In an effort to help more Americans save for retirement, states have introduced automatic individual retirement account programs for private-sector employees. These programs, known as “auto-I.R.A.s,” aim to assist workers in saving more for their future, especially in the absence of traditional pensions and employer-sponsored retirement plans.
With approximately half of private company employees lacking access to retirement plans, state-sponsored I.R.A. programs have become a crucial initiative. By enrolling workers through automatic payroll deductions, these programs encourage regular contributions towards retirement savings. Research indicates that these programs may even motivate companies to consider offering their own retirement plans to employees.
Auto-I.R.A.s typically require private employers without existing retirement plans to participate in state-run programs. Employees are enrolled in I.R.A.s with a portion of their income deducted from their paychecks, usually around 3 to 5 percent. However, workers have the flexibility to adjust the contribution amount or choose to opt out of the program. While employers facilitate payroll deductions, they are not responsible for managing the plan or covering associated fees.
Currently available in 10 states, including recent additions like New Jersey and Delaware, auto-I.R.A. programs are expanding to seven more states soon. According to the Georgetown University Center for Retirement Initiatives, there are over 930,000 accounts with a total of $1.7 billion in savings across eight participating states as of October. These state-sponsored programs aim to address the low rate of individual I.R.A. ownership, as many workers may find it challenging to initiate retirement savings independently due to various reasons such as inertia or investment decision-making concerns.
While workers have the option to open an I.R.A. on their own through banks or brokerages, the adoption rate remains low. State-sponsored auto-I.R.A. programs offer a convenient and structured approach to retirement savings, making it easier for employees to start building a financial safety net for their post-working years.
As the landscape of retirement planning continues to evolve, state initiatives like auto-I.R.A.s play a crucial role in promoting financial security among workers without access to traditional pension plans or employer-sponsored retirement benefits. By offering a simplified and automatic savings option, these programs aim to empower individuals to take control of their financial future and achieve a more secure retirement.
