Here’s how the California Auto-IRA program can be even more effective


In summary

Policymakers should consider how to expand access to California’s automatic retirement savings program.

By Matt Newman

Matt Newman is co-founder of the Blue Sky Consulting Group.

Pete Manzo, Special at CalMatters

Pete Manzo is President and CEO of United Ways of California.

California’s economy continues to create jobs as the pandemic-induced recession recedes, but far too many workers still lack access to a pension plan. But, the state is ready to lead the way in expanding access to retirement savings for all workers.

California is one of the few states to have launched Auto-IRAs, which allow workers in companies without a pension plan to fund their own savings through contributions deducted from their wages.

Auto-IRAs also received a boost from federal policymakers in September when the House Ways and Means Committee approved a National Automatic Savings Program as part of the Federal Reconciliation Program. The federal proposal – ultimately withdrawn from the bill as part of ongoing negotiations – would have increased the California program, which does not include a public or employer contribution, by adding a refundable tax credit to top up workers’ contributions.

The California program – known as CalSavers – and similar programs in Oregon and Illinois are already showing the potential to dramatically increase savings just by making plans available to workers and automating enrollment. Workers who do not want to participate can opt out.

As of last month, CalSavers has reported over 200,000 worker accounts with savings of over $ 144 million; hundreds of thousands of additional workers and millions of additional assets are expected as the program matures.

California’s experience to date indicates how the program can be even more effective here, and serve as a model for other states or the federal government as policymakers consider whether and how to expand access to savings- automatic retirement.

First, raising awareness among potential employers and savers is vital. In California, as in other states with similar programs, helping employers and workers understand the benefits of the program and making it easier to enroll can dramatically increase savings as well as the economic security and resilience it provides to workers at low prices. salary.

More can be done in this regard.

CalSavers was created at no cost to taxpayers, but this limited the resources available for outreach. CalSavers, and programs in other states, could be improved by allowing programs to borrow funds during the early years to pay for public awareness and engagement. The funds would be repaid from a small fee charged to future savers. This convenient mechanism would not be expensive for taxpayers, but has the potential to dramatically accelerate the benefits of retirement savings for low-income workers.

Second, Auto-ARI program administrators should work with experts and advocates to develop a set of metrics to assess and document the success of these programs. Traditional metrics – number of accounts and assets under management – are critically important, but they only tell part of the story.

Evaluations of similar programs indicate that savers enjoy other benefits, such as a better sense of well-being and reduced job disruptions, as workers have a financial cushion to deal with the unexpected – a stability that benefits both employers and workers.

Some research suggests that Auto-IRA accounts could boost savings even more, as workers realize they can make ends meet even with deductions, and they see their savings grow. Monitoring these and other measures can help paint a more complete picture of the impact of programs.

Finally, the existing Auto-IRA programs provide a basis for other financial management tools. Employee accounts for CalSavers, for example, are portable and allow employees with more than one job to make contributions from each and, if necessary, withdraw funds for emergencies or other non-job related needs. retirement.

The programs could also be designed to make it easier for employees to manage their savings and could be put in place to allow workers to borrow on their own, repaying these loans with deductions on future paychecks rather than paychecks. use a high interest payday lender, a program known as “Payroll Funding.”

Generating personal wealth is fundamental to improving the economic security of the millions of hardworking Californians who do not have access to an employer-sponsored retirement savings plan. Civic leaders must work together to help employers and workers understand the benefits of Auto-IRA programs, document those benefits, and scale up programs over time to empower Californians and workers across the country to become safer. financially.


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