Retirement plan service providers worried that state auto-IRA programs might eat into their business have nothing to fear.
In a newly released working paper, the National Bureau of Economic Research found that the state programs led many employers to establish their own workplace plans without causing employers already offering plans to drop their plans in favor of state-facilitated programs.
“We cannot point to any evidence that there are firms that are dropping coverage,” said Adam Bloomfield, a senior economic policy advisor at the U.S. Federal Deposit Insurance Corp. and a co-author of the paper released in August.
The paper studied employers with fewer than 100 employees operating in Oregon, Illinois, California and Connecticut, states that implemented auto-IRA savings programs between 2018 and 2022. These state auto-IRA programs require small employers without workplace retirement savings plans to register their workers in the state program or establish a workplace plan themselves.
NBER found that at least 30,000 employers across the four states opted to establish their own workplace plans rather than go with the auto-IRA program offered by the state. In California, almost half of small employers without workplace plans (45%) opted to start their own plans. In Oregon and Illinois, 27% did.
The auto-IRA programs had “huge ‘crowd-in’ effects,” Bloomfield noted, referring to employers that launched their own retirement plans instead of utilizing the state auto-IRA program.
Bloomfield explained that there was no evidence of any offsetting “crowd-out,” a reference to employers that terminated their existing retirement plans in favor of the state plan.
The report looked at differences between “complier” employers — those that offered plans because they were “induced” to do so — and “always-taker” employers — those that would have started a plan regardless of whether it was mandated. It found, for example, that “compliers” were much more likely to work in the leisure and hospitality industries and much less likely to work in professional services than the “always-takers.”
The report also explored possible reasons as to why employers would opt to establish their own program rather than adopt the one supplied for free by the state. It found that the decision was likely not based on a strict cost-benefit analysis and likely relied to some extent on behavioral and other factors, including marketing from retirement plan service providers.
