States push ahead on private-sector initiatives

Despite the economic stress caused by the pandemic — or possibly because of it — interest in state private-sector retirement programs continues to grow.

"It seems like momentum is picking up," said Tobias Read, treasurer of Oregon, the first state to launch a retirement savings program for private-sector workers. Mr. Read regularly talks with officials in Nevada, Pennsylvania, Hawaii and other states interested in starting their own programs. "People really get the power of what we have done here. We are turning apathy and inertia into an ally," Mr. Read said.

Virginia and Wisconsin are the latest examples of the trend.

In Virginia, legislation establishing an auto IRA appears headed for passage, propelled in part by an estimate that inaction would cost Virginia taxpayers $11.8 billion over the next 15 years due to a lack of retirement preparedness and increased reliance on social services.

The bill's sponsor, House Appropriations Committee Chairman Luke Torian, D-Prince William, said the new program, to be housed within the state's 529 office but administered by a separate board, is an opportunity for all Virginia workers to build portable savings.

"I am hopeful that Virginia529 can do for retirement planning what it did for college savings," he said.

Earlier this month, a Wisconsin retirement security task force convened by the governor recommended a private sector auto-IRA program, WisconsinSaves, and incentives to encourage auto enrollment in workplace plans. Wisconsin was "in trouble when it comes to retirement security" even before the coronavirus pandemic, the report noted.

The pandemic and some of the political measures being taken to help people impacted by it may be responsible for some of that momentum, said Angela M. Antonelli, executive director of Georgetown University's Center for Retirement Initiatives. She noted that one COVID- 19 relief measure, the CARES Act, could negatively affect retirement security because it allows people experiencing hardships to tap into their retirement accounts, making an acknowledged retirement security problem even worse.

"When the sun shines, there is going to be a greater appreciation for savings. Emerging from all of this is the value of helping people," Ms. Antonelli said.

To date, 12 states and Seattle have enacted retirement savings programs for private-sector workers. They include OregonSaves with more than 90,000 funded accounts and $92 million in assets, the Illinois Secure Choice retirement savings program with $52.6 million and 82,852 funded accounts, and the $38 million CalSavers Retirement Savings Program that as of February had enrolled 274,024 participants, with another enrollment phase coming up.

The predominant model is an auto IRA, in which employer participation is required if no plan is already offered. Other options are a voluntary payroll deduction Roth IRA, a multiple employer plan, and a service provider marketplace, or a hybrid.

Colorado, Connecticut, Maryland, New Jersey and Seattle are in the process of implementing similar auto-IRA programs, while New York chose the voluntary IRA. Massachusetts and Vermont chose a voluntary multiple employer plan, Washington state has a service provider marketplace and New Mexico is building a hybrid of the marketplace and multiple employer plan.

And more innovations are in the works. "At the end of the day, there is room for a lot of solutions," Ms. Antonelli said.

In 2020, at least 20 states and cities introduced legislation to establish new programs or form study groups to explore options.

In 2021, "the legislative sessions are off to a really strong start," said Jessica Eckman, Washington-based senior legislative representative at AARP, where such programs are a priority. She noted that Colorado enacted a program in the midst of the pandemic last July, and while state budgets "are in complete disarray, we are still seeing that momentum in a lot of different states," including Kansas, North Carolina and Delaware.

"There are always states building toward a bill. It's very encouraging. This is a non-partisan issue," Ms. Eckman said.

Part of what is compelling to both red and blue states to consider programs are the economics of public support for older people underprepared for retirement vs. ways to encourage workers to save for retirement. "The cost savings to states definitely resonated in the past and it continues to resonate. It's going to cost now or later," Ms. Eckman said.

"This is a very practical solution to the coverage gap, and there are also taxpayer implications," said Lisa Massena, who served as the founding executive director of the OregonSaves program and now consults with states on retirement savings policy and innovation. Her research shows that roughly 5% of participants in programs up and running appear to have needed the funds for emergency purposes due to a lack of savings. "The programs are retirement programs but they really accommodate both. States understand that. We continue to see percolation in all kinds of states — blue, purple, red," Ms. Massena said.

Advocates for private-sector retirement programs are also encouraged that more states are considering collaborating to tap into existing programs or perhaps a new model. Oregon, for example, amended its program through additional legislation that now allows it to accept accounts from other states. "We are seeing more language being included to keep that as an option," Ms. Eckman of AARP said. "It's going to be important for states to be able to do that."

More talk of a collective approach could emerge in 2021, said Ms. Massena, who hopes that the robust state activity and ongoing innovations will ultimately lead to a federal approach. As more states launch or refine programs, "there is going to be a consortium at one point," Ms. Massena said.

And, as more programs build up assets, the initial resistance to state-run private-sector programs from retirement service providers is fading, she said. "The financial industry has really shifted from seeing it as a threat to the opportunity that it really is. It is hard to not see that workers are taking advantage of the opportunity. The problem is large. The gap is large," Ms. Massena said.

Mr. Read of Oregon thinks all approaches underway or under consideration by states matter. "It can be a nudge to employers, too," he said. "In the long run, that might be the next thing."