OregonSaves gets passing grade in new academic paper

OregonSaves, first state-sponsored auto IRA program, has low account average account balances, but it has also meaningfully improved access to retirement savings, according to an academic paper published this week.

The program, which was launched in 2017, represented nearly $85 million in assets among 88,000 funded accounts at the end of 2020, according to figures from the state. It was the first of several automatic IRA systems that states have rolled out for private-sector workers who otherwise would not have access to a workplace retirement plan.

OregonSaves reached its latest milestone Jan. 15, when it began requiring all businesses in the state to enroll, unless they already offered workers a retirement plan. Previously, companies with four or fewer employees did not have to enroll.

Based on data between August 2018 and April 2020, the average account balance was $754, and turnover for the companies participating in the program was just above 38%, according to the paper published by the National Bureau of Economic Research. Average after-tax income for workers in the program was less than $2,400 per month.

“Overall, we conclude that OregonSaves has meaningfully increased employee savings by reducing search costs,” the authors wrote.

Just over a third of workers opt out of the program, according to data from Georgetown University’s Center for Retirement Initiatives.

Thirty percent of the workers who opt out said they do so because they can’t afford to save, according to survey data in the NBER report this week. However, that rate is higher among workers in low-wage industries, the authors noted.

Nearly a quarter of people who opt out said they already have a retirement plan, meaning that less than 10% of workers covered by the auto IRA actually have a plan, according to the paper. That is likely because most of the affected businesses are in lower-wage industries with high employee turnover. In some cases, it is in workers’ best financial interests to not participate, and those who do opt out often do so for rational reasons, according to the paper.

“The fact that OregonSaves is targeting a low-income population that has not traditionally been served by workplace retirement saving accounts in the United States argues against focusing solely on participation rates when evaluating its success,” the authors wrote. “Indeed, in some cases, the welfare of low-income workers might be improved by opting out of the plan until their budget constraints relax.”

For employers, complying with participation in the program does not appear to be a problem. A survey of employers published last year by The Pew Charitable Trusts found that about three quarters of businesses had either a positive or neutral view of enrolling employees and participating in the program. About 80% had not experienced out-of-pocket costs to comply with the program, and those that did cited office supplies and payroll processing as additional expenses, according to the Pew survey. A nearly equal percentage said they had received few questions from employees about OregonSaves, largely because of the program’s customer service.