Grant’s Go-To’s: 2021 - The Year in Review

As 2021 winds down, I thought I’d take this opportunity to reflect on all that happened in the world of state-facilitated retirement savings programs (SFRPs) during the past year.

In a piece I wrote for RSM in June (“Patience, Perseverance and Perspective”), I predicted that despite setbacks and headwinds we would continue to see steady progress because of momentum and the success of existing programs. The results from 2021 bear that out.

In addition to a flurry of legislative proposals considered in 2021, we’ve been watching with interest as states such as Colorado, Connecticut, New Mexico and Maryland make progress toward launching their programs.

Although there was a lot to choose from, here is my list of the top 5 stories of 2021.

One. Two more SFRPs established!

Please join Massena and Associates in congratulating Virginia and Maine for becoming the two most recent states to establish SFRPs.

In April, Virginia’s Governor Northam signed HB 2174 which established the VirginiaSaves auto-IRA retirement savings program. The eligibility threshold for the program is employers with 25 or more employees. Eligible employees will be those who work 30 hours a week or more. The program’s implementation deadline is July 1, 2023, with work to begin July 2021.

A very thoughtful report to the Legislature by the Virginia College Savings Plan (Virginia529) provided momentum and a solid foundation for the discussion in the of the bill.

Maine became the most recent state to pass retirement security legislation when Governor Mills signed SP 515/LD 1622 in June. The legislation included a $1.6 million dollar allocation. The program will be operated through the office of State Treasurer Henry Beck.

With the addition of Virginia and Maine, RSM counts a total of 13 states (and 2 cities) that now have some form of SFRP established in law:

California, Colorado, Connecticut, Illinois, Maine, Maryland, New Jersey, New Mexico, New York, Oregon, Vermont, Virginia and Washington along with the cities of Seattle and New York.

Two. California and Oregon reach $100 million AUM milestone as existing programs continue to grow and thrive even during the pandemic.

An April 8, 2021 news release announced that OregonSaves reached $100 million saved in the program as of April 2, 2021. CalSavers, which launched almost two years later than OregonSaves, announced in August that the Golden State’s program had also hit the $100 million mark.

The most recent edition of RSM reports that the combined assets for CalSavers, Illinois Secure Choice and OregonSaves are $358 million, more than twice the $160 million in combined assets the three programs reported at the beginning of 2021.

The steady growth of the three programs indicates a demand and a strong market for these programs .

Three. CalSavers prevails in federal court, paving the way for other states.

In recent years, CalSavers has been defending itself against a lawsuit filed in federal court by the Howard Jarvis Taxpayers Association (HJTA). In short, HJTA claimed CalSavers imposes liabilities on employers and should be subject to the Employee Retirement Income Security Act (ERISA) of 1974.

In February, a three-judge panel of the U.S. 9th Circuit Court of Appeals, two of whom were appointed under the Trump administration, heard oral arguments on the case, a short recording of which can be found here.

On May 6, 2021, the 9th Circuit issued an opinion on the Howard Jarvis Taxpayers Association suit against CalSavers. The unanimous panel concluded that: “CalSavers is not an ERISA plan because it is established and maintained by the State, not employers; it does not require employers to operate their own ERISA plans; and it does not have an impermissible reference to or connection with ERISA. Nor does CalSavers interfere with ERISA’s core purposes. Accordingly, ERISA does not preempt the California law.”

The ruling should provide some comfort to other states about the legal feasibility of auto-IRA programs with required employer participation.

But it may not be over just yet. According to a November 4, 2021 National Association of Plan Advisors article, the Howard Jarvis Taxpayers’ Association has petitioned the U.S. Supreme Court. And in November, the Supreme Court asked CalSavers to file a response to HJTA’s petition. RSM will continue to monitor for any updates.

Four. Illinois and New York succeed with expansion legislation, highlighting the importance of automatic enrollment and broad employer participation

On July 30, 2021, Illinois Governor Pritzker signed HB 117, which lowered the Illinois Secure Choice participation threshold from employers with 25 or more employees to those with 5 or more employees. According to AARP, this will allow one million more workers access to the program.

Outgoing executive director, Courtney Eccles, told RSM that the 25 or more employee threshold was a compromise made at a time when no one knew for certain what the impact of participation might be on smaller employers.   

In similar news, New York’s Governor Hochul signed AB 3213 on October 21, 2021. The bill makes participation mandatory for eligible employers with at least ten employees. Importantly, it also adds automatic enrollment as a feature of the program.

I believe the lesson other states can learn from the experience of Illinois and New York is that automatic enrollment and broad employer participation are essential to ensuring the growth and effectiveness of SFRPs.

Five. Twenty-plus legislative proposals in 2021 highlight momentum, steady progress of SFRPs.

Massena and Associates counted more than 20 SFRP-related legislative proposals in 2021. In addition to legislation that established new programs in Maine and Virginia and expanded programs in Illinois and New York, 10 additional bills would have established new auto-IRA programs, two would have created Multiple Employer Plans (MEPs) and several others would have established hybrid programs or required feasibility studies.

Even though not all proposals were successful, the level of legislative activity this year indicates growing support and momentum for SFRPS. Indeed, the recent National Institute on Retirement Security’s report (“Americans’ Views of State Facilitated Retirement Programs”) shows broad public support.

To put things into context, recreational marijuana is now legal in 18 states and the District of Columbia. SFRPs, which have a much shorter history than the movement to legalize marijuana, have already been established in 13 states and 2 cities. It seems only a matter of time before that number equals or exceeds the number jurisdictions where recreational marijuana is legal.

Stay tuned for 2022!

This piece was featured in the December 2, 2021 edition of Retirement Security Matters. For more fresh thinking on retirement savings innovation, check out the newsletter here.