How Are Employees Responding to State-Run Retirement Plans?

State-run auto-IRA plans affect private-sector employers but are most of all intended to benefit their employees. How are those employees responding to them?

Overall Positive Effects

There is research indicating that these plans, in which employers are required register if they do not already offer retirement coverage to their employees, have a variety of positive effects.

• A number of researchers report that state auto-IRA programs increase coverage by serving as a catalyst to private-sector employers to establish plans of their own.
• In the working paper “How Do State Retirement Savings Policies Affect Labor Supply?” Adam Bloomfield, Ngoc Dao, and Manita Rao wrote in May 2024 for the Center for Retirement Initiatives McCourt School of Public Policy at Georgetown University that state auto-IRA plans have “significantly increased” private-sector employment, and also have resulted in a modest increase in wages.
• The Pew Charitable Trust found that features of state auto-IRA plans increase participation in retirement plans as well as savings.
• Pew suggests that broad support for these plans bodes well for addressing gaps between demographic groups in availability and enrollment in retirement savings programs. TRI-AD, in a recent blog entry, also argues that state auto-IRA programs help close the retirement plan coverage gap.
• TRI-AD also posits that state programs to provide retirement plan coverage encourage financial literacy, provide education and resources concerning retirement, and heighten retirement readiness.

Employee Responses

So how are employees responding to those state-run plans intended to give them coverage? Opting out. While employees are automatically enrolled in state programs, the states that have put them in place also afford them the opportunity to “opt out”—that is, leave the program. How many employees take advantage of that flexibility? In examining opt-out rates, it is instructive to look at OregonSaves and CalSavers, the state-run retirement plans that have been functioning the longest of any of them. In Oregon, during the period Jan-Sept. 2021—the latest for which there is data on opt-outs—the average monthly opt-out rate from OregonSaves was 32.5%. The highest percentage of employees who opted out came in January of that year, 34.5%. That fell to 32% in August and September. The opt-out rate from CalSavers is comparable. The most recent figures are from July 2024; a look at the Julys for which there is data available shows a fairly uniform opt-out rate:

• July 2020: 31.5%
• July 2021: 32.1%
• July 2022: 37.6%
• July 2023: 36%
• July 2024: 35.9%

Withdrawals. Employees are able to make withdrawals from their accounts in state-run retirement plans as well. The most recent month for which there is data concerning withdrawals from OregonSaves accounts is July 2024; the earliest year for which there is such data is 2021. Looking at the percentage of payroll contributing accounts from which withdrawals were made in July of the years 2021-2024 shows that there has been a gradual increase in that percentage.

• July 2021: 20.3%
• July 2022: 25.7%
• July 2023: 32.6%
• July 2024: 36.1%

The percentage of employees participating in CalSavers who made withdrawals during that period was lower, but also showed a gradual increase:

• July 2021: 11.9%
• July 2022: 13.4%
• July 2023: 18.1%
• July 2024: 21.8%

Does the withdrawal rate vary by the industry in which a particular employee participant is employed? In “Participation and Pre-retirement Withdrawals in Oregon’s Auto-IRA,” a paper Laura D. Quinby, Alicia H. Munnell, Wenliang Hou, Anek Belbase, and Geoffrey T. Sanzenbacher wrote for the Center for Retirement Research at Boston College, the authors provide information on the percentage of employees withdrawing funds before retirement by industry for the period September 2018 to September 2019. Their findings are as follows:

• Construction 24.8%
• Farming 23.7%
• Transport 23.3%
• Restaurants 20.8%
• Retail 20.6%
• Services 20.6%
• Manufacturing 15.4%
• Temporary help agencies 11.9%

Does the age of an employee participant have an effect? The Boston College researchers also examined the percentage of employees who participate in OregonSaves and withdrew funds before retirement by age group during that period. The results were fairly uniform:

• Ages 18-29: 18.5%
• Ages 30-39: 21%
• Ages 40-49: 20.8%
• Ages 50-59: 19.3%

Account balances. Average balances in participating employees’ accounts during the month of July during the period 2021-2024 have been higher among OregonSaves participants than CalSavers. However, the rate by which the average balance grew from year to year have been comparable for the plan each state provides—around $250 for each from 2021 to 2022, and has been approximately $450-$530 during the period 2022-2024. OregonSaves

Month	Average Balance	Increase Since Previous July
July 2021	$1,127	—
July 2022	$1,380	$253
July 2023	$1,828	$448
July 2024	$2,359	$531

CalSavers

Month	Average Balance	Increase Since Previous July
July 2021	$610.20	—
July 2022	$854	$243.80
July 2023	$1,387	$533
July 2024	$1,895	$50

The Big Picture Employees generally like state auto-IRA programs, according to the Pew Charitable Trust. In their 2017 study of more than 900 workers who worked at small and mid-sized employers—which they define as having 5-250 employees—that did not offer retirement plans, and they found that generally, they liked the auto-IRA concept as well as their automatic enrollment and automatic escalation features. Pew further found that attitudes concerning these plans are fairly uniform across demographic groups. Pew received a variety of comments in the focus groups they conducted as part of the study. One participant remarked that such plans are a good idea because they are a way to overcome lack of interest in retirement saving resulting from lack of understanding and knowledge about retirement plans and saving. Another cited the importance of the discipline state auto-IRA programs introduce, even though there is no employer match to serve as an incentive for them to participate and contribute money from their compensation.