Do Rising Tides in Auto IRA States Float All the Boats? Pew Dishes.

If you don’t know Kim Olson, you must get to know her. We met in the Oregon State Treasurer’s office in the early, heady days of 2017 when the OregonSaves program was still a twinkle in the eyes of many and a thorn in the sides of some. We had a lot of interesting challenges to solve for. And who better to tackle them with than a policy director steeped in foreign service office experience and a Fulbright? No one, that’s who. The world has changed mightily, and we’re learning a lot. Here’s some of it.

Kim Olson, we are super excited to have you with us today. Tell us about your role with Pew.

Yes. I'm the senior officer for policy on the Pew Charitable Trusts retirement savings project.

This project has been active for nearly a decade to research and increase our understanding of the retirement landscape in the US. Specifically, we are working to determine how best to increase retirement plan coverage nationwide. We started with a research-only approach, and have recently pivoted to include some fact-based advocacy.

As a policy wonk with on-the-ground experience at OregonSaves, I came here to work directly with states that are implementing these kinds of automated savings programs. I also provide expert support to states that are working on statutory changes, or working on legislation to create programs in their state.

Pew has been keeping an eye on the impact of these programs in states where they are launched. We’d love to hear more about what you are learning.

Yes. That particular work stems from a concern we were hearing that the state programs would compete with the private sector. Some worried they would perhaps even cause businesses to drop their employer-sponsored plans to pick up the state program.

We thought it would be worth looking at the data in three states with the longest-running programs to see if we could determine whether or not that was happening. Those states are Oregon (2017), Illinois (2018), and California (late 2018).

This year’s research is the third iteration of that work, which involves examining the data from the Form 5500 filings that private businesses make to the US Department of Labor. These are the annual required filings by sponsors of retirement plans. Our data now covers the years from 2013 to 2021 – well before Auto IRAs were launched, and now, after they’ve been in existence for some time.

The headline for this research is that Oregon, Illinois, and California employers with plans continue to offer private plans. And employers without plans are adopting new private plans at rates at or above the national average.

Going back to the original concern, employers do not appear to be dropping their private plans in favor of the states’ programs. And as opposed to competing with the private market, this data indicates that programs are complementary. They are filling that gap for employers who, for whatever reason -- financial or otherwise, can't start their own plan.

We'd love to hear a little bit more about that data.

Digging in: in Oregon, we saw an increase in the share of new plans from 6.7% on average to 8.5%, on average in those years after OregonSaves started operation.

Source: results as reported by the Pew Charitable Trusts in State Automated Retirement Savings Programs Continue to Complement Private Market Plans, 14 April 2023.

In Illinois, which has historically had plan creation rates below the national average, the average share went from 5.3% to 6.2%. And in California, which has historically had plan creation rates above the national average, the share of new plans rose from 8.1% to 9.4%.

But I would say an exciting corollary to those findings is that in all three states, the rate of introduction of new plans remained higher over time than before each introduced its savings program. So what that means is this wasn't just a one-time bump in plan creation rates associated with one-time state program deadlines. For now, it appears that the increase in plan creation has some staying power even after a state’s Auto IRA deadlines have passed.

One more observation has been that all three states had plan termination rates below the rate for the nation as a whole in 2021. This means that we're not seeing a mass exodus of employers in those states, dropping their existing retirement plans.

Okay, can we nerd out for one second here? The rates of new plan formation remaining higher after state deadlines pass is a really interesting finding.

Yes, in all three states the new plan formation level now is higher than it was before an Auto IRA program was implemented. So that's a very interesting finding. We will be watching the data to see if that continues.

Let's talk about what this means for advisors. We hear anecdotally that some advisors are focusing their sales efforts on Auto IRA states, because the growth rates are faster there. Does that match what you are seeing?

You know, we've heard those reports as well. You had Steve Abbott of Gusto on your program recently sharing their experience – Steve is a former Pewster, by the way. A piece the Wall Street Journal did about our new 5500 research stated more specifically that Gusto’s 401(k) sales in California rose by 35% in the spring of 2022, ahead of the CalSavers June 30 deadline.

