A Conversation About State-Based Retirement Programs

A look back at the policy landscape that led to state-facilitated retirement plans, and a look ahead to the opportunities as these programs continue to gain steam.

With Melissa Kahn and Angela Antonelli

Melissa Kahn:
Angela, thank you so much for taking the time to talk with us today. You’re the executive director of Georgetown’s Center for Retirement Initiatives, and in that role, a strong focus has been working with the states to enact and implement legislation to create state-run retirement plans for employers that don’t currently sponsor retirement plans for their workers.

You’ve really been at the forefront of this issue since 2014 when you established the center — and you’ve seen a lot of change over the past decade. Give us some background about the reasons for creating these state programs and a little history of how the first one, OregonSaves, came to be?

Angela Antonelli:
Thank you, Melissa, and thank you to State Street for spending time with me to talk about state programs and for being a supporter of the work of the Georgetown University Center for Retirement Initiatives at the McCourt School of Public Policy. We couldn’t have accomplished what we have with adoption of state programs without a constellation of organizations helping us to do this work. So to answer your question, I will tell you that OregonSaves was the first to launch, but it wasn’t the first to be adopted. That was Illinois. The state programs have an interesting history.

They emerged from several forces that really go back to the 1990s, including when policymakers talked about ideas such as privatizing Social Security, using payroll deduction IRAs, and also expanding participation using auto enrollment. All of these ideas began percolating and were helping to lead, as they often do, to other ideas.

By the end of the 1990s and 2000s, there was a proposal by the Clinton administration to create universal savings accounts, which were individual, tax-deferred savings accounts. These accounts were to be managed by the private sector and intended to supplement Social Security — but the proposal never really went anywhere. However, states started looking at this federal level proposal and started to think about whether they could apply a concept like this in their own state.

It was slow going for some time. But in 2006, a few things started to happen. We had the Pension Protection Act of 2006, for example, which encouraged auto enrollment. We also had the national auto-IRA policy proposal proposed by Mark Iwry and David John.

Mark Iwry was at the Brookings Institution, a more ideological progressive think tank, and David John was at the Heritage Foundation, a conservative think tank. Mark and David collaborating on the auto-IRA concept reflected that it was a truly bipartisan proposal. Despite this, no action was taken at the federal level even though both presidential candidates, Barack Obama and John McCain, embraced the concept in 2008.

Once President Obama was elected, the focus quickly turned to national health-care reform, which dampened both the momentum and the bandwidth to really be able to do anything else, especially if it was going to be any kind of requirement on employers. Between 2008 and 2014, states like Washington, California, Connecticut, Oregon, and Minnesota studied the possibility of adopting retirement savings accounts at the state level, but nothing really started to happen until 2014.

In the absence of federal action, in the summer of 2014, the Georgetown Center for Retirement Initiatives (CRI) launched with a mission to help encourage states and to support the adoption of state-facilitated retirement programs. One of the first things that we did was to create a state network and bring states together like Illinois, Oregon, California, and Connecticut to talk about these state proposals, to encourage action, and to address the political and policy obstacles to the adoption of such programs. By mid-2015, Illinois Treasurer Mike Frerichs enacted a new auto-IRA program for Illinois, quickly followed by Treasurer Wheeler in Oregon. At the time, Oregon’s current treasurer, Tobias Read, was a state legislator, and he was the legislative champion for the OregonSaves bill.

In 2016, we saw Maryland, Connecticut, California, and New Jersey enact programs. It was a busy year, and we’ve just continued from there. We’re excited now to have 19 state programs and $1.26 billion in assets administered as of January 31, 2024. Here at Georgetown CRI, we’ve worked with policymakers both at the federal and the state levels to continue to support and encourage the adoption of these state programs around the country.

Melissa Kahn:
Wow, that is an amazing history. Thank you for that. It’s incredible to see that in just a decade, 19 states have programs, given all that has to happen in each of the states to get this not only enacted but implemented. So let’s shift and talk about that — some of the challenges that the states have encountered and how they’ve overcome them to implement these programs.

Angela Antonelli:
I will say that at the beginning, being a champion for state programs was a lonely endeavor with a lot of obstacles and opponents. The industry viewed the state programs as a threat to the private market and to private employer-sponsored plans, arguing that employers would substitute their plans for the state program.

