contribution Sources

Devenir identified several sources of 2022 account contributions.

Employees contributed 63%, employers contributed 26% and individual contributions (made outside of workplace deferrals) were 11%, the data showed.

The average employer contribution was $869, the average employee contribution was $2,147 and the average individual contribution outside of workplace deferrals was $2,037, Devenir’s research showed.   

Account Balances

More than half (52%) of HSAs hold less than $499, the Devenir said. The full breakout is as follows:

  • 21% of accounts had $0 in assets;
  • 31% of accounts held between $1 and $499;
  • 11% accounts held between $500 and $999;
  • 11% held between $1,000 and $1,999;
  • 13% held between $2,000 to $4,999;
  • 7% held between $5,000 and $9,999;
  • 5% held between $10,000 and $24,999; and
  • 2% of accounts have assets of $25,000 or more.

Account Holders Delay Funding

Benefits open enrollment season for employers effects account holders’ funding, Devenir data showed. Accounts opened during the fall open enrollment season often remain unfunded until early the following year, a pattern that has held since at least 2011, the earliest year for which Devenir provided data.

  • There were 32.5 million accounts open that were left unfunded at year-end 2021, and by mid-year 2022, 33.9 million were funded;
  • 30.2 million open accounts were unfunded at year-end 2020, and by mid-year 2021, 31.1 million were funded; and
  • 28.3 million open accounts were unfunded at year-end 2019, and by mid-year 2020, 29.3 million were funded.

Accounts opened in 2022 had an average balance of $1,436, compared to a $1,420 average balance at the end of 2021 for accounts opened in 2021, data shows.

“We believe a contributing factor to the trend of newer accounts having higher balances is a result of HSA providers reporting M&A or account transfers from existing accounts in 2022 as having been opened the same year,” the report stated.

Devenir gathered the data in the 2022 Year-End HSA Market Survey. The survey was conducted in early 2023 and largely consisted of responses from the largest 100 providers in the HSA market. All data was requested for the period ending December 31, 2022.

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