States Begin Auto-Enrolling Workers in Retirement Plans

Summary

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Episode Overview

Title: States Begin Auto-Enrolling Workers in Retirement Plans
Date: August 17, 2017
Podcast: WSJ Your Money Briefing
Host: Charlie Turner
Guest: Ann Tergerson, Wall Street Journal Reporter

This episode explores state efforts to boost retirement savings for workers who don’t have access to employer-sponsored retirement plans. The conversation focuses on Oregon’s pioneering automatic enrollment initiative, the broader trend of similar state programs, and the supportive and opposing arguments regarding these government-backed plans.

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Key Discussion Points & Insights

1. The Emergence of State-Run Retirement Plans

• Oregon’s New Program:
  Oregon is the first state to require employers without existing plans to automatically enroll workers in a state-run IRA system. (00:28)
• Growing Trend:
  “There are eight states that have passed these programs... and there are more states that are interested in doing so. By some estimates, up to 20 more are, you know, thinking about doing this.”
  — Ann Tergerson [01:19]

2. Who Will Be Impacted and Why Support Exists

• Coverage Gap:
  Up to half of working Americans, especially small business employees, lack workplace retirement options.
  “There's a large percentage of Americans, the estimates range between like one third to... almost half who don't have access to retirement savings plans at work. This is especially a problem for employees of small businesses.”
  — Ann Tergerson [01:54]
• Behavioral Impact:
  Lack of work-based access greatly reduces likelihood of any retirement saving.
• Policy Motivation:
  States and supporters cite a looming “retirement savings crisis” as the justification for intervention.

3. Sources of Opposition

• Employers' Concerns:
  Some local businesses fear new administrative burdens from state mandates, even though the programs are designed as “payroll pass-through” arrangements. [02:44]
• Financial Industry Pushback:
  Private firms selling small business 401(k) plans see state plans as government competition.
• Federal Resistance:
  “This year Congress voted to do away with an Obama era regulation that... made it easier for states to set them up.”
  — Ann Tergerson [03:29]
  Some lawmakers oppose the idea of government-administered private savings programs.

4. How Oregon's Program Works

• Default Structure:
  Employees are auto-enrolled to contribute about 5% of each paycheck to an IRA invested in mutual funds.
  “All the employers in the state are going to be required on sort of a rolling basis... to automatically enroll them so that they automatically deduct portion, I think about 5% is the default amount from the person's paycheck.”
  — Ann Tergerson [04:13]
• Private Sector Partnerships:
  State Street (investment management) and Bank of New York Mellon (custody) handle accounts.
• Opt-Out Provision:
  Participation is NOT mandatory for workers; employees can choose not to participate.

5. Early Results and Mixed Feedback

• Phased Launch:
  Initial rollout began July 1, 2017, with a volunteer group of employers serving as a test group. Requirement for larger employers starts January 1, 2018. [05:21]
• Supportive Pilot Employers:
  “I spoke to several of the employers who were involved in this pilot program. These are people who are very enthusiastic about the concept... They're happy to have the program. They're happy to be able to offer this as a benefit to their employees.” — Ann Tergerson [05:37]
• Cost and Access Issues with 401(k)s:
  Many small business owners find traditional 401(k) plans too expensive and view the new program as a valuable alternative.
• Concerns Remain Among Other Businesses:
  Especially for those with fluctuating workforces (e.g., hourly workers with variable schedules), employers worry about the extra payroll complexity these plans create. [06:27]

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Notable Quotes & Memorable Moments

• “They want to know: how is this actually going to work in practice?”
  — Ann Tergerson [01:19]
• “When people don't have access to a plan at work, they are significantly less likely to save at all.”
  — Ann Tergerson [01:56]
• “Congress, by scrapping that regulation, kind of aligned themselves with the critics.”
  — Ann Tergerson [03:39]
• “The state wanted to start with a small group to kind of see where the glitches were and iron everything out before they rolled it out on a big level.”
  — Ann Tergerson [05:24]
• “They've been stymied in finding a suitable 401 plan for their employees because costs are often very high for 401 plans for small businesses.”
  — Ann Tergerson [05:44]

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Timestamps for Key Segments

• 00:28 — Introduction of Oregon’s State Retirement Plan Initiative
• 01:19 — Expansion Across States
• 01:54 — The Retirement Coverage Gap and Arguments for State Action
• 02:44 — Main Sources of Opposition
• 04:13 — How Oregon’s Program Operates
• 05:21 — Early Rollout and Feedback From Employers
• 06:27 — Unique Challenges for Some Small Businesses

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Tone and Language

The discussion maintains a factual, journalistic tone, combining policy overview with on-the-ground perspectives from participating employers. The reporting is balanced, highlighting both the promise of increased retirement savings and the practical concerns raised by businesses and policymakers.

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This episode is an essential listen for anyone interested in the evolving landscape of workplace retirement benefits, state policy innovation, and the intersection of public and private sector roles in financial security.

Transcript

[Podcast Host (Charles Schwab Ad)]

This episode is brought to you by Charles Schwab. Decisions made in Washington can affect your portfolio every day, but what policy changes should investors be watching? Washington Wise is an original podcast from Charles Schwab that unpacks the stories making news in Washington right now and how they may affect your finances and portfolio. [e-mail] WashingtonWise.

