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How Auto IRAs Are Helping More Workers Save for Retirement

Here’s where state-sponsored programs are giving low-income and small-business workers new opportunities to build nest eggs

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 57 million people — lack access to an employer-sponsored retirement plan such as a pension or 401(k), according to a 2022 AARP study. 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, 19 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. Ten of these programs are up and running, with most of the rest set to start in the next two years.

Most are what’s known as auto IRAs. These programs 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.

While 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. 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 around 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 with other enterprises in a multiple employer plan (MEP).

As of November 2023, the six state auto IRA programs that were operating by the start of that year (those in California, Colorado, Connecticut, Illinois, Maryland and Oregon) had helped participating workers save nearly $1.1 billion, according to tracking by the Pew Charitable Trusts. But these programs don’t just aid workers, proponents say: They also help small businesses with limited resources recruit and retain talent by making it easy, and cheap, for them to offer access to a retirement benefit.

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

California

Name: CalSavers

Type: Auto IRA

Enacted: 2016

Status: Active (launched 2019)

How it works: Private employers of any size that do not offer a retirement plan must participate in CalSavers. Those with one to four employees have until Dec. 31, 2025, to register for the program; the deadline has passed for all others.

Participating employers enroll workers in a Roth IRA, with investments starting at 5 percent of wages and automatically rising by 1 percent a year until they reach 8 percent. Employees can opt out or change their savings rate at any time.

Learn more: CalSavers website

Colorado

Name: Colorado SecureSavings

Type: Auto IRA

Enacted: 2020

Status: Active (launched 2023)

How it works: Private employers with five or more employees that do not offer a retirement plan must sign up for Colorado SecureSavings.

Participating companies and organizations enroll workers in a Roth IRA, with investments starting at 5 percent of wages and automatically rising by 1 percent a year until they reach 8 percent. Employees can opt out or change their contribution rate at any time.

Learn more: Colorado SecureSavings website

Connecticut

Name: MyCTSavings

Type: Auto IRA

Enacted: 2016

Status: Active (launched 2022)

How it works: Participation is mandatory for employers with five or more workers that do not offer a retirement plan of their own.

Participating employers enroll workers in a Roth IRA, with investments starting at 3 percent of wages. Employers can opt out or change their savings rate at any time.  

Learn more: MyCTSavings website

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Delaware

Name: Delaware EARNS

Type: Auto IRA

Enacted: 2022

Status: Scheduled to launch by Jan. 1, 2025

How it works: Private entities that employ at least five people, were in operation for at least six months during the previous calendar year, and do not offer a retirement plan will be required to participate in Delaware EARNS (the name stands for Expanding Access for Retirement and Necessary Savings).

Participating employers will enroll workers in a Roth IRA. The initial default contribution rate will be between 3 percent and 6 percent, with the final figure still to be set by the Delaware EARNS Program Board. The board will also determine if the program will include auto-escalation of contributions. Employees will be able to opt out or change their savings rate at any time.

Learn more: Delaware EARNS website

Hawaii

Name: Hawaii Retirement Savings Program

Type: Modified auto IRA

Enacted: 2022

Status: Launch timeline to be determined

How it works: Unlike most auto IRA programs, in which employers enroll workers in the state program unless they opt out, Hawaii’s will be an opt-in system. Employers of any size that do not offer a retirement plan must notify eligible employees about the program and facilitate contributions for workers who choose to participate.

Those who opt in are enrolled in a Roth IRA at a default contribution rate of 5 percent of wages (the program may add an option for savers to choose a traditional IRA). The state board administering the program may elect to include an annual 1 percent increase, up to 8 percent. Participating employees can opt out at any time or change their contribution rate.

Learn more: Hawaii Retirement Savings Program enabling legislation

Illinois

Name: Illinois Secure Choice

Type: Auto IRA

Enacted: 2015

Status: Active (launched 2018)

How it works: Participation is mandatory for employers with five or more workers that have been in business for at least two years and do not offer a retirement plan. Eligible companies and organizations had until Nov. 1, 2023, to register for the program. Self-employed people can also sign up.

Participating employers enroll workers in a state-facilitated IRA (a Roth account is the default, but employees can opt for a traditional IRA). Contributions start at 5 percent of wages and automatically increase by 1 percent per year up to 10 percent. Employees can opt out or change their savings rate at any time. 

