RD587 - Report on State-Facilitated Private Retirement Plan Programs: Encouraging Citizens to Save for Retirement

Executive Summary:

In April 2021, legislation was enacted to establish a state-facilitated private retirement program (the Program) for private-sector workers whose employers do not offer a workplace retirement plan in the Commonwealth of Virginia. Virginia College Savings Plan (Virginia529) was directed and authorized to establish the Program to promote greater voluntary retirement savings for private-sector workers in a convenient and portable manner. This Virginia529 report provides additional information on state-facilitated retirement programs and recommends other technical amendments to the Code of Virginia necessary and prudent to effectuate the establishment of the Program in Virginia pursuant to Chapter 556 of the 2021 Acts of the Assembly.

The scope of this report consists of: (i) legislative enhancements; (ii) experience of other states with active programs; (iii) potential incentives to encourage participation and defray costs; and (iv) cost-benefit analysis of reducing the current employer eligibility threshold. Virginia529’s intent in delivering this report is to provide an overview of the current landscape of statefacilitated private retirement programs and empirically-based evidence to inform the legislature on those recommendations that ensure the Program more effectively aligns with the legislature’s recognition that many employed Virginians lack access to a workplace retirement plan and, conversely, sufficient retirement savings. This lack of access disproportionately affects Hispanic, Black, and Asian employees who typically comprise a significant portion of uncovered (ineligible) employees at the workplace or work for employers whose size consists of 25 or fewer employees. Women generally have lower overall access and participation rates than men when looking at all employees.

Since December 2020, when Virginia529 submitted to the General Assembly its Report on State-Facilitated Private Retirement Plan Programs: Encouraging Citizens to Save for Retirement (2020 Report) pursuant to Chapter 506 of the 2020 Acts of the Assembly, the experience of other states that have enacted similar legislation has helped to inform how Virginia should implement its own specifically with active automatic enrollment individual retirement account (IRA) programs (also known as auto-IRA programs). To better effectuate the intent of the General Assembly, this report proposes technical amendments to help clarify the scope of the Program, facilitate administration of the Program and clarify potentially ambiguous language.

This report also looks to the three states with active auto-IRA programs – Oregon, Illinois, and California – which help to provide insight into the impact and prevalence of auto-IRA programs on those private-sector workers who, prior to the establishment of each program, had no access to an employer-sponsored retirement savings plan. Since publication of the 2020 Report, these states have experienced several changes. In July 2021, with strong bipartisan support the Illinois legislature approved several key elements of legislation for its Illinois Secure Choice Program which was originally launched in 2018. The 2021 legislation created a more inclusive and nimbler program structure including, most notably, a reduction of the employer eligibility threshold from 25 to 5 employees and an annual automatic increase to the contribution rates, among other enacted changes.

As these other auto-IRA programs have matured, more data has been published about the effectiveness of these programs. Established in 2017, the OregonSaves auto-IRA program is the oldest auto-IRA program and serves an eligible population of approximately one million private sector workers. In just under four years, the OregonSaves program has amassed approximately 111,916 total funded accounts and total assets of more than $131 million as of August 31, 2021. Surveys of employers facilitating their employees’ participation in the OregonSaves program have shown that the large majority of those employers view the program positively and have experience minimal costs, if any, associated with program participation.

An auto-IRA program meets potential savers where they are and facilitates access for all eligible private-sector workers whose employers do not offer a retirement savings option. The experience of the three states with active auto-IRA programs and the overwhelming support among employers and employees shows that Virginia’s auto-IRA Program can help to address and ameliorate the high level of retirement insecurity in the Commonwealth, leading to better retirement outcomes. This means that the Program can be used to not only close the retirement savings gap but also to secure the Commonwealth’s fiscal position and enhance the quality of life for all Virginians in their retirement years.

Finally, this report examines potential incentives to encourage participation in the Program and defray the costs of participation for small business employers. The experience of other states serves as an indicator of the pent-up demand for a no-cost retirement savings program for workers and incentive initiatives can help cover any costs employers may face when enrolling eligible employees in the Program. As most states have found that employers face little to no cost in offering an auto-IRA program, there are no active incentive programs in the market though other states do include provision for such a program in the future. This report, therefore, examines what potential incentives may look like for Virginia employers who may need assistance facilitating their employees’ participation in the Program.