How Auto IRAs Are Helping More Workers Save for Retirement

Research has shown that Americans are far more likely to save for retirement when they can do so through a plan at work, especially one built on automatic payroll deductions.

Yet nearly half of U.S. private-sector workers ages 18 to 64 — about 56 million people — lack access to an employer-sponsored retirement plan such as a pension or 401(k), according to a December 2024 AARP report. Low-income, African American and Hispanic workers are disproportionately affected, feeding persistent inequity in retirement security.

With support from AARP, states are increasingly stepping up to help close this gap. To date, 20 states have enacted legislation creating “work and save” programs to directly facilitate nest-egg building for people whose employers don’t offer a retirement plan. In the eight states with plans that were active by 2023, more than 1 million workers have been able to start saving for retirement.

Most of the state programs are automatic IRAs. Auto IRAs require most private employers that don’t sponsor a savings plan of their own to enroll workers in a state-facilitated individual retirement account (IRA) at a preset savings rate — typically 3 percent to 5 percent of earnings, automatically deducted from paychecks — and increase the contribution annually (a process called auto-escalation), unless an employee opts out.

“The simple fact is that auto IRAs work,” says David John, a senior policy adviser with the AARP Public Policy Institute and a pioneer in developing automatic IRAs. “They are easy for both employers and employees to set up and use. Thanks to the state programs, a million predominantly low-to-moderate income workers can use payroll deductions to build a better future.” 

Video: What Is An Auto IRA?

Seventeen states have enacted auto-IRA programs; 11 are up and running, and two more are set to start in 2025. Most of the rest are slated to launch in the next few years. Although they differ in detail, auto-IRA programs are similarly structured state-to-state:

• Participating employers pay no costs and are generally responsible only for ensuring workers can join and payroll deductions are processed. They do not make matching contributions. They cannot terminate an in-house retirement plan for the purpose of switching to a state program. 
• Contributions are usually directed into Roth IRAs overseen by state-appointed boards and managed by private financial firms. Roth contributions come from after-tax wages, so withdrawals in retirement are tax-free.
• Employees get a menu of options for investing contributions, generally including a range of target-date funds (TDFs), which tailor their investment mix to the saver’s projected retirement date, and a variety of stock, bond and income funds.
• As with standard workplace plans, enrolled employees are charged administrative fees, which among current programs range up to $30 a year and/or 0.25 percent to 1 percent of account assets.

A handful of states have adopted different models aimed at encouraging small businesses and nonprofit organizations to voluntarily offer their workers savings opportunities — for example, by choosing a plan through a state-run marketplace or joining other enterprises in a multiple employer plan (MEP).

Work-and-save programs don’t just help workers, John says: They also help small businesses with limited resources recruit and retain talent by making it easy and cheap for them to provide access to a retirement benefit.

“Auto IRAs answer employers’ major concerns — cost and complexity,” he says. “Smaller businesses with a state retirement savings program are finding that they can compete with bigger firms to attract and keep better employees.”

Here are the programs operating or in development and how they work.