Small businesses and the associations representing them were opposed because they didn’t want to see burdens put on employers. By design, these state auto-IRA programs require and ask employers to do little or nothing — the state program essentially facilitates the savings for employees — but that’s not how it was viewed by small business associations.

Sometimes you must do what you think is needed because you believe it’s the right thing to do and you believe you’re going to help people. And that’s what’s driven us at the Georgetown CRI. It’s been hard work educating industry and other stakeholders. At the time, we worked with state leaders in Illinois, Oregon, California, and other states that remained committed and moved forward, implementing, and enacting new programs because they believed it was the right thing to do.

The reality is you must have faith in your conviction and believe it will show itself to be what you believe it’s going to be. And I think that’s been true with the state programs.

With time, we are now seeing the success of the programs. We have data showing that private plan formation has increased in states with these auto-IRA programs, that is to say, the private sector is benefiting from the existence of the state programs. We also know these programs meet a need for low- and moderate-income workers, often at the smallest employers, who choose to save when given an easy, low-cost way to do so. And this success is challenging the industry now to innovate to help them save for retirement.

I do believe the success that’s come with state-run auto-IRA programs has helped to propel what we’ve now seen with two rounds of significant retirement reforms at the federal level in the SECURE Acts of 2019 and 2022. The financial industry, seeing the success of the state programs, worked with Congress to get additional tools that they wanted and believe will be beneficial to them, to more effectively reach the small employer population that they previously had not been serving.

Melissa Kahn:
Let’s tackle a more politically sensitive question. Most of the states that have taken this mandatory auto-IRA route are so-called blue states. What do you think needs to happen for some of the more conservative states to implement these plans?

Angela Antonelli:
That’s a good question. The reality is politics complicates things, right? Surveys have shown that individuals conceptually like the idea of access to retirement savings accounts, whether through private employer plans or an option from a state government. When you think about the policy and the economic reasons why state policymakers have acted, it’s because they know an aging population that hasn’t saved for retirement is going to be expensive for taxpayers. But as we often say, the cost of doing nothing is too great. Georgetown CRI research and, more recently, research from the Pew Charitable Trusts estimated how expensive it would be if we do nothing to change the current trajectory of workers who don’t have access to a way to save and prepare for retirement — it’s somewhere upwards of a trillion dollars over the next two decades.

Why wouldn’t you want to help more American workers plan and save their own money for retirement? One would think that more conservative states also would embrace the concept. But politics being what it is — blue states historically have been leading with adoption of these state programs.

I think it’s a function of the political times that we’re in and the erosion of bipartisanship that we see the evolution of these state programs without more conservative red states adopting them. Red states have questioned the programs as being big government. But again, I’ll come back to time and success. You have to prove yourself. And now we see more than 830,000 funded accounts and more than $1.26 billion in assets administered through programs that these states set up with tiny sums of money to start. The return on investment is already significant and will only prove itself to be very significant over time. These programs are truly worth considering and certainly a legitimate role of government to help facilitate the ability of workers to save their own money for retirement so they will not have to rely as much on government-funded programs.

Industry also has now largely come to embrace and see the positive advantages of these state programs and the efforts to expand coverage. This certainly helps working with policymakers and will hopefully continue to turn the tide. We’re seeing it now in the 2024 legislative sessions with activity in several southern states that we have not seen before. It may take years for these programs to take root and ultimately lead to adoption, but we’re seeing early signs in some of these more conservative states. For that reason, I remain optimistic that we will continue to see the adoption of programs, including in more of the conservative states and with an increasingly bipartisan approach.

Melissa Kahn:
Let’s talk a little bit about the fact that most of these programs are IRA based. There are some positives and negatives to that type of approach. Can you talk about what those points are versus, let’s say, a 401(k) plan?

Angela Antonelli:
We know that 401(k) plans are more robust. They allow workers to have higher contribution limits, and they allow employers to match contributions, but with that come requirements and higher associated costs.

Employers have told us in countless surveys why they don’t have retirement plans. We are a small business nation. More than 98% of small businesses have fewer than 20 employees. We also have known for a long time that these small employers don’t have time to research what kind of plan they should adopt and then figure out what plan is best for them. Importantly, they also often can’t afford to administer a plan.

