Traditional pensions are increasingly rare. About half of employees at private companies don’t have access to a retirement plan. And retirees themselves say they haven’t saved enough.
That is why states have decided to step in and offer retirement accounts for private-sector employees, helping workers to save more and, new research shows, perhaps even spurring companies to offer their own workplace retirement plans.
Automatic individual retirement account programs, known as “auto-I.R.A.s,” typically require private employers that don’t offer workplace retirement plans like 401(k)s to register for state-run plans.
Workers are automatically enrolled in I.R.A.s, often with 3 to 5 percent of their income deducted from their paychecks, but can change the amount or opt out if they prefer. The employers — typically small businesses and nonprofits — provide access to payroll deductions to ease worker contributions, but don’t oversee the plan or pay fees.
Auto-I.R.A.s are now available in 10 states, including New Jersey and Delaware, which started plans this summer, and soon will be in seven more, according to the Georgetown University Center for Retirement Initiatives. At the end of October, there were more than 930,000 accounts with $1.7 billion in savings for the eight plans for which data was available, according to the Georgetown center.
Workers can, of course, open an I.R.A. on their own at a bank or brokerage. But few workers do so, perhaps because of inertia or because they are intimidated about making investment choices.
“Americans are struggling to save for retirement,” said John Scott, project director of retirement savings at the Pew Charitable Trusts, a nonprofit research group, during a webinar on Wednesday.
The state programs aim to make it easy for workers to save by having contributions deducted directly from their paychecks, and for employers by easing the costs and paperwork associated with retirement plans.
There was concern, when states began offering the accounts seven years ago, that they might lead employers to forgo or drop their own retirement plans. But findings published Thursday by Pew suggest that auto-I.R.A.s don’t “crowd out “ private plans, but instead are “complementing” the private retirement plan market. Other research has reached similar conclusions.
“Employers are not dumping their plans and sending workers to the state plan,” Mr. Scott said. Rather, auto-enrollment plans seem to be “nudging” employers to establish their own retirement offerings. It’s also possible that tax incentives play a role and that private retirement plans step up marketing to businesses. Auto-I.R.A.s “are expanding access, either directly or indirectly, by encouraging employers to adopt plans,” Mr. Scott said.
The Pew report examined California, Illinois and Oregon, three of the first to adopt statewide auto-enrollment programs to help workers save for retirement. Businesses in those states were still adopting private retirement plans at rates similar to before the state options became available, it found. Connecticut, which began its program in 2022, showed an increase in new private-sector retirement plans, with no rise in plan terminations.
Companion research published by Gusto, a payroll and benefits firm, found that employees overall were more likely to contribute to retirement savings if they worked for a company in a state with auto-I.R.A. programs. The plans increase the average retirement contribution by 18 percent, Gusto found, meaning that the average worker making $60,000 a year could expect an extra $42,000 in lifetime savings.
Lee Wood, who founded Wood’s High Mountain Distillery with his brother in Salida, Colo., said he had initially been wary of a retirement plan mandate from his state government. But he has found the Colorado SecureSavings program to be simple to navigate and a boon for his six employees, who save 1 to 10 percent of their paychecks.
Mr. Wood said he had searched in the past for a way to offer a retirement benefit for his workers, who typically are paid hourly; some also get tips. “I just couldn’t find the right program,” he said. “It was just too expensive.” With SecureSavings, he said, there is no cost to the company, and administrative tasks are minimal. “This one’s been really easy,” he said.
Logan Van De Veer, 25, works as a general landscaper at A Growing Concern in Santa Cruz, Calif. He said he hadn’t previously saved for retirement, but started when his employer registered for CalSavers, the state’s auto-enrollment program.
“Everyone should save for retirement,” he said, adding that he contributes 7 percent of his paycheck. “It’s not that much coming out.” Still, he likes that the program lets him reduce the percentage at any time, in case of an unexpected financial setback.
The findings on auto-I.R.A.s are encouraging, researchers said, because many Americans are woefully unprepared for retirement. In a recent survey of 3,600 retirees ages 62 to 75 by the nonprofit organization Employee Benefit Research Institute, half said that, given their economic circumstances, they had saved less than needed for retirement.
More than half said they had retired earlier than expected, most commonly because of a health issue or a company downsizing or reorganizing. Just under a third said they were spending more than expected on housing costs. More than a quarter said they were spending more than expected on health and medical insurance, and 20 percent cited higher than anticipated spending on car costs including car payments and repairs.
On average, retirees rated their “lifestyle alignment” with their expectations before retirement at 5.7 on a scale of one to 10, compared with 6.4 in 2022. (In the survey, one meant “not at all aligned” and 10 meant “very aligned.”)
The retirement survey “definitely speaks to requiring a change in savings behavior,” said Bridget Bearden, the benefit research institute’s research and development strategist.
Here are some questions and answers about retirement saving:
Do auto-I.R.A.s offer tax deductions?
State auto-enrollment programs generally offer the Roth version of an I.R.A. With a Roth, contributions are made after tax — meaning they don’t lower your taxable income — but grow tax-free and are tax-free on withdrawal.
Roth I.R.A.s are seen as offering more flexibility, said Angela Antonelli, executive director of the Georgetown center. They allow workers to accumulate savings without having to pay taxes in the future and, unlike a traditional I.R.A., don’t require withdrawals starting at a certain age.
Some state programs may also offer traditional I.R.A.s, since some people may earn too much to qualify for a Roth. (For 2025, the income cutoff to make a full contribution is $150,000 for single filers and $236,000 for joint filers.) With a traditional I.R.A., you receive a tax deduction for your contributions but pay income taxes on the money when it is withdrawn.
Contribution limits for auto-I.R.A.s are the same as for I.R.A.s that people open on their own. For 2025, the limit is $7,000, with an extra $1,000 contribution allowed for people 50 and older.
If I change jobs, can I keep my auto-I.R.A.?
Yes. The account and the money stay with you if you leave your employer.
Do employers match contributions to auto-I.R.A.s?
Employers can’t contribute to individual I.R.A.s., so they don’t match contributions to auto-enrollment plans. Employers do contribute to certain workplace I.R.A. plans, like SIMPLE, short for Savings Incentive Match Plan for Employees. Designed for small businesses, SIMPLE plans require employers to annually contribute 2 percent of an employee’s compensation or make matching contributions of up to 3 percent of compensation.
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