Workers Without Retirement Plan Access Favor State-Run Option

A new analysis from the Pew Charitable Trusts, “Worker Reactions to State-Sponsored Auto-IRA Programs,” makes a clear argument that workers in the U.S. broadly favor the option of turning to the government for savings opportunities when an employer is unwilling or unable to provide a retirement plan.

The analysis suggests these types of plans could likely help a lot of people who are more or less shut out of the defined contribution (DC) retirement plan arena: “At least one-quarter of nongovernmental, nonagricultural full-time workers do not have access to an employer-sponsored retirement plan, and fewer than 15% of households contribute to an individual retirement account (IRA).” Given these facts, policymakers, particularly at the state level, are examining ways to bolster retirement savings, Pew reports.

“California, Connecticut, Illinois, Maryland, and Oregon have already passed legislation enabling them to do so,” the analysis states. “Under these plans, workers without access to a workplace retirement plan would see regular deductions from their paychecks sent to an IRA managed by a private financial services firm. Workers could opt out, and the employers’ role would usually be limited to setting up the payroll deduction and perhaps distributing informational materials.”

Typically, Pew researchers explain, the state’s role is limited to choosing the firm to manage the funds. As is the case with traditional workplace DC plans, research shows that using automatic enrollment dramatically increases participation.

As part of Pew’s analysis, a sizable group of participants were “asked about such programs both early in the survey and then after hearing critical details.” The largely positive responses were little changed before or after the brief education about state-run IRAs. Only 13% said they would likely opt out of an auto-IRA run by their state.

“Still, a quarter said they are unsure whether they would take part, although they would be automatically enrolled by default if they remained undecided,” Pew reports. “That means they would start saving, but these workers might be more likely than others to opt out at a later date.”

Fully 73% of workers say they favor automatic enrollment for this type of a state-based retirement planning solution, while 68% also favor the more aggressive step of automatic escalation of contributions. Importantly, there was no significant difference in the percentage who said they would opt out between workers asked about an auto-IRA with a 3% default contribution and those asked about a 6% rate.

“Slightly more of those asked about the 6% default said they would choose to lower the default percentage, but more of this group also said they would stay in the program as is,” the analysis concludes. Also important to note, differences in attitudes across demographic groups were not large, though certain groups, such as Hispanics, Millennials, and part-time workers, typically have less access to employer-sponsored plans than whites, Baby Boomers, and full-time workers, respectively.

The full analysis is available for download here.