Learn more: Illinois Secure Choice website

Maine

Name: Maine Retirement Investment Trust (MERIT)

Type: Auto IRA

Enacted: 2021

Status: Active (pilot launched October 2023, full launch scheduled January 2024)

How it works: Employers with staffs of five or more that do not offer a retirement plan must participate. Registration for eligible businesses and organizations is set to begin in January. Employers with 15 or more workers have until April 30, 2024, to register for the program; the deadline is June 30 for those with 5 to 14 workers. The program is open to smaller companies and self-employed people on a voluntary basis.

Participating employers enroll workers in a Roth IRA (an option for a traditional IRA may be added) with investments starting at 5 percent and automatically rising annually until they reach 8 percent. Employees can opt out or change their savings rate at any time.

Learn more: MERIT website

Maryland

Name: Maryland$aves

Type: Auto IRA

Enacted: 2016

Status: Active (launched 2022)

How it works: Participation is mandatory for employers of any size that use an automated payroll system and have been in operation for at least two years. Self-employed people and workers at nonparticipating companies and organizations may enroll individually.

Participating employers enroll workers in a Roth IRA, with investments starting at 5 percent and automatically rising by 1 percent a year until they reach 10 percent. Employees can opt out or change their savings rate at any time.

Learn more: Maryland$aves website

Massachusetts

Name: Massachusetts Defined Contribution CORE Plan

Type: Voluntary MEP

Enacted: 2012

Status: Active (launched 2017)

How it works: Nonprofit organizations with 20 or fewer employees that do not offer a retirement plan may join with other groups to offer workers enrollment in a state-facilitated, multiple-employer 401(k) plan.

Contributions start at 6 percent of wages, with automatic annual increases of 1 percent or 2 percent (depending on employee’s choice) until they reach 15 percent of pay. Employees can choose to make contributions before-tax (traditional) or after-tax (Roth). They can opt out or change their savings rate at any time. Employer contributions are permitted but not required.

Learn more: CORE Plan website

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Minnesota

Name: Minnesota Secure Choice

Type: Auto IRA

Enacted: 2023

Status: Under the enabling law, a board of directors must be in place by Jan. 15, 2024, and the program could launch as early as January 2025.

How it works: Minnesota businesses with five or more employees that do not offer a retirement plan will be required to enroll workers in a Roth IRA, traditional IRA or both. The board of directors will establish the default, minimum and maximum employee contribution rates, and the rate of automatic annual increase. Employees will be allowed to opt out of the program or change their savings rate at any time.

Learn more: Minnesota Secure Choice enabling legislation

Missouri

Name: Show-Me MyRetirement Savings

Type: Voluntary MEP

Enacted: 2023

Status: Scheduled to launch by Sept. 1, 2025

How it works: Missouri-based businesses with 50 or fewer workers may join and enroll employees in a state-facilitated, multiple-employer retirement plan such as a 401(k). Self-employed individuals will also be eligible. Participating employers will be permitted to make matching contributions to employees’ accounts.  

Learn more: Show-Me MyRetirement Savings enabling legislation

Nevada

Name: Nevada Employee Savings Trust

Type: Auto IRA

Enacted: 2023

Status: Scheduled to launch July 1, 2025

How it works: Private employers that have been in business for at least three years, employ five or more workers, and do not offer their own retirement plan must automatically enroll employees in a state-facilitated IRA. A state board will determine the type of accounts offered, the default contribution rate, auto-escalation procedures, and terms for employees to opt out of the program.

Learn more: Nevada Employee Savings Trust enabling legislation

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New Jersey

Name: New Jersey Secure Choice

Type: Auto IRA

Enacted: 2019

Status: In development. The New Jersey Secure Choice Savings Board, created by the legislature to design, launch and administer the program, has been meeting regularly since late 2021.

How it works: Private employers with 25 or more workers that have been in business for at least two years and don’t offer a retirement benefit will be required to enroll employees in a traditional or Roth IRA at a default contribution rate of 3 percent. Workers may opt out of the program or select a different contribution rate.

Learn more: New Jersey Secure Choice website

New Mexico

Name: New Mexico Work and Save

Type: Hybrid of voluntary IRA and marketplace

Enacted: 2020

Status: In development. Current legislation sets a launch deadline of July 1, 2024, but that may change, says Othiamba Umi, associate state director for advocacy at AARP New Mexico and a member of the Work and Save program board.