So that’s where we are. But we can do something about it. And yes, there are differences between IRAs and 401(k)s, but you’ve got to start somewhere. The state auto-IRA programs are really a very simple way to connect small employers and their employees to ways to save. Many employers most likely to use state programs can’t even think about offering their workers a match. They just can’t afford it. Workers are not likely to even reach the IRA contribution cap, never mind a 401(k) limit. At the end of the day, if we have a solution that is simple and it helps both employers and employees begin to save, there are long-term benefits. For example, employers who will grow into adopting a 401(k) plan of their own in the future because they see the benefits of offering their workers a way to save for retirement.

At the same time, workers who start saving through a state program begin to see the value of saving for retirement and hopefully as they progress in their careers, they may work for employers who offer employer-provided accounts for employees, and they’re going to be much more likely to participate. It’s a win-win. Yes, IRAs are modest, but it’s better to start somewhere and build from there.

Melissa Kahn:
Thank you. You’ve touched a few times in your answers on federal legislation. But let’s specifically talk a little bit about federal legislation that has been introduced to address the access and coverage issue. There have been a number, but I’m just going to touch on two right now. One is the Hickenlooper-Tillis Thrift Savings Plan for All approach to create a federal program requiring all employers to provide a plan. It provides a government overlay for low-income individuals. And then the second approach, which Congressman Neal just reintroduced last month, is the auto-IRA approach, which leaves it to the private sector to close the gap. Can you give us your views on these proposals and their impact on state-run plans?

Angela Antonelli:
I’ll keep it simple. The goal of universal access is an important one. When it comes to federal consideration of universal access, as you’ve laid it out in describing the two proposals, the debate is going to be about how to do it. Should the federal government not only establish the requirement that employers adopt some kind of retirement savings plan or program, but also offer a federally established managed retirement account and perhaps even with a federal match and the costs associated with offering it? Or should the federal government set the requirement for employers to adopt a plan that meets certain basic criteria, but there’s no federal saving account option, and it’s left to both the private sector and the states to then offer the plans and the products to employers? My view is that state programs have already played an important role, and they should continue to do so in any national universal access scenario. At the end of the day, I believe that’s going to be the case.

Melissa Kahn:
Let’s talk about the future. Where do you see the states going from here in terms of more states enacting and implementing state-run plans? What improvements would you like to see in the future, and how do you think these plans will impact workers’ ability to retire with dignity?

Angela Antonelli:
I’ll take us back to where we started with today’s conversation and why the Georgetown CRI was created. In the absence of any federal action, I believe the states will in fact continue to lead. We’re in the 2024 legislative sessions now, and I remain hopeful that we’ll see one to two new state programs this year, as we have each year for a decade now.

One of the latest developments that has made me very happy has been the launch of the state partnerships in 2023, such as Colorado with Maine and Delaware to date. In 2018, we wrote a policy report and started talking with states at CRI conferences to encourage these kinds of partnerships because we’ve seen the benefits of these kinds of partnerships in other state savings programs like the ABLE and College 529 savings programs. When there is greater efficiency and scale in delivering options, it’s always a good thing.

When it comes to the implementation of the state programs, there are always things that can be done better, such as educating employers about the basic efficiency of program delivery, making more employers aware of the program, and making it as easy as possible for them to help their workers save. State programs have been doing a great job continuing to make progress on all these fronts, and they already have made a difference and will only continue to do so. If we can get our youngest workers thinking about saving and starting to save sooner, if we can help more low- and moderate-income workers start building retirement savings accounts, and by doing all of this, help to reduce financial stress and anxiety, then only good things are going to happen. By helping more workers save, I believe that there are going to be countless ways in the long run, both seen and unseen, that will help more Americans age and retire with dignity and greater financial stability.

Melissa Kahn:
Angela, thank you so much. Everything that you and Georgetown CRI have done, it’s been great. This was a great conversation.

Angela Antontelli:
Thank you, Melissa.

April 2024, 24-03

This post is a reprint of a March 22, 2024 State Street Global Advisor Institutional Insights article which can be viewed here.

Melissa Kahn is the Managing Director for Retirement Policy for the Defined Contribution team at State Street Global Advisors.

Angela M. Antonelli is a Research Professor and the Executive Director of the Georgetown University Center for Retirement Initiatives (CRI).

State Street Global Advisors is a supporter of the Center for Retirement Initiatives.