State-run retirement savings programs for private-sector employees are fueling the launch of workplace plans, new research finds, dispelling fears that state programs would overtake private plans.
Pew Charitable Trusts has spent the past two years researching what actions eligible businesses would take in reaction to state-run retirement savings programs.
Their research found that in California, Illinois and Oregon — states with programs to help private-sector workers without workplace plans save for retirement — employers continued offering their own plans and those without retirement plans launched their own at rates in line with, or even above, the national average in 2021.
John Scott, Washington-based project director, retirement savings, at Pew Charitable Trusts, said push and pull forces have been behind these trends .
He described the push theory as forcing the hand of businesses who were at the point financially where they were already considering adding a retirement plan. In states with these auto-IRA programs, eligible employers were mandated to either enroll workers in the state-run plan or exempt themselves by adopting their own retirement plan.
"Not everybody's ready to adopt their own plan," Mr. Scott said. "But for those that have been thinking about a 401(k), and sort of considering the value of adding retirement benefits to their operation, a program is causing them to say 'Okay, you've got to make a choice today.'"
He described the pull as the private sector marketing its own retirement plans. He reiterated that in most cases state plans are only IRA-like programs, meaning the programs are solely employee-funded with no chances for employer matches.
"Wouldn't you rather have something that employers can contribute to? You have more choices with investments," he said." "So there's definitely more marketing that's going on in relation to the states with the state programs."
Mr. Scott does not view private-sector plans as in competition with state-run plans, but rather that the latter complements the former.
He said that as part of a previous survey, one business that had employees enrolled in OregonSaves said it was not yet ready to offer its own retirement plan but saw it as an opportunity to provide benefits while it worked on developing more robust benefits to provide in the future.
"They're really sort of a base level of savings programs, and the private market provides a more robust or an upgraded level of savings opportunities for businesses and their employees," he said.
Pew's research was based on data from employers' Form 5500 filings with the Department of Labor.
Critics of state-run plans for private-sector employees argue that such plans pose burdens and risks on businesses due to the mandatory nature of such programs. Howard Jarvis Taxpayers Association, a California-based lobbying and policy association, sued to halt the implementation in California several times. The U.S. Supreme Court declined to hear the case in February 2022, effectively letting the dismissal of the suit stand.
Howard Jarvis officials did not respond to requests for comment.