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Surprising Findings About State Plans’ Impact on Private-Sector 401(k)s

State Auto-IRA Plans

While the retirement plan industry generally applauds the introduction and adoption of state-sponsored retirement plans, the possibility some could compete with and “crowd out” private plans due to how the legislation is structured is an ongoing concern. 

However, in some states, the opposite is true. Several factors, including competition for skilled workers, tax breaks, and—yes — the availability of a state-sponsored plan, are causing more small businesses to offer private-sector 401(k)s to their employees. 

In California, Oregon, and Illinois specifically, the first three states to mandate plans for uncovered workers, state plans appear to boost private plan adoption. In California, adoption is growing faster than the national average, according to Pew Charitable Trusts’ data released Friday. 

“In all three states examined, the rate of introduction of new plans, as a share of existing plans, remained higher than before each introduced its savings program,” Pew noted. “In California, the share of new plans rose from an average of 8.1% between 2013 and 2018 to an average of 9.4% from 2019 through 2021, when the CalSavers program was enrolling workers.”

It added that while state plan critics have questioned whether state programs might “entice” employers with plans to drop them to move workers to the state programs, it does not appear to be happening.

“All three states had plan termination rates below the rate for the nation as a whole in 2021. And the changes in states with automated savings programs appear to be in line with the overall national trend.”

The Wall Street Journal reported Thursday that the creation of new 401(k) plans coincides with increased competition for workers in recent years, causing some employers to enhance workplace benefits to attract and retain talent. 

“It has also been aided by tax credits Congress authorized and expanded in 2019 and 2022 that lower the cost for many smaller employers of starting a 401(k) plan and making matching contributions to workers’ accounts,” the paper wrote. 

Now Comes Nevada

Currently, 11 states have either enacted retirement programs or passed legislation to do so. Nevada is the latest to consider such a plan. The bill, SB305, introduced by Senate Chief Majority Whip Dallas Harris (D-Las Vegas) on March 16, would establish the Nevada Employee Savings Trust.

It would require employers to automatically enroll all covered employees and withhold their payroll-deducted contributions. It would also require employers to distribute informational materials, disclosure statements, forms, and instructions concerning the program to covered employers.

Workers could change the rate at which they withhold contributions from their compensation and withdraw up to $1,000 to meet a financial emergency or another kind of emergency. 

They could also opt out of participating in the plan if they choose to do so.