More State-Run Retirement Programs on Tap for Those Without 401(k) Plans — Is Yours One of Them?
Many workers in the United States save for retirement through 401(k)s and other company sponsored plans — but most don’t. As recently as 2020, only 40% of the U.S. workforce participated in a 401(k), according to Icon, a provider of retirement savings plans.
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That’s a worrying figure for government agencies, which want to ensure as many Americans as possible have adequate nest eggs. That’s why, as GOBankingRates recently reported, a growing number of states are offering their own retirement programs to workers who don’t have company sponsored plans.
Over the past decade, 16 state legislatures have adopted retirement-savings programs targeting workers whose employers don’t offer a 401(k) plan or similar option, CNBC reported. Some of the programs are already being implemented, while others are still in the planning stages.
Last year, Maryland and Connecticut launched state-run “auto-IRA” programs to join Oregon, California and Illinois. Colorado and Virginia are expected to add their own programs this year. Programs elsewhere are still being developed.
“On average, we’ve seen one to two new state programs enacted each year and expect that trend to continue in 2023,” Angela Antonelli, executive director of Georgetown University’s Center for Retirement Initiatives, told CNBC.
Over the past decade, 46 states have taken action to either implement a retirement savings program for uncovered workers, consider legislation to launch one or study their options.
States with auto-IRA programs in the planning phase include Colorado, Delaware, Hawaii, Maine, New Jersey, New York and Virginia. In addition, two cities — New York and Seattle — have programs under consideration.
New Mexico lawmakers are considering voluntary payroll deduction IRAs for workers, along with a voluntary marketplace model, according to the Center for Retirement Initiatives at Georgetown University. Washington state already has a voluntary marketplace option.
Both Massachusetts and Vermont either have or are planning voluntary open multiple employer plans, in which two or more unrelated employers join together on retirement savings plans.
Auto-IRA programs are overseen by state retirement boards, which are responsible for making program decisions such as contracting with IRA providers, according to the Congressional Research Service.
Some programs are optional for employers to adopt, while others are mandatory for nonexempt employers. Exempt employers are typically under a certain size or already offer an employer-sponsored pension plan. Some programs also let self-employed workers and those who don’t work for a participating employer to self-enroll.
Contributions to traditional IRAs might be tax deductible for individuals who don’t have access to an employer-sponsored retirement plan. Because individuals with incomes over a certain threshold can’t contribute to Roth IRAs — such as single filers with annual incomes of $153,000 or higher in 2023 — some employees might have to either opt out of auto-IRAs or choose the traditional IRA option.
State-administered IRA programs also are subject to federal IRA contribution limits, which in 2023 are $6,500 for individuals or $7,500 for those 50 and over. The state-run programs don’t permit employer contributions.