But environment, rather than lack of interest or knowledge, might often be the inhibitor.
Just about anyone with earned income can open up an individual retirement account, or IRA , at a brokerage or bank, but as research from the AARP Public Policy Institute reveals, workers are 15 times more likely to contribute to a retirement plan when it's operated by their employer in the form of an automatic payroll deduction. Yet, around 55 million Americans don't have this option.
In other words, nearly a third of the US workforce is missing the convenience factor, and it puts them at a major disadvantage.
Since 2012, nearly every state has either introduced legislation or considered enacting a state-sponsored retirement savings program for workers in the private sector to make it easier to save, and at no cost to employers or taxpayers, according to the Georgetown University Center for Retirement Initiatives . Around a dozen states have passed legislation and a handful have programs up and running.
The incentive for states? To ease pressure on social services when people retire. Some of the programs require businesses without a retirement plan to auto-enroll their employees in the state's program, which sets up an IRA in their name and sets a default salary-deferral rate. The contributions are generally after tax. Other states don't mandate participation, but might allow individuals to sign up on their own through a marketplace.
The businesses are usually a middle man, tasked with enrolling employees in the state's program and making sure their deferral rate is applied to payroll. Employees can manage their investments directly with the private retirement plan provider. In 2020, workers can save up to $6,000 in IRAs (traditional and Roth combined), or $7,000 of they're over age 50.
Here are 11 states with established programs helping people save for retirement.
California
By September 30, 2020, California companies with more than 100 employees and no employer-sponsored retirement plan must be registered with CalSavers , an auto-IRA plan.
Employees are given the option to choose a Roth IRA contribution rate which is automatically deducted from their after-tax paycheck opt out of saving entirely, or do nothing and be auto-enrolled to contribute 5% of their income. There's also an option to auto-increase the savings rate by 1% each year, until it reaches 8%.
The annual asset-based fee for Roth IRAs in the CalSavers program which is managed by Ascensus College Savings Recordkeeping Services is between 0.825% to 0.92%, depending on investment choice.
Employees can choose to invest their money in a money market fund, a bond fund, a global equity fund, a Sustainable Balanced Fund (ESG), and a suite of target date funds. The first $1,000 in contributions for each member will be invested in a target-date fund matched to their age, unless they opt out.
The deadlines for companies with 50 or more employees and five or more employees are June 30, 2021 and June 30, 2022, respectively, but employees over 18 can sign up at any time with a Social Security number or Tax Identification Number. CalSavers estimates the program will ultimately reach more than 7 million Californians.
Colorado
Colorado is in the very early stages of implementing its state-sponsored retirement savings program, which was just approved by state legislature in June. About 40% of the Colorado workforce doesn't have access to a workplace retirement plan, the bill said.
Details of the Colorado Secure Savings Program are still being finalized, but it is expected to require employers of a certain size to register and auto-enroll employees in IRAs with default contribution rates and the ability to opt out.
Illinois
The Illinois Secure Choice Retirement Savings Program , or Secure Choice, began as a pilot program in late 2018 and rolled out quickly. It now requires employers with 25 or more employees who have been in operation for at least two years and do not offer a retirement plan to offer an IRA, unless they are deemed exempt. Self-employed and part-time workers are also eligible.
Employees can opt out, choose their own contribution rate, or be defaulted to a 5% contribution rate. They also have the opportunity to select auto increases of 1% each year.
The program is run by Ascensus and allows employees to invest in a capital preservation fund, conservative fund, growth fund, or target-date retirement fund. The annual asset-based fee for participants is about 0.75%.
Maryland
The Maryland Small Business Retirement Savings Program, or Maryland Saves , was created by the state government back in 2016 but hasn't officially launched yet.
In a March press release looking for a program administrator, Maryland Saves said it plans to begin testing the program, which will auto-enroll employees at small businesses in IRAs unless they opt out, by the end of 2020. According to the release, there are around 1.2 million workers living in the state whose employers don't provide retirement plans.
The program will not only aim to close the retirement savings gap, but "will also help people after they retire, providing a monthly paycheck during retirement and helping them maximize Social Security benefits," and include an emergency savings fund option.
Massachusetts
Small businesses are typically shut out of 401(k) retirement savings plans because they're expensive to administer, but Massachusetts has a solution.
The Massachusetts Defined Contribution (CORE) Plan allows small nonprofits 20 employees or fewer to auto-enroll employees in a 401(k) plan. They're automatically set for annual pretax contributions of 6%, with annual increases chosen by the employer up to a maximum contribution rate of 12%. Employees can also decrease or increase how much they contribute or opt out of the plan completely.
The CORE Plan provides three investment options for participants: a target-date fund tied to age; a professionally managed portfolio through Empower Retirement Advisory Services; or a selection of "objective-based funds" to achieve certain goals such as fixed income or capital preservation.
New Jersey
New Jersey residents who work at companies with 25 or more employees who have been in business for at least two years and have no qualified retirement plan will be automatically enrolled in a state-sponsored IRA through the New Jersey Secure Choice Savings Program.
The auto-deduction amount is 6% of pretax salary, but employees can increase or decrease that amount if they choose. There will be five investment options for participants to choose from, with a lifecycle fund as the default investment, according to the legislation .
The program is supposed to be implemented within two years of the passing of the law in March 2019.
New Mexico
The New Mexico Work and Save Act passed earlier this year, establishing a retirement savings plan online marketplace and a savings program for employees that will roll out by January 1, 2022.
The savings program is voluntary for employers; those who participate will allow employees to contribute automatically to a Roth IRA and opt-in to annual contribution rate increases.
The online marketplace is expected to offer financial literacy resources and connect employers who are looking to establish a Multiple Employer Plan (MEP) to reduce the costs of implementing a 401(k) or 403(b).
New York
Around 3.5 million New Yorkers in the private sector work for companies that don't offer a retirement savings plan, according to AARP .
In 2018, the state passed legislation to set up the New York Secure Choice Savings Program enabling workers to save in a Roth IRA through automatic payroll deductions.
The program was originally voluntary for businesses and slated to debut in April 2020, but an amendment to the legislation was introduced in February to mandate sign ups for employers that have been in operation for at least two years and have at least 10 employees and no retirement plan.
Oregon
Oregon was the first state to implement an auto-savings program for workers with no access to company retirement plans back in 2017.
Employers with five or more employees are now required to register with Oregon Saves . Workers are auto-enrolled in an IRA at a 5% contribution rate, which increases annually by 1%, up to 10%. Employees can choose to stop auto-increases, change their rate, or opt out entirely.
The program is administered by Ascensus and gives employees the option to invest in a capital preservation fund, growth fund, or target-date fund. More than 70,000 people participate, the Wall Street Journal reported .
Vermont
Vermont approved the Green Mountain Secure Retirement Plan in 2017, but has been slow to implement it. As of late 2019 , the state was entering into negotiations to secure a plan administrator.
Companies with 50 or fewer employees will be eligible, but not required, to sign up for the Multiple Employer Plan (MEP), where they can join forces with other businesses to implement a 401(k) or other typically costly retirement plans. If an employer opts in to the program, their employees will be automatically enrolled unless they opt out.
Washington
So the state created the The Retirement Marketplace in 2017, an online hub for employees, self-employed people, and gig workers to browse and sign up for retirement savings accounts, including IRAs and 401(k)s.
Every plan provider listed on the site is approved by state officials and must keep administrative fees for savers below 1% of their account balance.
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