Lessons from California, Connecticut, and Oregon: How Plan Design Considerations Shape the Financial Feasibility of State Auto-IRAs

Nari Rhee
Report published by Georgetown Center for Retirement Initiatives

As a growing number of states move toward establishing retirement savings plans for private sector workers who lack access to an employer-sponsored plan, policymakers and stakeholders are very interested in plan cost. Will the program be self-sustaining? Can it charge fees that are low enough to be attractive to participants? What happens if enrollment falls short of assumptions?

States should be encouraged by findings from the financial feasibility studies conducted on states-sponsored retirement plans in California, Connecticut, and Oregon. These states are pursuing an auto-IRA model in which most private employers that do not sponsor their own retirement plan must auto-enroll their employees in a payroll deduction IRA managed by the state. Each state hired consultants to study market demand for the plan, estimate likely participation rates, advise on plan design, and determine whether the plan could achieve financial self-sufficiency based solely on participant fees. All three studies indicate state auto-IRAs can be self-sufficient while charging attractive participant fees over the long run. Based on conservative assumptions, they project programs will break even in 3 to 5 years, depending on the study, and fully pay off any startup financing in 6 to 7 years.