Wave that flag, folks! Retirement savings programs facilitated by the states had a banner year in 2022, and there’s no reason to believe the momentum won’t continue through 2023.
The 2023 legislative sessions are getting underway, and several states will once again be pressing for the establishment of new state-run auto-IRA programs. During the 2022 calendar, at least 21 states produced legislation to establish new programs, amend existing programs or form task forces to explore their options. Moreover, a pair of new programs went into action last year, in Hawaii and Delaware.
In state-run auto-IRAs, a state retirement board oversees the program and is responsible for making decisions, such as contracting with an IRA provider.
Last year’s additions brought the tally to 46 states that have implemented or considered a new state-run auto-IRA program since 2012, according to Georgetown University’s Center for Retirement Initiatives.
By our last count of the stars on Old Glory, that’s getting close to a clean sweep. And the more, the better to tackle the country’s burgeoning retirement crisis.
Which brings us to 2023.
“Each year, on average, we see about 20 states introduce legislation and one or two new programs enacted. So far, 2023 remains consistent with these trends," said Angela Antonelli, executive director of the Center for Retirement Initiatives. "There are new program bills being considered in Rhode Island, Minnesota, Pennsylvania, Nevada, among other states."
She noted that many state legislatures end their sessions by the end of May, suggesting the outlook for various state proposals will be clearer in coming weeks.
Other noteworthy trends highlighted by Antonelli include states that previously adopted voluntary programs and are now transitioning to auto-IRAs that require employers to participate. New Mexico and Vermont will be following this path this year, just as New York and New Jersey did previously.
States teaming up, especially the smaller ones, to achieve the efficiency of scale and lower program costs will also be a trend to watch. States such as Delaware and Maine can be put in this column.
Finally, it’s worth watching private providers as they continue to benefit from the adoption of the state programs. The CRI’s data shows that new plan formation has increased in states that require employers to help employees save using the state program, if they don't already offer a plan.
Those advances in regional statehouses are not being lost on the folks in the Capitol building down in Washington, either.
"Absent the demonstrated success of the state programs in expanding coverage and savings, it is not clear Congress would have had the bipartisan support and momentum to pass two major reform bills within three years — SECURE 2.0 in 2022 and the SECURE reforms in 2019,” Antonelli said. “These reforms now give industry many of the tools they have said they need to reach smaller businesses and expand coverage.”
A recent Transamerica survey of retirement industry experts even predicts that by the end of 2026, 88% of employers with less than 100 employees will offer defined-contribution plans, up from 46%. Obviously the state mandates are helping fuel that growth.
The survey said opportunities for plan enrollment growth abound over the next four years as “the labor shortage continues” and “the demand for more generous and more flexible benefits and total rewards programs increases.”
The study concludes that government mandates, among other forces, will pressure smaller employers, those with fewer than 100 employees, to offer retirement benefits, and the gap will eventually widen between “employers able to meet the demand for flexible total rewards programs and those who simply can’t.”
"It will take some time before we know whether this ambitious prediction comes true, but if it does, what an accomplishment in a short period of time after decades of failing to offer the opportunity to save for retirement to millions of American workers," Antonelli said.
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