Advancing Retirement Savings: A Look at Recent State Initiatives
It’s a big week for states.
Three new states are in the process of authorizing retirement savings coverage at work based on activity coming out of this year’s legislative sessions.
Minnesota, Vermont, and Missouri are the latest to join the coverage trend, having recently enrolled legislation to establish state-facilitated retirement savings programs. Two of the programs are Auto IRAs – Minnesota and Vermont. Missouri’s legislation would establish a state Multiple Employer Plan, or MEP.
If the two Auto IRA state bills are signed into law, they bring the US Auto-IRA-covered population from zero to about 21 million when authorized programs are fully implemented. If the voluntary states were auto-coverage, they would add another 3.8 million workers. (Those states are MA, MO, NM, and WA.)
That’s not trivial compared to a starting gap of about 57 million working Americans.
Let’s take a look.
The Vermont Model: VT Saves
Vermont's Auto IRA program, known as VT Saves (S0135), will be established through the office of the Treasurer. This program is designed for employers who do not currently maintain specified tax-favored retirement plans and for employees aged 18 and older. The legislation mandates an initial contribution rate of 5%, which can be adjusted by the participant. It also provides for an annual escalation of not less than 1% as determined by the Treasurer, up to a cap of 8%.
The Treasurer’s office is directed to make the program available to all covered employees with 25+ covered employees beginning on July 1, 2025, and to employees with 5+ covered employees by July 1, 2026. The legislation also references compliance support through an agreement with the Vermont Department of Taxes.
Our estimate of Vermont’s uncovered workforce is 120,000.
Note: this new legislation repeals the 2017 and 2019 Acts that authorized a MEP for Vermont, the Green Mountain Secure Retirement Plan.
The Minnesota Approach: Minnesota Secure Choice 1.9 Retirement Program Act
Minnesota's Auto IRA initiative, the Minnesota Secure Choice Retirement Program (HF 782), is governed by a board with assistance from named state agencies. This program targets employers with five or more covered employees who do not currently offer a retirement plan, as well as individuals aged 18 and older. Contribution rates are to be established by the board, which also has the power to recommend penalties for non-compliance.
Minnesota’s program will offer a diversified array of investments selected by the State Board of Investments. The program is set to begin operation by January 1, 2025 and will be funded by an initial appropriation of $5 million.
Our estimate of Minnesota’s uncovered workforce is 775,000.
The Missouri Method: Show-Me MyRetirement Savings Plan
Missouri's Show-Me MyRetirement Savings Plan (HB 155) is a multiple-employer retirement saving plan, in which employers may voluntarily choose to participate. This program is designed to be flexible, with phased-in implementation as desired, and it is scheduled to start taking contributions no later than September 1, 2025.
Interestingly, Missouri’s legislation states that, “An eligible employer, participating employer, or other employer joining the Plan shall not be liable for an employee's decision on which investments to choose, participants' or Board's investment decisions, the administration, investment, investment returns, or investment performance of the Plan, the Plan's design or the benefits paid to participants or any loss or adverse consequences incurred by any person solely and directly as a result of participating in the Plan.” We’re not ERISA attorneys, but we suspect that state law cannot circumscribe fiduciary liability for ERISA plans like these.
Importantly, this bill’s fiscal note considers two employees and about $2 million in expenditure in support of plan launch and operation.
Our estimate of Missouri’s uncovered workforce is 925,000.
On Trend
The progress in these three states fits the state coverage trend. Most years since 2015 have seen 1-3 states passing retirement coverage legislation. As a lead up to this, each year a small number of states also legislate for or otherwise conduct studies to understand the level and impact of under-coverage within the state. And with a short pause for headwinds (including the pandemic), every year a few more states get their legislated programs off the ground and into operating mode, with growing numbers of saver-funded accounts. The most recent additions to this list include Connecticut and Maryland in 2022, and Colorado and Virginia in 2023. New Jersey and New York are hot on their heels, with program launches anticipated for 2024.
