State auto-IRA initiatives flowering in May

State auto-IRAs and other initiatives to help private-sector workers save for retirement are flowering in May as the Missouri and Arizona legislatures consider new bills while California’s looks to expand the state's existing program.  

A bill to expand California's state-run retirement plan CalSavers was introduced in the California Senate last week by Sen. Dave Cortese (D-Santa Clara). The measure, SB-1126, would expand the definition of “eligible employer” for purposes of the CalSavers Retirement Savings Trust Act to any business with at least one employee, which is down from the current threshold of five or more employees.

It’s worth noting that SB 1126 would not, however, expand the definition of “eligible employer” to include sole proprietorships, self-employed individuals or other business entities that don't employ any individuals other than the owners of the business.

California’s Senate Labor, Public Employment and Retirement Committee approved the original bill April 27 in a 4-1 vote. The measure is now before the Senate Appropriations Committee. At the end of April, CalSavers listed total assets of $204 million.

“This change would add an estimated three-quarters of a million employees of newly eligible employers who would gain access to CalSavers by expanding coverage to an estimated 300,000 small employers with one to four employees,” said Angela Antonelli, executive director of Georgetown University’s Center for Retirement Initiatives.

Antonelli added that in today's tight labor market, CalSavers can help employers facilitate their employees' financial well-being and aid in the recruitment and retention of employees for these smallest businesses.

Of course, the rise of state auto-IRA programs has also been good for the retirement services industry. Companies with products designed for small employers, including pooled employer plans, have reported strong new business as companies choose alternatives to the state options.

COUNTING THE STATES

As 2022 legislative sessions come to an end for many states, the adoption of new programs, or the establishment of one or more state commissions to study the need for such a program, will likely be the norm.

For example, in March, Missouri's House of Representatives passed a bill, HB1732, that would create the Missouri Workplace Retirement Savings Plan, a multiple-employer plan. The Missouri Senate's version of the legislation is currently being reviewed by the Senate Health and Pensions Committee, committee, according to the National Association of Plan Advisors. 

Meanwhile, Arizona’s Republican governor, Doug Ducey, signed a measure earlier this month creating a commission to study public-private partnerships in retirement savings programs, often the first step to enacting a program. And the Hawaii legislature recently passed and sent to the governor a bill establishing a new employee opt-in IRA program. 

To date, these new state-facilitated retirement savings programs have the potential reach almost 20 million of the estimated 57 million private sector workers who have lacked access to an employer-sponsored retirement savings plan.

“Historically, we have generally seen the adoption of one or two state programs a year going back to 2015 when the first programs in Oregon and Illinois were enacted,” Antonelli said, adding that the trend over time has been for these auto-IRA programs to adopt very similar design characteristics, such as default contribution levels, the use of Roth IRAs and the employers covered. 

“The goal of these state-facilitated programs is to significantly close the access gap by offering employers and their employees a simple, low-cost way to save for retirement. The best way to accomplish this is to have the program reach as many employers and employees as possible,” she said.