State-based Retirement Savings Plans Gain Traction

  • Five states have passed legislation to create programs: Oregon, Illinois, California, Connecticut, and Maryland, as well as the city of Seattle. 
  • These closely watched programs require most employers that don't offer a retirement plan to automatically enroll employees in the state program. Despite hurdles, these programs are advancing. Here's an update.

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The retirement community has watched with keen interest this year as significant milestones were reached by several of the five states that have enacted a state-run mandatory IRA program for private-sector workers.  These programs generally require most employers that do not already offer a retirement plan to automatically enroll employees in the state program through payroll deduction.

The five states – California, Connecticut, Illinois, Maryland, and Oregon – have each continued to work toward full implementation of their programs despite encountering a number of hurdles, including the congressional repeal of an Obama-era regulation intended to help facilitate such programs, ERISA preemption lawsuits (in Oregon and California – so far), lengthy procurement processes, and staffing challenges.  Below is a brief update on the implementation status of the programs in each state.

  • Oregon: Oregon was the first state to reach the implementation phase when it launched a small pilot of its program, OregonSaves, in summer 2017.  By fall 2017, Oregon began its full program rollout, which involves a series of employer registration “waves” that are based on employer size and started with the largest employers. Employers with fewer than 20 employees will register in a series of waves occurring throughout 2019 and ending in May 2020.

    Early in the fourth quarter of 2018, Oregon announced that over 1,200 employers had enrolled in OregonSaves and program assets were over $7.7 million.  Nearly 42,000 workers were enrolled in the program (73% of those eligible) with an average savings rate of 5.15%.
  • Illinois: Illinois launched a small pilot of its Secure Choice program in May 2018.  The state anticipates initial account contributions will begin in the first half of 2019.  Smaller employers would be subject to later registration dates.

    In an interesting turn of events, in connection with a technical amendment to the program, Illinois Governor Bruce Rauner issued an amendatory veto in August 2018 that would make employer participation in Secure Choice voluntary instead of mandatory.  The change will only take effect if the legislature accepts it.  Current expectations are that the legislature will either override the veto or simply let the underlying bill die, so that the mandatory program will continue in its current form.
  • California: California is the third state to enact a mandatory IRA program, CalSavers, which launched this January.
  • Connecticut: The Connecticut Retirement Security Authority (CRSA), which is responsible for implementing the state’s mandatory IRA program, began meeting in 2017 to lay the groundwork for the program. Progress has been hindered, however, by unsuccessful efforts to hire a founding executive director for the program. While the CRSA has already postponed the program’s January 2018 launch, CRSA Chairman Scott Jackson is optimistic that momentum will be gained in the first quarter of 2019.
  • Maryland: Relatively little is known about the status of Maryland’s mandatory IRA program, although an executive director (David Belnick) was reportedly named in April 2018.

In addition to the states noted above, Seattle enacted a city ordinance in November 2017 that would create a mandatory IRA program for workers in the city.

Voluntary state-run programs. Although the mandatory programs described above tend to garner the most attention due to the directive to employers, a number of states have chosen instead to enact programs that are voluntary for employers. These include Massachusetts, which launched a defined contribution retirement plan for small non-profit employers in October 2017, and Washington, which launched an online retirement “marketplace” in March 2018.  States that have voluntary programs under development include New York, which enacted the first voluntary state-run IRA program in April 2018, and Vermont, which recently selected a program administrator for its state-run multiple employer plan (MEP).