Are state auto-IRAs the answer to the retirement savings gap?

The question on most people’s minds these days is whether or not they will have enough money saved for their retirement. And the next question naturally becomes, how can I be retirement-ready when the time comes? For those still working, many have retirement savings plans sponsored by their employers to set them on the right path. But recent statistics show that 45% of working-age households do not have retirement assets[1]. Unless there’s a drastic change, this leaves millions of retiring Americans relying solely on just their social security income.

Last year, the Obama administration passed regulation that made it possible for states, and even some larger cities to create their own retirement savings vehicles for private-sector employees to contribute to. These retirement accounts will be exempt from federal retirement law – the Employee Retirement Income Security Act (ERISA). Five states, including California, Connecticut, Illinois, Maryland and Oregon have passed laws to set up these plans. Cities such as New York, Seattle and Philadelphia are considering the same measures. The expectation is that the 45% of households that are not currently contributing to a retirement savings plan will now be able to save. The state auto-IRA solution is a bare-bones approach with very few options available to employers and employees. While it’s a good start, it may not be the best option for many businesses.

 What’s at stake?

As a new president takes office, the new administration has begun to take a closer look into the city/state auto-IRA programs and what that means for the country. In January 2017, a report cautioned that “well-intentioned states considering the mandating payroll deduction IRAs are likely to hurt the very workers they are helping[2].” Another recent study by the U.S. Chamber of Commerce noted that the amount employees can personally contribute is about one-third of what is allowed in a 401(k), employers will not be allowed to contribute, fewer plans will be started, many existing small plans will be terminated and important worker protections will be lost. The burden for implementation will be placed back on the employer.

And now the debate moves ahead.  In February the House introduced resolutions of disapproval to roll back the regulatory “safe harbor” for city/state IRA programs created under the Obama administration.  Recently the Senate chimed in introducing identical resolutions to undo the regulations.  These resolutions fall within the time frame for repeal under the Congressional Review Act (CRA) – meaning that the “passage requires just a simple majority vote[2].” Rolling back the regulations could mean that business owners and their workforce will have the opportunity to decide for themselves what their retirement savings plan should look like. There are solutions out there that will address the retirement savings gap in a way that private businesses and their employees won’t need to rely on government Auto IRAs.

Other options than a state auto-IRA?

Today, 401(k) plans alone hold $4.9 trillion and cover more than 50 million people. A 401(k) allows workers to contribute roughly three times more per year than a state auto-IRA. Contribution prohibitions and limits can make a difference when adding up the amount that workers are allowed to save during the course of their career.

For over 30 years, PAi has been focused on retirement readiness. Our CoPilot program matches you to investments that fit your needs. Your investments are monitored for performance and you’ll receive real-time messaging. You’ll always have a clear picture of how much retirement you’re actually buying because CoPilot translates your savings into what matters most – how many years you can afford to be retired.

We look forward to working with any future legislation that will give Americans the opportunity to save for their retirement. Contact us online or give us a call at 800.236.7400.



[1] BridgePoint Group, retrieved from

[2] NAPA-Net News 3/7/17

U.S. Chamber of Commerce, Winter 2017. State Auto-IRAs: The Wrong Answer

Rob Bishop – Sr. Manager of Corporate Accounts and Government Savings - - 800-236-7400 x3341

Rob is a subject matter expert on 401(k), retirement savings, state mandates, broker dealers and the overall competitive landscape.