How State Auto-IRAs Are Changing Retirement Savings

With tens of millions of Americans having no money in retirement accounts, eliminating the savings gap is daunting. State-run IRAs may be changing the game.

They collectively held more than $3 billion in retirement savings at the end of April, a new record, according to data from the Center for Retirement Initiatives at Georgetown University, and the pace at which assets are flowing into them is picking up. Plus, auto-enrollment programs have been linked to an uptick of as much as 35% in 401(k) adoption among small businesses, according to Angela Antonelli, executive director of CRI.

“The state programs have had a really positive impact on catalyzing new program formation,” she told Advisor Upside. “We’re moving the needle to close the access gap through a combination of both the state programs along with new private plans.”

Cross Country

Currently, roughly 1.2 million workers who don’t have access to a 401(k) contribute to auto-enrollment IRAs across 15 states:

• California’s program is by far the largest, with total assets nearing $1.8 billion in April, a nearly 50% increase year-over-year, per Georgetown data.
• That’s followed by programs in Oregon, Illinois and Colorado with total assets of roughly $490 million, $345 million and $215 million, respectively.
• The programs generally serve lower-earning Americans, who contribute on average $100 to $120 to the account each month.

“That may sound like a small amount, but for lower-income workers, that can help them feel more financially secure,” Antonelli said. She added that for young people who might be moving from job to job, the programs provide a way to instill savings habits. “Because of that experience and starting to save early and learning through the state program, they’re going to be much more likely to take advantage of the retirement benefits that a future employer is going to offer to them.”

D.C. Plans. The federal government is planning to launch a similar program, the TrumpIRA, next year, but there are key differences. The TrumpIRA would rely on voluntary rather than automatic enrollment, a feature that has made state programs highly effective, Antonelli said. Plus, the first Trump administration shut down the federally run MyRA program in 2017, so it will be interesting to see how the new program differs.

“The action by the administration to recognize that there’s a significant number of private sector workers who lack access is a great first step,” she said. “How both employers and workers will view the TrumpIRA program, absent of any mandate, absent any auto-enrollment, and who will choose to take advantage of that still remains to be seen.”