Letter from the US: All eyes on Oregon’s auto enrolment
The US pension fund sector is looking at how Oregon progresses with its OregonSaves programme. If it succeeds it should have a big impact and boost other state-sponsored retirement savings plans.
Some 11 US states have approved their own retirement savings plans – the latest being New York (see panel). But Oregon was the first to enrol employers and employees, having started in October 2017. As of early April 2018, 509 employers had registered and 77% of 38,150 eligible employees had enrolled.
These state-run plans are designed for employees who do not have access to retirement-plan coverage at work. According to AARP – an advocacy group for older Americans – 55m full and part-time private-sector workers have this problem. In Oregon, 1m residents are estimated to be this situation.
Two thirds of Oregon’s employers – about 64,000 – will be affected by OregonSaves as they do not offer a retirement savings plan, according to the Center for Retirement Research at Boston College.
Most of those affected Oregonian employers – 82% – have fewer than ten employees; at the same time, firms with 10 or more staff represent 78% of the employees affected by OregonSaves.
Employers that do not offer a retirement plan must join the programme, even though there is no penalty for those that fail to comply. Employees are automatically enrolled and their contributions automatically escalated, as in the Save More Tomorrow (SMarT) programme recommended by Nobel laureate Richard Thaler and Shlomo Benartzi, but they can opt out.
Implementation of OregonSaves is in four waves:
• October 2017: companies with more than 100 employees;
• April 2018: 50-99 employees;
• November 2018: 20-49 employees;
• From 2020: all companies, including those with 19 employees or fewer, will have to be in the programme.
Some Oregonian companies that are already members of the ERISA Industry Committee and offer plans, including 401(k)s, have sued Oregon state for the employer reporting requirement. They settled last March and are exempt from reporting if they inform the state of their ERISA membership and the state verifies this membership.
“With OregonSaves, billions of dollars will be saved,” Tobias Read, Oregon state treasurer and chairman of the Oregon Retirement Savings Board that oversees OregonSaves, tells IPE. “OregonSaves will improve the bottom line for workers, families, businesses and ultimately taxpayers. The overall economy will benefit from more personal saving, and employers will benefit by being able to facilitate an easy programme that helps attract and retain quality employees”.
The state has also made hundreds of presentations to chambers of commerce, business associations, trade groups to promote awareness.
Additional materials are also available for employers to pass to employees, including a simple retirement calculator, and education sessions are planned.
The independent provider Ascensus undertakes record keeping and administration, including creating and maintaining the website, managing the call centre and the relationship with State Street Global Advisors (SSGA), the investment manager for the programme. SSGA was selected through a public process with the assistance of Segal Marco Advisors.
The initial contribution rate is 5% of salary. This will be automatically increased at the rate of 1% of compensation in January each year to a maximum of 10%. The account structure is a Roth IRA and contributions occur on a post-tax basis. The programme currently offers three types of investment options.
The first $1,000 (€812) is invested in the OregonSaves Capital Preservation fund – a money market fund. All further contributions are invested in a target retirement fund based on age and year of retirement. The third option is an SSGA US large-cap equity index fund. OregonSaves participants can make their own choices regarding contribution levels.
Costs are about 1% and include all expenses and fund fees. According to the Oregon State Treasury, an analysis of state auto-IRA fees by the Pew Charitable Trusts found that they are competitive, even when compared to the lowest cost 401(k) plans for small businesses. Oregon aims to decrease cost levels over time as assets increase and start-up costs are recouped.