And in Context
While these state-led initiatives are significant, it is important to understand them within the broader context of retirement savings in the US. Looking at the national picture, recent data suggests that the implementation of state-facilitated retirement savings plans for private sector workers may be having a positive impact on the creation and retention of private plans. This is particularly evident in states like California, Illinois, and Oregon, which have had such programs in place for at least four years and where new plan formation is flourishing at new, higher levels.
Hats Off to You Minnesota, Vermont, and Missouri for expanding work-based access to retirement savings, and creating the opportunity for improved family financials that comes with it.
BACKGROUND INFORMATION
Vermont
An act relating to the establishment of VT Saves – S0135
Established through the office of the Treasurer.
Employers who do not maintain specified tax-favored retirement plans.
Employees age 18+.
Contribution rate of 5% unless a different % or $ elected by participant; the legislation provides penalties for employers who fail to execute their responsibilities under the law.
Annual escalation of not less than 1% as provided for by the Treasurer, to a cap of not more than 8%.
Investments: initial contributions up to a specified dollar amount or period of time are required to be invested in a principal preservation investment by default.
Compliance: shall enter into an agreement with the Vermont Department of Taxes.
Make the program available to all covered employees with 25+ covered employees beginning on 1 July 2025, and to employees with 5+ covered employees by 1 July 2026.
Repeals the Act that authorized the Green Mountain Secure Retirement Plan (2017 and 2019).
Notes: 17 March 2023 introduced in the Senate, read and referred. 6 Apr 2023 Read third time & pass to the House. 9 May 2023 read third time and passed in concurrence with the Senate. 11 May 2023. Next stop: Governor, where signature is expected.
Minnesota
Minnesota Secure Choice 1.9 Retirement Program Act – HF 782.
Governing entity: Board with explicit assistance from named state agencies.
Employers with 5+ covered employees and no plan.
Employees and individuals age 18+.
Executive director and board.
Administrative fund.
Contribution rates to be established by the board, including escalation and rate.
Diversified array of investments selected by the SBI.
Employers inform, enroll and remit employee contributions.
Begin operation by 1 January 2025; all enrollment phases complete not later than 1 Jan 2027.
Appointments by 15 Jan 2024; first board meeting by 1 Mar 2024.
Board to recommend penalties for failure to comply.
$5,000,000 appropriated to establish and administer.
Notes: introduced by Becker-Finn, Her, Wolgamott and Nelson, M. on 25 Jan 2023. Passed House 1 May 2023 (34-33). Received by Senate 2 May 2023. Passed by Senate 12 May 2023 (71-57). For remittance to Governor where signature is expected.
Missouri
Missouri Show-Me MyRetirement Savings Plan is a multiple-employer retirement saving plan treated as a single plan under Title I of The Employee Retirement Income Security Act of 1974 (ERISA) under 401(a), 401(k), and 413(c) of the Internal Revenue Code, in which multiple employers may voluntarily choose to participate regardless of whether any relationship exists between and among the employers other than their participation in the plan – HB 155
The bill establishes the "Show-Me MyRetirement Savings Board" in the office of the State Treasurer. The Board shall design, develop and implement the "Show-ME MyRetirement Savings Plan" as outlined in the bill.
The Board shall establish the Plan so that individuals can begin making contributions to the Plan no later than September 1, 2025 using phased-in implementation, if desired.
An eligible employer, participating employer, or other employer joining the Plan shall not be liable for an employee's decision on which investments to choose, participants' or Board's investment decisions, the administration, investment, investment returns, or investment.
performance of the Plan, the Plan's design or the benefits paid to participants or any loss or adverse consequences incurred by any person solely and directly as a result of participating in the Plan. (editor’s note: as this is an ERISA plan, it is assumed by this newsletter that the fiduciary requirements of ERISA on employers who adopt MEPs will still apply).
Fiscal note considers 2 employees and about $2 million in expenditure.
Notes: 17 April 2023 voted out of the House unanimously (141-0). 10 May 2023 voted and reported Do Pass out of the Senate.
This piece was featured in the May 18, 2023, edition of Retirement Security Matters. For more fresh thinking on retirement savings innovation, check out the newsletter here
