More than 800,000 workers in seven states have accumulated more than $1 billion in retirement savings through state programs that fill the gaps for workers who don't have a workplace retirement savings plan.
Starting in 2017, states have stepped in to help millions of workers who cannot access an employer-sponsored retirement plan. California had more than 471,000 workers enrolled in its program as of November 2023, followed by Illinois with 136,000. Oregon — the first state to launch such a program — had 123,000 workers enrolled. Connecticut, Maryland, Colorado and Virginia are other states with plans in place.
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Contributing to a retirement account by making automatic payroll deductions is an effective way to save for workers, and has tax advantages, too — yet only about half of American workers participate in some type of employer-sponsored plan, such as a 401(k) or Defined benefits, according to a recent report from the Center for Retirement Research at Boston College.
No single number captures the nation's entire retirement savings landscape. For example, many workers who have access to a retirement plan at work don't contribute to it: The Bureau of Labor Statistics found that as of March 2023, 70% of private sector workers had access to retirement benefits, but only 53%% partner.
Workers who can't access a workplace plan — and even some who can — can open an individual retirement account. However, an IRA has lower contribution limits than a 401(k): In 2024, the contribution limit for a 401(k) for people under 50 is $23,000, compared to $7,000 for an IRA, which is the type of account you use. Many states. – Running programs. While many companies automatically open a 401(k) for workers upon hire, it may take more steps for an individual to open an IRA. It may also not be an effective option if savers have not set up automatic transfers from their savings or checking accounts to fund the account.
In some cases, state programs automatically enrolled workers, according to the Pew Charitable Trusts.
Georgetown University's Center for Retirement Initiatives, which tracks state-run retirement programs, also notes that not all states have chosen an IRA-based plan: Massachusetts has a voluntary plan that is open to multiemployers, and Washington state has a voluntary market.
Employees of small businesses—who are unlikely to offer an employer-sponsored retirement plan—may benefit most from these state efforts. Many small business owners argue that running a retirement plan can be expensive and come with a lot of responsibility, and only about half of companies with fewer than 100 employees offer such a plan, the Center for Retirement Research at Boston College found.
The report found that state-run programs may have an impact in encouraging small businesses to offer these plans.
Georgetown reported that all states that do not already have a program are developing or considering one. Only three states — Alabama, Florida and South Dakota — have made any efforts to develop any kind of plan.
The Maine program will launch this year, with a deadline to be open to all covered employees by December 31. Six other states, including Hawaii, New Jersey, New York and Vermont, are underway and expected to launch their programs by next year, according to Pew.
