New Jersey poised to create auto-IRA program

New Jersey is poised to become the latest state to establish a so-called auto-IRA program to help residents save for retirement.

New Jersey’s state Assembly passed a bill this week that would create the New Jersey Secure Choice Savings Program, an automatic-enrollment, payroll-deduction, individual retirement program, following a similar action in the state Senate last week. The bill is now on the desk of governor Phil Murphy, who is expected to sign it into law.

Nearly a dozen states and cities have passed legislation to create retirement programs for private-sector workers, and others are likely to follow suit this year, according to experts.

“There is momentum, and it’s continuing at a steady pace,” said David John, a senior policy adviser in AARP’s Public Policy Institute. “There are many more in the pipeline.”

These states are trying to spur retirement savings through the workplace, where research shows individuals are most likely to save. Nearly 2 million private-sector workers in New Jersey — more than half of the state’s workforce in the private sector — don’t have access to a workplace retirement savings plan, according to AARP.

Such workers, the states fear, won’t have adequate retirement savings and will therefore risk straining state budgets as they require more assistance.

New Jersey’s auto-IRA program would be similar to others in California, Connecticut, Maryland, Illinois, Oregon, and Seattle, Wash. These programs require private-sector employers of a certain size to offer a retirement plan to their employees, whether a 401(k)-type plan or a state-facilitated auto-IRA. Employees would be automatically enrolled into the IRA program, whose record keeping and investment management functions are farmed out to private companies.

Programs in Oregon and Illinois are currently enrolling employees, and California’s is in a pilot phase.

New Jersey’s program would require employers with 25 or more workers to participate. Workers would be automatically enrolled at a 3% contribution rate, but could opt out of the plan or change the rate.

New Jersey had previously legislated a marketplace, which helps employers shop around for different retirement plan options; it appears that New Jersey’s auto-IRA would replace the marketplace. Washington State, which also has a marketplace, is currently considering legislation to do something similar to New Jersey, experts said.

States appear not to be intimidated by a perceived hurdle imposed by Republicans in 2017, when President Donald J. Trump signed a resolution shooting down an Obama-era regulation meant to promote the creation of state auto-IRAs.

New York ‘s governor, Andrew Cuomo, last year signed a law creating a state IRA program, which is voluntary for employers. New York City is considering an auto-IRA option. Vermont and Massachusetts are instituting state multiple employer plans, which could make it easier for employers to offer retirement plans.

Angela Antonelli, executive director at Georgetown University’s Center for Retirement Initiatives, said 14 states and cities have already introduced legislation in 2019 to create a retirement program, the majority of which are auto-IRAs. That includes some states, such as Montana and Maine, where there hadn’t previously been any legislative action.

Since 2012, all but six states have introduced some sort of retirement-program legislation, Ms. Antonelli said.

“Hawaii is fairly far down the path at the moment, and there are other states looking at it fairly seriously,” Mr. John said.