About half of the U.S. private-sector workforce is covered
by employer-sponsored retirement plans. But what about workers who don’t have
this option? A number of states require firms that don’t offer a retirement
plan to enroll their workers in a state-run program.
Academic researchers John Chalmers, Olivia S. Mitchell,
Jonathan Reuter and Mingli Zhong, in a National Bureau of Economic Research
study, Auto-Enrollment Plans for The People: Choices and Outcomes in
OregonSaves, used the state program as a test case to analyze how it worked,
the level of interest and how it affected retirement savings plans.
In 2015, the state of Oregon passed a bill to mandate
OregonSaves for private companies that didn’t offer 401(k)s or similar
The program is structured as a Roth IRA, and employees are
automatically enrolled. The authors looked at who opted out of OregonSaves and
why, how the program affected saving patterns for those who participated, and
whether it meaningfully increased retirement savings.
What prompted OregonSaves, the study says, was that only
22.1% of employees who worked at a firm without a retirement savings program
had actually opened an IRA, and only 7.6% were actively saving. In other words,
opening and saving on their own wasn’t a popular option for employees.
The study posited three reasons for those without mandatory
savings programs not to save: One was the “search cost,” another was “can’t
afford to save” and the third was “don’t need to save.”
The authors also stated that the OregonSaves program gave
them insights into the saving patterns of lower-income workers employed by
“Our analysis of individual-level administrative data thus
sheds light on participation decisions, contribution rates, and the evolution
of account balances, as well as reasons that employees give for opting out of
OregonSaves,” the authors stated.
The study looked at account-level data from August 2018
through April 2020, and found that the program is “generating savings for a
substantial number of employees.” Also:
- More than 67,000 employees accumulated over $51
million through April (and despite the pandemic, more $79 million through
- The participation rate was 62.4%, “significantly
below” levels in firm-sponsored 401(k) plans.
- Of those who opt out, 30.3% state they “can’t
afford to save,” not surprising as many companies using OregonSaves are in
- Younger employees were more likely to opt out.
- Opt-out rates are higher when the unemployment
rate is higher.
- The average account balance was $754, and
average monthly account-level inflow was $117. That said, the accounts with
inflows fell from 65.6% in August 2018 to 34.4% in April 2020, “a pattern
largely driven by job turnover,” the authors state. This coincides with average
outflow rising from $355 in August 2018 to $590 in April 2020.
The authors conclude that the OregonSaves program
“meaningfully increased employee savings by reducing search costs …
“Nevertheless, we have also identified limits to what
automatic-enrollment savings plans can achieve when expanded to workers in
industries and firms with low wages, volatile wages, and high turnover rates,”
the authors state.
They added: “Less clear is whether these accounts will
eventually grow into important vehicles for retirement saving.”
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