So, yes we have heard that Gusto and other payroll providers have been marketing to small businesses in California, using program deadlines as a call to action. I don't find it surprising that they would use those state deadlines for a marketing push. Behaviorally, the deadlines for employer facilitation of the programs would appear to create a decision point for private employers who have been procrastinating over or on the fence about setting up an employer-sponsored plan.

Having said that, it is anecdotal – this is not something that we can see in the 5500 data. So we wouldn’t be able to say for sure that's what is happening.

But when we look at the newest 5500 data next spring, we will be able to add Connecticut to the mix and see if the MyCTSavings deadlines are connected to similar outomes. And then we'll also be able to check in with the payroll providers and see if they were doing the same thing in Connecticut.

Very, very interesting. Big picture question -- how do you see the retirement savings system evolving from here?

That’s a great question! At Pew, we're focused on the state Auto IRA program as one way to reduce the number of workers without retirement plan access at work. With years of research under our belt, we have a growing base of evidence to show that the programs work. They have minimal costs for employers, and they automate savings for workers, reducing the future tax burden on it on taxpayers.

With the benefit of this evidence, we're actively working with states across the country to expand the reach of these programs. And we hope to see a few more states pass new legislation this year, as they have every year recently.

In terms of where I think things are going, I think the natural evolution for the programs is multi-state partnership. To date, each state with an authorized bill has implemented a standalone program. And that worked at the beginning, especially with large states like California.

But the next set of states, and here I'm thinking, Maine – Hawaii -- Delaware, is going to have a harder time standing up a program on their own. Maine, in fact, just announced at their April board meeting that they intend to partner with Colorado, and Colorado is working on the first multi-state partnership in the country.

It will take some doing regarding program governance. And I'm hopeful that such a partnership will speed up the Maine program's time to market and help both states reduce fees for participants as assets under management increase. Stay tuned and watch this space.

Kim, what haven't we asked that's worth spending a minute oon?

Let me give a little bump on some research that we have coming. We are always looking to provide information that helps build the narrative for policymakers to focus on retirement. Retirement policy requires policymakers to focus not just on the needs of the population now, but on their needs 30 to 40 years from now. And that's hard. And yet action now is what creates future outcomes we can actually live with.

So to create urgency around the issue, Pew is partnering with eConsult Solutions on a 50-state study of the fiscal impact of insufficient retirement savings. We’re calling it “the cost of doing nothing”. The results will include fact sheets for all 50 states that policymakers and stakeholders can use to inform themselves on why programs like these are necessary for the future fiscal health of states and taxpayers.

Do we recall that the state-specific cost of doing nothing for Pennsylvania was about $14 billion? If so the cost across all fifty states must be mind-boggling.

It is a very big number. I'm not allowed to say it out loud yet.

What a cliffhanger! Watch this space, folks. Kim, thank you for sharing your recent results and for joining us today. We really appreciate it.

Want to know more? Connect with Kim by email and follow the work of the Pew Retirement Savings Project here.

Kim Olson is the Senior Officer on The Pew Charitable Trusts’ Retirement Savings Project. In this role, she provides expertise and technical assistance to state governments studying, legislating, or implementing automated savings programs. Prior to joining Pew, Olson served as policy director to Oregon State Treasurer Tobias Read, where she designed policies, wrote program rules, and advanced legislation to help Oregonians save for the future, most notably through the first automated savings program in the United States, OregonSaves. She also served as a senior adviser at the Behavioral Insights Team, where she used behavioral science concepts to inform policy and improve public services in state and city governments. Olson began her career in the U.S. Foreign Service in diplomatic assignments at the U.S. embassies in Bern, Switzerland, and Ankara, Turkey. She holds a bachelor’s degree from the University of Oregon, a master’s degree from Georgetown University, and lives in Silver Spring, Maryland with her husband, two children, and two rambunctious cats. systems worldwide.

This piece was featured in the May 4, 2023, edition of Retirement Security Matters. For more fresh thinking on retirement savings innovation, check out the newsletter here