The persistent issue of retirement savings in the United States has long posed challenges for workers, particularly those in the private sector. AARP estimates that nearly 57 million Americans lack access to employer-sponsored retirement plans. This situation arises because many employers either do not offer a plan or impose restrictive qualifications that exclude a significant portion of their workforce. The resulting gap in retirement preparedness has raised alarms among policymakers and financial experts, who warn of a potential crisis as millions of Americans approach retirement with insufficient savings.
In response, state-sponsored auto IRAs have emerged as a vital tool to close this coverage gap. These programs, first introduced in 2017, automatically enroll workers into individual retirement accounts if their employers do not offer a workplace savings plan. Currently, 17 states have enacted legislation to implement auto IRAs, with 10 already operational and several others set to launch soon. These programs represent a growing trend toward innovative policy solutions aimed at addressing the systemic lack of retirement plan access.
The impact of auto IRAs is already evident. According to the Georgetown Center for Retirement Initiatives, workers in eight states participating in these programs have collectively saved over $1.7 billion as of October. These programs are particularly effective for low- and middle-income earners, who historically face the greatest barriers to saving for retirement. Research from Pew’s Retirement Savings Project and Gusto, a payroll and HR software company, underscores the transformative potential of these plans. Gusto’s analysis reveals that states with auto IRA policies have seen a 20% increase in the likelihood of workers saving for retirement, with savings rates among lower-income workers rising by 55%.
The mechanics of auto IRAs are relatively simple yet powerful. Employers in participating states must either provide their own retirement plan, such as a 401(k), or facilitate their employees’ enrollment in the state’s auto IRA program. Workers are automatically enrolled at a default contribution rate—usually 5% of their earnings—but have the flexibility to adjust their contributions or opt out entirely. Contributions are made to Roth IRAs, meaning they are funded with after-tax dollars, allowing the savings to grow tax-free and be withdrawn tax-free in retirement. While employers are not required to match contributions, participants can benefit from federal incentives such as the saver’s tax credit or the upcoming federal saver’s match, set to take effect in 2027.
The broader implications of auto IRAs extend beyond the individual worker. Data suggests that these programs may encourage more employers to establish their own retirement plans. In California, for example, the implementation of its auto IRA program in 2022 coincided with a marked increase in the formation of private-sector retirement plans. Pew’s research attributes this trend to various factors, including new federal incentives introduced under the SECURE Act of 2019, which reduced the administrative burden and costs associated with establishing workplace retirement plans. Additionally, as businesses face state mandates to either offer auto IRAs or create their own plans, many have opted for the latter, recognizing the long-term benefits of a robust retirement plan for attracting and retaining talent.
State-sponsored auto IRAs are reshaping the landscape of retirement savings in the United States. By addressing systemic barriers and fostering a culture of savings, these programs are laying the groundwork for a more financially secure future for millions of Americans.
