State-Sponsored Savings Programs Reach $1 Billion in Assets

A report by The Pew Charitable Trusts released on Dec. 22 revealed that state automated savings programs in the United States have collectively reached over $1 billion in assets as of November. This development is part of a broader initiative to assist private sector workers, especially those without access to employer-sponsored retirement plans, build their retirement savings.

State-by-State Progress

The initiative began with Oregon's OregonSaves program in 2017 and has since been adopted by six other states. These include Illinois with Secure Choice (2018), California with CalSavers (2019), Connecticut with MyCTSavings (2022), Maryland with Maryland$aves (2022), Colorado with SecureSavings (2023), and Virginia with RetirePath (2023). RetirePath Virginia, launched in July 2023, has yet to report its asset data.

The Role of Automated Savings Programs

These programs are pivotal in addressing a critical gap in the U.S. retirement savings system. Despite significant amounts held in employer-provided defined contribution plans and IRAs, only about 52% of American workers have access to retirement savings at work. The state programs are designed to mitigate this issue by:

1. Improving Access to Savings: An estimated 56 million private sector workers currently lack the ability to save through payroll deductions at work. State programs provide an accessible avenue for these workers to start saving.
2. Facilitating Automatic Enrollment: Automatic enrollment is a key feature of these programs, aimed at overcoming common delays in retirement savings.
3. Reaching Diverse Populations: A Pew survey on Illinois Secure Choice highlighted that the program benefits groups often underrepresented in employer-sponsored plans, including younger, unmarried individuals, those with a high school education, and people of color.

Benefits for Employers and the Wider Market

These state programs also significantly benefit employers, particularly small businesses that face challenges in offering retirement benefits due to high costs and administrative burdens. By providing a valuable benefit at no cost, these programs aid in employee recruitment and retention. Furthermore, they encourage the creation of new private plans in program states, expanding the private retirement savings market.

Future Prospects and Legislative Action

The landscape of state-automated savings programs will expand further in the coming years. Six additional states are expected to implement similar programs, with Colorado SecureSavings leading in forming interstate partnerships to enhance program efficiency and reach. Upcoming programs in Maine, Delaware, Hawaii, New Jersey, New York, and Vermont indicate the trend's continued growth.

Recent legislative actions in Minnesota and Nevada and ongoing proposals in Alaska, D.C., Massachusetts, and Pennsylvania demonstrate a growing nationwide interest in these programs. According to the Center for Retirement Initiatives at Georgetown University, 22 state legislatures and D.C. have introduced bills to establish or amend such programs or to evaluate retirement options.

Emerging Programs and Expected Growth

In addition to the existing programs, new initiatives are underway in Hawaii, New Jersey, New York, and Vermont. These programs are in the early stages of development and are expected to launch by 2025. With the continuation of seven programs and the introduction of six new ones, a substantial increase in program assets is anticipated shortly. This expansion signifies the growing acceptance of state-automated savings programs and their potential to significantly impact the retirement savings landscape in the United States.

Impact of State Automated Savings Programs

The achievement of over $1 billion in assets by state automated savings programs marks a critical milestone in enhancing retirement savings across the United States. These programs are becoming integral to the retirement savings landscape, benefiting workers, employers, and state economies alike. As they continue to grow and evolve, these programs are poised to play a key role in addressing the retirement savings needs of millions of Americans, particularly those underserved by traditional retirement savings options.