How Some States Are Helping Workers Save for Retirement
Introduction
Saving for retirement is crucial, yet not everyone has access to employer-provided retirement plans. According to the AARP, about 35% of private sector workers don’t have access to a retirement plan at their workplace. This is changing for workers in states that have started to roll out "auto-IRA" programs. These programs aim to help more workers save for retirement by requiring employers who don’t offer 401(k) accounts to automatically enroll workers in individual retirement accounts. Here’s how these programs work and which states are participating.
Image Description: A group of diverse workers discussing retirement savings plans.
How Do Auto-IRA Programs Work?
In states offering auto-IRA programs, employers who do not offer a 401(k) or similar retirement program are mandated to enroll their workers in individual retirement accounts and set up payroll deductions to fund the accounts. Employers are not required to match contributions, and workers can opt out if they choose. Small businesses and employers in industries like construction and hospitality are most likely to use these programs.
Image Description: Infographic explaining the workflow of auto-IRA programs.
Benefits of Auto-IRA Programs
Auto-IRA programs provide significant benefits to employers, employees, and states:
- Employers: Simplifies the process of offering retirement plans.
- Employees: Provides an easy way to save for retirement, especially for low-income workers who may rely heavily on Social Security.
- States: Reduces future dependence on public funds as more workers save for retirement.
Image Description: An infographic showing the benefits of auto-IRA programs for employers, employees, and states.
States Participating in Auto-IRA Programs
Several states have implemented or are preparing to implement auto-IRA programs:
- Oregon: OregonSaves program is entering its second year.
- California and Illinois: Implementing plans this year.
- Vermont, Maryland, New York, and Connecticut: Approved legislation and are preparing their programs.
- New Jersey: Waiting for state Senate approval.
These programs could potentially provide retirement coverage to 15 million workers, with California's plan alone covering 7.5 million workers.
Image Description: A map highlighting states participating in auto-IRA programs.
Marketplace Exchanges as an Alternative
Some states are considering offering a marketplace exchange instead of an auto-IRA program. This would allow states to set criteria and provide a website for comparison shopping. Unlike auto-IRA programs, participation in a marketplace would be optional for employers.
Image Description: A user comparing different retirement plan options on a marketplace website.
Conclusion
Auto-IRA programs and marketplace exchanges represent significant steps forward in helping workers save for retirement. By making it easier for employees to contribute to retirement savings and providing states with a tool to reduce future public assistance costs, these programs benefit everyone involved.
Image Description: Infographic summarizing the key points about how states are helping workers save for retirement.
