State-Sponsored IRA Plans Have Potential to Boost Worker Savings

An issue brief from Rice University finds state-sponsored retirement plans are still works in progress.

State-sponsored retirement plans may help workers save more for retirement and help retirees rely less on social services, if their cost effectiveness is not impaired by fees, argues retirement research from Rice University.

An issue brief from Rice University’s Baker Institute for Public Policy examined state efforts to expand retirement plan coverage for workers who do not have access to retirement benefits from their employer, concluding that state plans are worth exploring but have not yet disproved their critics.

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The brief, Considerations for State-Sponsored Retirement Plans, written by Joyce Beebe, a research fellow in public finance at Rice, notes that a Federal Reserve study of U.S. workers in 2021 found 25% had no retirement savings and 40% felt behind on preparing for retirement.

State-sponsored individual retirement account programs deduct regular retirement plan contributions from an employee’s paycheck.

Beebe concludes that, despite criticisms, state-administered plans should not be abandoned and because the programs are still relatively new, need time to allow them to mature before their success can be determined, explains Beebe.   

“Overall, the debate will be settled as new state programs are implemented and more data becomes available,” she writes. “The success of the programs will largely depend on whether they can react a certain scale, and more importantly, whether workers remain savers in the long run.”

Data Beebe cites from the three oldest and largest state plans—California, Illinois and Oregon—finds that, despite account withdrawals, each state program continues to receive deposits.

No Federal Mandate

While the federal government encourages businesses to provide retirement plans to employees, no federal mandate requires them.

Research from the American Association of Retired Persons finds that 48% of U.S. workers—57 million people—do not have access to an employer-sponsored retirement plan. AARP data shows that employers at small businesses are less likely to have a retirement plan and that access differs substantially by race, ethnicity and gender.

“Many smaller employers cite costs and administrative burdens as primary reasons for not offering retirement plans,” writes Beebe. “As such, supporters of state plans believe the plans are especially beneficial for small-business employees. Part-time workers and those in the sharing economy also stand to benefit if states decide to include them in their retirement programs.”

States Respond

Several U.S. states have responded to the gap in retirement plan availability by creating programs for workers without access to one through their employers. As of mid-2022, 12 states either passed laws or implemented plans to offer IRA programs to workers without a retirement benefit from their employer, according to Beebe.

Data from a research center in Georgetown University’s McCourt School of Public Policy, the Center for Retirement Initiatives, which tracks state plans, counts 18 total programs (16 states and two cities) in various stages of development. The goal is that, among other benefits, state plans will help individuals lessen their reliance on social services in retirement.

“If a significant number of retirees are unable to support themselves, there will be significant pressure on the public safety net, and current workers will ultimately bear the costs,” Beebe writes.

With state-level retirement plan boards overseeing the programs, employers do not have any fiduciary duty to the retirement plans. They simply act as conduits to channel funds from workers to plans and encourage employees to participate, Beebe says. This also leads to a change in fee structure.

“Because of the frequent withdrawals and relatively small balances, administration costs are usually high,” Beebe writes. “There are also separate fees charged by the state.”

When it comes to fees, Beebe explains that any investor can access an IRA independently, yet for workers contributing to state-sponsored plans, the state’s involvement partnership with a finance industry provider comes with higher fees, Beebe explains.

“Anyone can have access to IRAs, even if your employer does not offer any retirement plans; but if you do it-yourself, you only pay for a company like Vanguard or Fidelity to manage the assets,” Beebe said. “If you go through the state, you pay extra fees.”

Information collected and published by Investopedia in August 2022 shows that fees for Roth IRAs can include account maintenance and advisory fees, transaction fees and commissions and fees for going under a minimum balance. The fees vary by provider but can range from zero up to 0.90% or more annually.

An analysis by the Pew Charitable Trust, State Auto-IRAs Continue to Complement Private Market for Retirement Plans, finds “little evidence that state initiatives crowd out employer plans,” writes Beebe. “On the contrary, some employers would rather start their own plans instead of using state-mandated plans.”

Finally, Beebe addresses if state plans can provide workers with meaningful retirement savings—considering the costs for managing many small accounts and for monitoring frequent withdrawals—by inspecting the three largest state-sponsored IRA programs with the longest operating histories.

CalSavers, OregonSaves and Secure Choice (Illinois) were selected because the state programs “demonstrate similar patterns in terms of account balance and withdrawal frequency,” writes Beebe.


The largest state plan is the California CalSavers program, with $273 million in assets, 331,000 funded accounts and more than 106,000 employers. CalSavers began in 2019. As of September 30, the average account has a balance of $756 and a monthly contribution of $166, data shows.

While 67,323 accounts have experienced full withdrawals, another 11,591 accounts experienced partial withdrawals, and the opt-out rate for the program is about 37%, according to the data.

The total fee for CalSavers ranges from 0.825% to 0.95% because it includes a state fee of 0.05%, a program administration fee of 0.75% and an investment funds fee that ranges from 0.025% to 0.15%, Beebe explains. State rules require expenses to not exceed 1% of program funds.


OregonSaves was launched in 2017, and as of August 31, the program managed 114,484 accounts and $157 million in assets, according to data from the Oregon State Treasurer.

The average contribution amount to OregonSaves was nearly $177 per month and the average account balance $1,369. Almost 25% of eligible participants opted out of the program and among the 114,484 funded accounts, 30,073 or 25% have had least one withdrawal.

In August alone, $7.4 million was deposited into the accounts and $3.5 million was withdrawn. Based on the average account balance of $1,369, the account fee is about 1.3% for an average account holder and such, the total fee is for workers is approximately 1.55%.


The Illinois Secure Choice Program began in 2018. As of September 30, Illinois reported $84 million of assets in 109,346 accounts, an average contribution of about $144 per month and the average account balance was $768, data shows. The opt-out for the program was about 32%. Among all accounts, 24% have at least one withdrawal. In September alone, participants contributed $3.8 million and withdrew almost $1 million, the data shows.

The Illinois program charges participants three types of fees: The state fee, the program administration fee, and the underlying investment fund fee, according to state treasury data.

For the most recent plan year, the state fee was 0.05% of net assets, the program administration fee was 0.61%, and the investment fund fees was 0.09%. The total fee for the state-sponsored IRA was therefore 0.75%, data shows.