More than 800,000 workers across seven states have amassed more than $1 billion in retirement savings through state programs that are filling in gaps for workers who don’t have a workplace retirement-savings plan.
Beginning in 2017, states have stepped in to help the millions of workers who lack access to an employer-sponsored retirement plan. California had more than 471,000 workers enrolled in its program as of November 2023, followed by Illinois with 136,000. Oregon — the first state to launch such a program — had 123,000 workers enrolled. Connecticut, Maryland, Colorado and Virginia are the other states with plans in place.
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Contributing to a retirement account by making automatic payroll deductions is an effective way for workers to save, and it has tax advantages, too — yet only about half of U.S. workers participate in some sort of employer-sponsored plan, like a 401(k) or defined-benefit plan, according to a recent report from the Center for Retirement Research at Boston College.
There’s no one figure that captures the entire retirement-savings landscape in the country. For example, many workers who do have access to a retirement plan at work don’t contribute to it: The Bureau of Labor Statistics found that as of March 2023, 70% of private-sector workers had access to retirement benefits, but only 53% participated.
Workers who don’t have access to a workplace plan — and even some who do — can open an individual retirement account. However, an IRA has lower contribution limits than a 401(k): In 2024, the contribution limit for a 401(k) for people under age 50 is $23,000, compared with $7,000 for an IRA, the type of account used by many state-run programs. And while many companies automatically open a 401(k) for workers upon hiring, it may take more steps for an individual to open an IRA. It also may not be as effective an option if savers don’t set up automatic transfers from their savings or checking accounts to fund the account.
In some cases, the state programs have automatically enrolled workers, according to Pew Charitable Trusts.
Georgetown University’s Center for Retirement Initiatives, which tracks state-run retirement programs, also notes that not all states have chosen an IRA-based plan: Massachusetts has a voluntary open multiple-employer plan in place, and Washington state has a voluntary marketplace.
Employees of small businesses — which are less likely to offer an employer-sponsored retirement plan — may benefit the most from these state efforts. Many small-business owners argue that running a retirement plan can be expensive and comes with a lot of responsibility, and only about half of companies with fewer than 100 employees offer such a plan, the Center for Retirement Research at Boston College found.
The state-run programs may have the effect of encouraging small businesses to offer these plans, the report found.
Almost all states that don’t already have a program are developing or considering one, Georgetown reported. Only three states — Alabama, Florida and South Dakota — have made no efforts to develop some sort of plan.
Maine’s program is rolling out this year, with a deadline to be open to all covered employees by Dec. 31. Six other states, including Hawaii, New Jersey, New York and Vermont, are in the implementation process and are expected to launch their programs by next year, according to Pew.