Texas does not currently have a state-sponsored retirement savings program like many other states have implemented. However, there have been efforts in recent years to establish such a program, known as a “state retirement savings plan” or auto-IRA, to help Texans save for retirement.
What is a state retirement savings plan?
A state retirement savings plan, sometimes called an auto-IRA, is a state-administered program that aims to increase retirement savings for private sector workers who do not have access to an employer-provided retirement plan. It works by automatically enrolling eligible employees into a Roth IRA account and allowing them to contribute directly from their paycheck through payroll deduction. The accounts are portable and move with the worker if they change jobs.
The plans are designed to provide an easy and accessible way for workers to save for retirement. Participation is voluntary and employees can opt-out at any time. However, the automatic enrollment aspect makes it much simpler to start saving through payroll deductions. The plans utilize existing IRA options, so no new accounts need to be created.
Why are states implementing retirement savings plans?
State retirement savings plans are growing in popularity as a strategy to address gaps in access to retirement plans, especially among lower-income workers. According to AARP, around 55 million U.S. workers lack access to an employer-sponsored retirement plan. This “coverage gap” disproportionately impacts Hispanic, part-time, and small business employees.
Without easy access to payroll deduction retirement savings, many workers struggle to save adequately. State plans provide a straightforward way to start saving that aligns with how most people are already saving for retirement. Payroll deductions make savings automatic, leading to higher participation rates.
In addition, states are motivated to implement retirement savings plans because retirees without adequate savings often turn to state assistance programs. Expanding retirement savings can reduce reliance on these programs and save the state money over the long-term.
What states currently have retirement savings plans?
As of 2022, 19 states have implemented state retirement savings plans, with several more in development. The states with active programs include:
Notable statewide programs include CalSavers in California, which has over 1 million accounts, and OregonSaves, which has consistently achieved opt-out rates under 10%. Several other states and cities have implemented auto-IRA programs specifically for certain employers, like private sector workers in New York City and Philadelphia.
What are the main features of state retirement savings plans?
While plan details vary, state retirement savings plans have some core features:
- Automatic enrollment – Eligible employees are automatically enrolled, usually at a standard contribution rate of 3-5% of wages.
- Payroll deduction – Contributions are made through automatic payroll deduction to simplify saving.
- Opt-out – Employees can opt-out of the program at any time.
- Roth IRAs – The plans use Roth Individual Retirement Accounts, which have tax advantages for savers.
- Portable – Accounts are owned by the employee and remain with them if they change jobs.
- Professionally managed – States partner with private firms to administer and invest the accounts.
- Voluntary – Participation in the state program is always voluntary for eligible employees.
By leveraging automatic enrollment and making savings convenient through payroll deduction, the plans make it much easier for workers to start saving for retirement.
What are the main benefits of state retirement savings plans?
Research shows state retirement savings plans can significantly increase access to workplace retirement savings accounts. For example, in Oregon the auto-IRA program increased access from 39% to 60% of private sector workers. Key benefits include:
- Increased savings – Auto-enrollment boosts participation and contribution rates. Savers are more likely to stick with the status quo of saving.
- Portability – Accounts are owned by savers and seamlessly move between employers. This promotes lifelong saving habits.
- Lower state costs – Increased savings among retirees can reduce reliance on public assistance programs.
- Support small business – Makes offering retirement plans simpler and more affordable for small employers.
- Professional management – Savers benefit from professionally managed, low-cost investments.
The combination of convenience, portability, and automatic enrollment has proven successful at boosting retirement savings rates across income levels and employment types.
What are the main criticisms and concerns with state retirement savings plans?
State retirement savings plans have received some criticisms from policymakers and financial groups, including:
- Costs for employers – Some argue the payroll deduction aspects create administrative burdens for employers.
- Risk – There are concerns about the investment risks if savers make poor choices within the plans.
- Low contribution rates – Default savings rates around 5% may not be enough for adequate retirement savings.
- Personal choice – Some view auto-enrollment as infringing on individual decision-making.
- Private competition – These programs compete with existing private sector retirement plan options.
However, research suggests the overall benefits outweigh the costs and risks. For most savers, the discipline and convenience of automatic payroll deductions makes these plans an effective way to save.
What efforts have there been to implement a state retirement savings plan in Texas?
While more than half of U.S. states now have active or developing state retirement savings plans, Texas currently does not. However, there have been some past efforts to establish a state-sponsored auto-IRA program in Texas.
In 2019, a bill was introduced in the Texas legislature by State Senator Kirk Watson to create the Texas IRA Program. The voluntary program would have auto-enrolled Texans without access to other retirement plans. But the bill failed to pass during the 2019 legislative session.
There was also a push from the Texas Retirement Security Task Force in 2016. The group recommended implementing an auto-IRA program targeted specifically at small businesses and their employees. But the wider proposal also did not gain enough political momentum.
Supporters of implementing a retirement savings plan in Texas include groups like AARP Texas, the Texas Conference of Catholic Bishops, and the Texas AFL-CIO. They argue a state plan would promote savings and help reduce elder poverty.
What are the main barriers to establishing a retirement savings plan in Texas?
While state retirement savings plans have gained support in many states, there are some unique political and economic factors that present challenges to implementing one in Texas. Key obstacles include:
- Politics – Conservative leadership in Texas generally prefers private/employer-based retirement plans over state-run options.
- Cost concerns – Texas policymakers worry about administrative costs and managing taxpayer risk with state-run plans.
- Regulatory restrictions – Texas has specific laws that place limits on state-based retirement programs.
- Private sector options – A strong financial services industry in Texas provides retirement products, reducing urgency.
- Low public awareness – Most Texans are unfamiliar with the auto-IRA concept, limiting public pressure.
While supporters continue to argue for the need for greater retirement savings access, overcoming these policy and political barriers has proven difficult to this point in Texas.
What policy options could expand retirement savings in Texas?
If establishing a direct state-run retirement savings plan remains challenging, there are some other policy options that could still expand retirement savings access in Texas. These include:
- Multi-employer plans – Enable certain groups or associations to offer joint 401(k)-style plans to member employers and employees.
- Marketplace model – Create a state-run marketplace to connect savers with low-cost, private retirement plans rather than directly provide accounts.
- Tax credits – Provide state tax credits to small businesses to offset the costs of starting retirement plans.
- State model plan – Design a standardized prototype 401(k) plan that small employers could voluntarily adopt.
- Auto-portability – Automate rollovers of inactive accounts to follow employees between jobs.
These alternative policies could help expand coverage and make it easier for both employers and individuals to increase retirement contributions in Texas.
While most other states have moved forward with state retirement savings plans in recent years, Texas has yet to establish an auto-IRA or similar program. Lack of political momentum and concerns about costs and employer burdens have posed challenges. Groups continue to advocate for better retirement savings options for Texans without access to employer plans. Whether through a state-run plan or alternative policies, expanding retirement savings access remains an important issue facing Texas lawmakers.