More than 800,000 workers across seven states have accumulated over $1 billion in retirement savings through state programs that fill the gaps for individuals without an employer-sponsored retirement plan.
Bridging the Gap in Retirement Savings
Since 2017, various states have taken steps to assist the millions of workers who lack access to a workplace retirement plan. California leads the way with over 471,000 workers enrolled in its program as of November 2023. Illinois follows with 136,000 enrolled participants. Meanwhile, Oregon, the pioneer in launching such programs, boasts 123,000 workers enrolled. Other states offering similar plans include Connecticut, Maryland, Colorado, and Virginia.
The Importance of Retirement Account Contributions
Contributing to a retirement account through automatic payroll deductions proves to be an effective method for workers to save for their future. Not only does it encourage savings, but it also offers tax advantages. However, recent research from the Center for Retirement Research at Boston College reveals that only about half of U.S. workers participate in employer-sponsored plans like a 401(k) or defined-benefit plan.
A Complex Retirement Landscape
The retirement savings landscape in the country varies greatly. Despite having access to retirement plans at work, many employees choose not to contribute. According to the Bureau of Labor Statistics, as of March 2023, 70% of private-sector workers had access to retirement benefits, although only 53% actually participated.
State programs have become a vital solution for workers without access to traditional retirement plans, paving the way for a brighter financial future.
State Retirement Programs Provide Solutions for Workers Without Employer-Sponsored Plans
Workers who do not have access to an employer-sponsored retirement plan, and even some who do, have the option to open an individual retirement account (IRA). However, it is important to note that an IRA has lower contribution limits compared to a 401(k). For example, in 2024, the contribution limit for a 401(k) is $23,000 for people under 50 years of age, whereas the contribution limit for an IRA is only $7,000. Many state-run programs utilize IRAs as the preferred type of account. Although some companies automatically open a 401(k) for their employees upon hiring, it may require additional steps for an individual to open an IRA. Additionally, an IRA may not be as effective if savers do not set up automatic transfers from their savings or checking accounts to fund the IRA.
Certain state programs have taken the initiative to automatically enroll workers in retirement plans, as noted by Pew Charitable Trusts. Moreover, it is worth mentioning that not all states have chosen an IRA-based plan. For instance, Massachusetts has a voluntary open multiple-employer plan in place, while Washington state offers a voluntary marketplace.
The efforts of state-run retirement programs are particularly beneficial for employees of small businesses. These businesses are less likely to offer employer-sponsored retirement plans due to the associated expenses and responsibilities. According to the Center for Retirement Research at Boston College, only about half of companies with fewer than 100 employees provide retirement plans. Interestingly, the report also indicates that state-run programs may encourage small businesses to offer these plans.
Georgetown University's study reveals that nearly all states without existing programs are currently in the process of developing or considering implementing one. Only three states—Alabama, Florida, and South Dakota—have made no efforts to develop any type of retirement plan thus far.
Maine Leads the Way in Employee Coverage Program
Maine is taking the lead in implementing a comprehensive coverage program for employees, which is set to be rolled out by the end of this year. This initiative aims to ensure that all covered employees have access to necessary benefits and protections.
In addition to Maine, six other states, namely Hawaii, New Jersey, New York, and Vermont, are currently in the process of implementing similar programs. These states are expected to launch their own programs within the next year, as reported by Pew.
The Maine program, along with its counterparts in other states, marks a significant step towards providing improved support and security for employees. The deadline of December 31st serves as a reminder of the commitment to make this program accessible to all covered employees.
With Maine taking the lead and several other states following suit, it is evident that efforts are being made to ensure that employee well-being and welfare remains a top priority across the nation.