Save Early. Retire Early!
Peg, you've been involved in the state programs from early on. What attracted you, and Ascensus, to State Auto IRAs?
We first started looking at the State Auto IRA space as the early states began passing legislation to offer these programs through employers who, for whatever reason, weren’t offering a retirement plan for their employees. A couple of things really leapt out at us that made us believe we could be a very good fit for offering services in this area.
First of all, it completely aligns with Ascensus’ core mission of helping people save for important goals in their life: for retirement, education, or health. Secondly, and I think equally importantly, it really aligns with our strength as a technology-enabled service provider. We have deep expertise and experience in engaging with small employers to offer retirement programs.
Tell us more!
We have a great legal and compliance team that really understands these products and the tax-advantaged savings landscape. In addition, as the largest provider in the 529 education savings market through our Government Savings line of business, our mission has been to serve states and support their ability to offer savings programs to their constituents.
When you look at those capabilities and our company’s mission, we felt we could offer a solution that would help solve a real problem, which is providing access to retirement savings at work for folks whose employers weren’t yet offering it.
The last thing I would say is that at Ascensus, we recognize and share the concerns of many that there's a huge savings gap in America. Looking at the innovative programs like those that the states were in the early stages of designing made us excited about their potential to help meaningfully impact the retirement savings gap. We wanted to be a part of that solution. It was also clear to us that these state efforts would both address an immediate need for more retirement savings, and also hold the potential to encourage even more adoption of traditional worksite retirement programs over time. That is an area many of us will be studying as the state programs mature.
As part of that process, you've helped start three programs from scratch. What has gone the way you thought it would?
Yes! In the very early days, we realized we were blazing a new trail with our state partners. We knew some things would go the way we expected—and that many things wouldn't. To us, the important thing was to remain flexible and to always look at this as a partnership with our state clients as surprises and opportunities came along the way.
What went the way we expected? First, I think we all knew the employers would be the key to these programs. We started by designing ways to make it easy for them, reducing friction everywhere possible. We really believed that employers would be the key to program adoption and participation—and that certainly has proven to be the case.
OK, employers – that makes sense.
We also identified the need to have a purpose-built platform for Auto IRAs. While the programs share a lot of characteristics with other financial programs, there are a lot of unique aspects to them. In particular, elements related to program communications and the employer connection just make it a lot more efficient to administer these programs on a platform designed specifically to suit. Most importantly, technology built specifically for this market would enable us to deliver the best client experience possible, for both participating employers and their eligible employees. That was our strategy out of the gate, and it’s proven to be the right choice from our perspective.
In terms of employee participation, those numbers are very similar to what we expected. What we find is that when employers facilitate these programs, participants are both staying in the program and opting out at a rate that I think most of us and the researchers expected.
So you’ve been blazing the trail. What has been different than what you thought it would be?
We’re pleased to see growth has been steady. Nevertheless, we share the high aspirations of our state partners and are committed to supporting innovative ideas and deploying creative solutions that accelerate participation and growth in these programs. Going back to my earlier comments, when we look at how to drive the long-term success of these programs, we continue to focus on the employer as much as the savers—because we still see the employer as key to employee engagement and participation.
Also, while payroll integration and standardization was something we knew would be important, we were a bit surprised to see it rise to the very top of our priorities. We're receiving Auto IRA contributions from more than 700 payroll providers, ranging from the very large to the relatively small. We've worked with some of the nation's largest firms to build a standard API to simplify the payroll interface. In some ways, payroll integration is even larger in importance than we expected.
… And you probably weren't expecting a pandemic.
That's very true.
How has the pandemic changed your focus on employers or otherwise?
Certainly, I think our state partners are aware 2020 was an incredibly challenging year—particularly for small employers. Because of this, we must be very thoughtful as to how we're communicating about and handling deadlines and compliance support. We're all aligned around trying to keep our small business community successful and thriving.
As you know, Auto IRA programs can assist with that. They help employers attract an even more committed workforce. So, we just need to be sensitive about what folks are grappling with right now and be responsive to what's going on for them. At the same time, we feel a strong conviction that the unprecedented circumstances presented by this pandemic further underscore the importance of workers having access to quality retirement solutions in their workplace—whether that means a traditional plan or an Auto IRA program.
We know growth in the space is steady, but a little slower than you expected. You've made a good sized investment. Is Ascensus still “open for business” in the state Auto IRA space?
Yes—absolutely—we are.
Even though it’s been four years, we still believe we're in the early days of these programs. And we’ve learned so much about how they work and the critical success factors that will drive these public-private partnerships forward, in both early adopting states and those yet to act.
We’re often sought out by states that are considering starting a program to provide our perspective and share what we’ve learned about best practices. We're encouraged by the success we're having with moving the needle on access. So, yes, we hope more states launch programs and we're eager to continue to support this market to make it possible for more small businesses to offer a retirement savings program to their employees.
So tell us, what are some of the lessons you would share with states and Treasurers considering the space?
As I think about our state clients and how they’ve launched these successful programs, what stands out to me is that they were very careful in terms of laying the groundwork for a robust and long-term program. Each of them made required investments early on to get the key elements in place to help administer their program.
Those key elements include engaged boards, empowered executive directors, and collaboration with key state agencies—all important building blocks that states will continue to lean on as these programs steadily evolve. We’ve seen that taking the time to get that right up front is really important.
We’ve also all learned lessons about the legislative process. You know, every state legislative process is unique, and Ascensus has engaged with many states to provide our feedback where it is requested and might be useful. We know our current state clients are also happy to talk to other states about how they’ve managed the legislative process and key elements of the legislation that have proven to be helpful as they hit the implementation stage.
When it comes to the eligible employers and employees themselves, as you know, there are certain elements of program design that not only help support initial scale, but also drive longer-term behaviors that put a program on a sustainable trajectory.
And what about state funding for programs? Can a program be started as a shoestring -- should it be done on a shoestring?
Program funding is really a three-legged stool. There are, of course, significant start-up expenses with these programs. In particular, states need to think about how they’ll cover costs in the early years before programs get to scale and accumulated assets can help defray them.
There are three places from which funding can come: the state, the private partner, and fees assessed on participant assets and/or accounts. States just need to think about that carefully, because those are the levers that can be pulled to get to a program that is self-sustaining. Everyone benefits from a program that's on very solid financial ground. And I think we're all sensitive about investor fees and motivated to try to keep them low. So, it's really thinking about those funding components and how they all work together.
Final question and it's our fun question. Dish it – what are your COVID silver linings from 2020?
We have one that stands head and shoulders above the rest: I got to see so much more of my kids than I ever expected. And they're just now starting to disperse. I had 10 unexpected months of time with my kids that I don't think I ever would have had if we weren’t weathering a pandemic. So that truly has been a silver lining.
We’ve got three beautiful kids. Our two sons are in the early stages of their careers, and our daughter is in university. While they probably didn't want to be working and studying from their bedrooms, mom and dad liked having them around.
Thank you so much, Peg! We appreciate your time today and look forward to more great updates in 2021. If you’d like to connect directly with Peg Creonte, you can reach her at Peg.Creonte@ascensus.com. You can follow Ascensus’ government, retirement, and health savings work at ascensus.com or on LinkedIn at linkedin.com/company/ascensus.
This piece was featured in the January 28, 2021 edition of Retirement Security Matters. For more fresh thinking on retirement savings innovation, check out the newsletter here.
