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State-Sponsored Plans: A Look at Participation

State Auto-IRA Plans

OregonSaves, CalSavers, Illinois Secure Choice…call it what you will, they and their counterparts boil down to one basic thing—a retirement plan sponsored by the state government to provide at least some kind of retirement plan coverage for individuals who lack access to one. In most cases, that means employees whose employers do not offer one, but in California the coverage also will be available to the self-employed beginning in 2025.

In almost all states with such a program, employers are required to register with the program if they do not offer a retirement plan. And most of the time, employees of registered employers are automatically enrolled in them. But that’s not all there is to participation in state-sponsored plans.

Employee Interest

Interest in participation in state-sponsored plans is not universal. In fact, Laurie Rowley, Co-Founder and President of Icon, a universal retirement plan, in an interview with the ARA said that employees are not enthusiastic about state-run retirement plans. To put it mildly. “Our study data shows that 70% of employees don’t want to save in a state-run plan,” she says.

In states where auto enrollment takes place, employees may opt out of participating. Given Icon’s findings, it’s not surprising that some do take them up on that offer—for instance, between May and August 2022, 33% to 37.5% of eligible, auto-enrolled employees opted out of participating in CalSavers. Opt-outs remained at 37% in December 2022.

At the level of disinterest Icon found, it’s no surprise that some employees would opt out of participating in a state-run plan. But what are the more precise reasons that they do? Rowley offers some ideas. Some employees opt out because of what she termed “income restraints,” but she adds that “behavioral reasons” also explain opt-outs—among them, trust in state government. “We know that trust in state government is about 14%, and that low trust levels impact retirement savings behavior,” she says, continuing, “low trust translates into low engagement.”


Chad Parks, Founder and CEO of Ubiquity Retirement + Savings, in an interview with the ARA indicated that inertia is in play regarding employee participation in retirement plans. “The fact of the matter is, whether or not individuals have access to an employer-sponsored plan, they have always had the freedom to start a retirement fund at another institution—but they don’t.”

So Parks expressed skepticism that the approach Hawaii is taking in the Hawaii Retirement Savings Program, created by legislation signed into law by Gov. David Y. Ige on July 12, 2022, would work. That program is unique among state-sponsored plans—employees would have to opt-in. “While noble in effort, this Hawaii legislature could result in very little traction, so they may want to reconsider a state-mandated, auto-enrollment plan,” said Parks. 

Inertia also may work in the other direction, however. There is a disconnect between the low interest Rowley reports and participation figures, at least from California, where more than 60% of the automatically enrolled employees stay in CalSavers. Inertia may explain why that many stay in CalSavers.

Maybe There’s More

More than inertia may explain the fact that a majority of the employees auto enrolled stay in a state-run plan. What are they looking for?

Cerulli in its Cerulli Edge—U.S. Retirement Edition, 4Q 2022 Issue suggested that state retirement plans and state officials, should pay attention to the importance of dedicated financial education tools and resources. 

Rowley doesn’t think that participants in state-sponsored plans are any different than participants in employer-sponsored or individual plans regarding what they want in a plan. “I wouldn’t carve out what employees using state-sponsored plans want as a subgroup from the entire employee population—employees want the same features in their retirement plan regardless of how the plan is administered or who they work for.”

Rowley said that in its research on participant retirement trends, Icon has found “a clear trend”—employees “want more employee-centric retirement benefits” as well as “a great user experience” that includes personalization.