State-run 'auto-IRA' programs aim to close retirement savings gap
cnbc.comRoughly half of Americans don't have access to a workplace retirement plan — but states are increasingly stepping in to fill that gap, both for residents' wellbeing and their own.
About 57 million people — 48% — don't have access to a pension or 401(k)-type plan at work, according to the University of Pennsylvania's Pension Research Council. Yet, Americans are 15 times more likely to save for retirement when they have a workplace plan, AARP Research found. (They're 20 times more likely to do so if automatically enrolled.)
By the end of 2023, seven states — California, Colorado, Connecticut, Illinois, Maryland, Oregon and Virginia — had launched so-called «auto-IRA» programs to try filling the 401(k) access gap, according to Georgetown University's Center for Retirement Initiatives. Oregon was the first state to do so, in 2017.
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Auto-IRA is shorthand for an automatic-enrollment individual retirement account. These programs require companies of a certain size to offer a workplace retirement plan of their own or facilitate payroll deduction into a state-sponsored IRA, at no cost to the employer.
If the latter, part of workers' paycheck would be automatically contributed — generally 3% to 5% of earnings — to the state plan. Workers can opt out.
More than 800,000 workers participate in auto-IRAs, which hold more than $1 billion in total savings, according to The Pew Charitable Trusts.
They save about $165 a month, on average, said John Scott, director of Pew's retirement savings project.
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