[Charlie Turner]

This is yous Money Matters from the Wall Street Journal. Welcome to youo Money Matters. I'm Charlie Turner in New York. There is disagreement over whether states should be allowed to bring retirement savings plans to residents who don't have access to them at work. Some states are forging ahead with plans to auto enroll residents. Oregon this summer became the first state to start requiring employers that don't offer a retirement plan of their own to give employees access to a state run plan. Oregon would do this by automatically enrolling them in IRAs invested in mutual funds. But this and similar initiatives will likely end up as the subject of lawsuits. Joining us is the Wall Street Journal's Ann Terguson. So, Ann, it seems like everyone, supporters and opponents of these plans is watching how Oregon does with its plan.

[Ann Tergerson]

Yeah, that's very much true. So there are eight states that have passed these programs, eight states that are putting them, and there are more states that are interested in doing so. By some estimates, up to 20 more are, you know, thinking about doing this. So, you know, so they're all looking, they want to know how is this actually going to work in practice?

[Charlie Turner]

So eight states, including, I assume some big states like California, Illinois.

[Ann Tergerson]

Yeah, California and Illinois are the next two to come live with these programs. They're expected to do that sometime in 2018.

[Charlie Turner]

What are the main reasons for support for these plans?

[Ann Tergerson]

Sure. So there's a large percentage of Americans, the estimates range between like one third to, you know, almost half who don't have access to retirement savings plans at work. This is especially a problem for employees of small businesses. And, you know, the data show that when people don't have access to a plan at work, they are significantly less likely to save at all. So, you know, the problem is that there are many people who believe that we face a retirement savings crisis. And this is a, you know, a major reason why people are not saving.

[Charlie Turner]

And obviously there are opponents lining up against this. I assume they're local businesses and also people in the federal government who don't believe states should be the ones that administer them. Why don't you clear that up for me?

[Ann Tergerson]

Right. There's a range of opponents. So you've got everything Ranging from local businesses who are concerned that these state mandates are going to impose sort of burdens on them. The state programs are designed so that they are really payroll pass through programs so that the employer simply has to sort of change their payrolls to deduct a certain amount of money from the paycheck and send it to the savings program. But nonetheless, there are employers who are concerned that that's going to create a burden on them. So that's one sort of category of opponents. Another category is financial services Companies that sell 401 plans, particularly selling 401 plans to small businesses. They perceive this as competition from the government and like it. The third category is, well, this year Congress voted to do away with an Obama era regulation that sort of facilitated these programs, made it easier for states to set them up. So, you know, there are lawmakers who believe that it's notit should not be the role of government to get involved in private savings. And so Congress, by scrapping that regulation, kind of aligned themselves with the critics.

[Charlie Turner]

I'm speaking with Anne Tergerson of the Wall Street Journal. You're listening to youo Money Matters. Thanks for listening everyone. Ann, how exactly does Oregon's plan work?

[Ann Tergerson]

Okay, so Oregon's plan works. It's an IRA based plan. So what it is is that the all the employers in the state are going to be required on sort of a rolling basis to start, enroll, to enroll their employees in the program and to automatically enroll them so that they automatically deduct portion, I think about 5% is the default amount from the person's paycheck. And they funnel that through into an IRA that's managed by a private company, State Street Investments in Mutual Funds, and it's held in custody by another private company, bank of New York Mellon. These are private sector investments similar to a 401, but they're IRA based. The employees are free to opt out for the employers. They're required to facilitate this, but the employees are allowed to opt out.

[Charlie Turner]

And as we've said, there are local businesses in the state that don't like it. They don't want to be required to offer these plans. But by all accounts, how has the program worked? It started July 1st. Right.

[Ann Tergerson]

It started July 1st with a small group of employers who volunteered to sort of serve as guinea pigs. The first group's large Companies with 100 or more employees are going to be required to do this starting January 1st. So the state wanted to start with a small group to kind of see where the glitches were and iron everything out before they rolled it out on a big level. I spoke to several of the employers who were involved in this pilot program. These are people who are very enthusiastic about the concept. They don't perceive it as a burden. And in fact, they believe that it's something that they really want to offer their employees. They believe it's important to save for retirement. They've been stymied in finding a suitable 401 plan for their employees because costs are often very high for 401 plans for small businesses. And these are generally small businesses. They're happy to have the program. They're happy to be able to offer this as a benefit to their employees. However, I think in the population at large, you know, there definitely are businesses that feel the opposite. They obviously haven't volunteered to start early, but they will be required to implement this. And particularly I spoke to a business owner who has a lot of hourly workers who change their hours every week. And so he already has a very labor intensive payroll to do and he feels that this will just add to the burden.

[Charlie Turner]

Wall Street Journal reporter Ann Tergerson, thank you very much for joining us.

[Ann Tergerson]

You're welcome.

[Charlie Turner]

And that's yous Money Matters. I'm Charlie Turner at the Wall Street Journal.

[Podcast Host (Charles Schwab Ad)]

This episode is brought to you by Charles Schwab. Decisions made in Washington can affect your portfolio every day, but what policy changes should investors be watching? Washington Wise is an original podcast from Charles Schwab that unpacks the stories making news in Washington right now and how they may affect your finances and portfolio. Listen @schwab.com washingtonwise.