The program requires employers with six or more employees to participate — unless they already sponsor an employee retirement plan.
Employees, who can opt out, are automatically enrolled in an Individual Retirement Account, or IRA, through regular paycheck deductions.
Nevada State Treasurer Zach Conine hopes the new program, created by lawmakers in 2023, will boost financial literacy and ultimately reduce state costs on social services as more people save for retirement. He said about 500,000 workers were expected to be eligible under the plan — nearly a third of the state’s civilian labor force of 1.68 million.
“We don’t care broadly if someone stays on the Nevada plan or goes out and gets their own retirement savings plan,” said Conine, a Democrat who is running for state attorney general. “We care that people are saving for retirement.”
Nevada is among a growing number of states creating automatic retirement programs for employees of private employers. These programs, known as auto-IRAs, target employees without access to retirement programs through work, aiming to address what groups such as AARP characterize as a national retirement crisis.
So far, 20 states have created retirement programs for private sector workers, according to the Center for Retirement Initiatives at Georgetown University. Those programs are generally overseen by state treasurers and appointed boards. Private contractors administer the investment funds, which can fluctuate with financial markets.
AARP says more than 1 million Americans have enrolled in auto-IRA programs launched by states in recent years. But the group, which advocates for Americans aged 50 and older, says nearly half of private sector workers — 56 million people — still lack access to a retirement plan through work.
“In the long term, this is a problem we need to deal with. But in the short term for those individuals, this is a real crisis,” said David John, senior policy adviser at the AARP Public Policy Institute. “This is something that they are going to be facing soon, and our goal is to make sure that as younger people come along, they are much better prepared than some of the people who went before them.”
While anyone can open a savings or investment account, workers are far more likely to participate in retirement programs funded through simple payroll deductions, John said. And state auto-IRAs require little effort from employees and employers.
“Yes, anyone can go to a financial institution and open an IRA. But the bottom line is, they don’t,” he said.
Unlike state pension programs for public workers including teachers, these auto-IRAs are the sole possession of the worker. That means they are portable, and employees can even rely on those funds for emergency expenses at times, John said.
Some financial services firms have objected to these programs, arguing that they compete with private sector retirement providers.
So far, more liberal states have led the way on auto-IRA programs: Oregon launched the nation’s first in 2017, quickly followed by Illinois and California. But John said there’s growing interest in more conservative states: Nevada’s legislation was sponsored by Democrats, but ultimately signed by Republican Gov. Joe Lombardo.
“This is not a partisan political issue,” John said. “We are seeing strong interest in a number of red states.”
Launching New Programs
In launching its new auto-IRA, Nevada elected to join an interstate consortium of public auto-IRA plans founded by the Colorado Department of the Treasury. By pooling resources and reducing overhead costs, officials say states can offer lower plan fees to savers.
“Relatively, it’s a lot of work to set one of these things up, but it’s a lot less work if you’re not first,” Conine said.
The Nevada treasurer’s office expected the launch of the program to cost about $1.2 million over two fiscal years — funds that were borrowed from the state and are to be paid back through the collection of retirement participant fees over time.
Colorado Treasurer Dave Young sees the state’s retirement program as both a social and financial cause: It helps workers save for a more dignified retirement and keeps the state from spending more on services in the long run, he said.
“If we don’t take this on and get more people saving for retirement, there’s this massive tax bill awaiting taxpayers to fund safety net services, and why would we do that to our taxpayers?” said Young, a Democrat. “Why not change the trajectory for people? It’s relatively actually a simple solution.”
A 2023 report from payroll and benefits company Gusto found the biggest boost in participation came among Coloradans earning the least. Before the mandate, 10 percent of employees earning $15,000 to $25,000 per year participated in a retirement plan — a share that nearly doubled to 19 percent afterward.
Gusto also found more small employers started offering 401(k) plans after the state’s program launched in 2022.
Colorado has signed up about 72,000 workerswith more than $100 million in savings. About 20 percent of eligible employees choose to opt out, said Hunter Railey, executive director of the Colorado retirement program.
The state program requires all employers in operation at least two years with five or more employees to participate or offer their own retirement plan.
Railey said it’s an easy process to sign up employers and workers, though an initial challenge was identifying the state’s smallest employers. The state used its unemployment system database and explains the program requirement directly to businesses.
“The final step there is really just communicating effectively that these are required programs, and that failure to comply with this does carry penalties at some point,” Railey said. “…By and large, we found that most if not the overwhelming majority of businesses, if they receive a notice for their business, are going to take action.”
Pennsylvania State Treasurer Stacy Garrity, a Republican, has advocated for a state auto-IRA program. Legislation creating a program passed the Democratic-controlled state House by a single vote along party lines and now awaits action in the Republican-controlled state Senate.
Garrity, who also leads the National Association of State Treasurers’ retirement and pensions committee, said an auto-IRA plan would benefit Pennsylvania businesses, workers and taxpayers.
“These are people we all depend on every day, like the mechanic who keeps our car running and the waitress that tops off our coffee,” she said in a statement to Stateline. “Two million hardworking Pennsylvanians without access to workplace retirement plans deserve to have the same opportunity to save.”
The Opposition
While state retirement programs are growing, they have faced industry opposition.
State chapters of the National Federation of Independent Business, which represents 600,000 small businesses across the country, have opposed some measures. In Pennsylvania, the federation said 84 percent of surveyed members opposed creation of an auto-IRA, arguing not all employees could afford to invest in retirement and that the new plans imposed too heavy a burden on small businesses.
The organization did not respond to requests for comment.
The National Association of Insurance and Financial Advisors, which represents financial services providers in every state, says states should encourage private-sector options rather than setting up competing programs.
In a statement, Kevin Mayeux, CEO of the association, said access isn’t the only barrier to retirement savings. Many Americans, especially lower-income workers, must balance retirement savings against competing financial priorities including child care and rising costs of living.
The organization said it supports states’ interest in retirement savings, but that lawmakers should focus on private-sector options. Those could include multiple employer plans and pooled employer plans that make it easier for small employers to offer retirement plans at competitive rates.
“In short, NAIFA does not oppose efforts to improve retirement security; we welcome them,” Mayeux’s statement to Stateline said. “But we believe that empowering private-sector solutions, not replacing them with state-run programs, is the path to long-term success.”
But early success among participating states is inspiring more adoption, said Angela Antonelli, a research professor and executive director of the Center for Retirement Initiatives at Georgetown University.
In addition to amassing more than $2 billion in savings for workers, the state programs have encouraged employers to offer their own retirement plans, Antonelli said.
“It’s a huge return on the investment. It’s money well spent,” she said.
Antonelli said many participating workers are younger and will likely move into other jobs or careers over time. The hope is they will continue saving, either through the state-sponsored plans or retirement plans offered by future employers.
While she’s encouraged by the growing interest and adoption of these plans, Antonelli said she hopes to see Congress eventually act by requiring employers to offer retirement plans. A bipartisan group of U.S. House lawmakers reintroduced legislation on the matter in Washington this year, but it has not progressed.
“The goal is to have more states adopt these programs,” she said. “And I think the question is, is there a tipping point at which the federal government will now decide to step in?”
This story first published in Stateline. Read the original here.