“AARP New Mexico is working with stakeholders and state leaders to consider potential changes to the NM Work and Save program that would move it forward and may delay implementation,” he says.

How it works: Under current legislation, the program would allow any New Mexico-based business or nonprofit organization of any size to participate in two ways:

  • Facilitate employees’ enrollment in a state-sponsored Roth IRA (other account types may be permissible) at an as-yet-undetermined contribution rate.
  • Shop for and enroll employees in a private retirement plan, such as an IRA, 401(k), 403(b) or MEP, through an online marketplace.

With either option, employers would be able to implement auto-enrollment of workers and annual contribution increases, provided employees can opt out.

Learn more: Work and Save website (via New Mexico state treasurer’s office)

New York

Name: New York State Secure Choice

Type: Auto IRA

Enacted: 2021 (The legislature initially approved Secure Choice in 2018 as a voluntary savings program for workers but amended the law three years later to convert the program to automatic enrollment.)

Status: Secure Choice “is in the beginning phase of development” and there is no set startup date, according to the state board charged with establishing the program.

How it works: Participation is mandatory for employers that had at least 10 workers throughout the previous calendar year and have not offered their own retirement plan in the past two years. The default contribution rate for enrolled employees is 3 percent of wages, invested in a Roth IRA. Employees may opt out of payroll deductions or select their own contribution level at any time.

Learn more: New York State Secure Choice website

Oregon

Name: OregonSaves

Type: Auto IRA

Enacted: 2015

Status: Active (launched 2017)

How it works: Employers of any size that do not offer a retirement plan must participate in OregonSaves, the nation’s first auto IRA program.

Participating employers enroll workers in a Roth IRA, with contributions starting at 5 percent of wages and automatically rising by 1 percent a year until they reach 10 percent. Employees can opt out or change their savings rate at any time.

Learn more: OregonSaves website

Vermont

Name: VT Saves

Type: Auto IRA

Enacted: 2023

Status: Scheduled to launch July 1, 2025

How it works: Private entities with five or more employees that do not offer a retirement plan will be required to enroll workers in a Roth IRA with contributions starting at 5 percent of total pay and increasing by 1 percent annually up to 8 percent. Employees can opt out of the program, save at a lesser or greater rate, or choose a traditional IRA instead of a Roth.

Covered employers with 25 or more qualifying employees must register for VT Saves and begin offering the program by July 1, 2025. The deadlines for smaller workplaces are Jan. 1, 2026 (15-24 employees) and July 1, 2026 (5-14 employees).

With the approval of VT Saves, state lawmakers pulled the plug on a prior attempt to create a statewide savings program. The Green Mountain Secure Retirement Plan was enacted in 2017 and intended to launch in 2019 as a voluntary MEP for entities with 50 or fewer employees, but it never got off the ground.

Learn more: VT Saves website (via Vermont state treasurer’s office)

Virginia

Name: RetirePath Virginia

Type: Auto IRA

Enacted: 2021

Status: Active (launched 2023)

How it works: Employers are required to participate if they have been in business for at least two years, have 25 or more people working at least 30 hours a week, and do not offer their own retirement plan. Eligible businesses must register for the program by Feb. 15, 2024. Other employers may participate voluntarily, as can individuals who are self-employed or work for a nonparticipating employer, provided they have taxable Virginia income.

Participating employers enroll workers in a Roth IRA at a default rate of 5 percent of pay and increase the savings rate by 1 percent annually until it reaches 10 percent. Employees can opt out of the plan at any time, set their own savings rate or switch to a traditional IRA.

Learn more: RetirePathVA website

Washington

Name: Washington Small Business Retirement Marketplace

Type: Marketplace

Enacted: 2015

Status: Active (launched 2018)

How it works: Businesses with fewer than 100 employees that don’t offer a retirement plan and individuals such as gig workers, sole proprietors and the self-employed can use the online marketplace to shop among state-approved, low-cost savings plans offered by private financial firms. Participation is voluntary for employers, employees and providers.

Current offerings include traditional, Roth, SEP and SIMPLE IRAs and a solo 401(k) plan. Once you select a plan, you can link from the marketplace to the provider’s website to learn more and enroll. Participating plans are subject to annual review and renewal by the state.

Learn more: Retirement Marketplace website

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