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Auto-IRA Programs Are Going Strong as Supreme Court Denies Petition to Strike Down CalSavers


The U.S. Supreme Court on February 28 handed a big victory to auto-IRA programs, declining to review a case that sought to strike down the CalSavers program.
 
 

Auto-IRA Programs Are Going Strong as Supreme Court Denies Petition to Strike Down CalSavers


The U.S. Supreme Court on February 28 handed a big victory to auto-IRA programs, declining to review a case that sought to strike down the CalSavers program.

The decision exhausted the options for appeal by the Howard Jarvis Taxpayers Association, which has maintained that CalSavers violates ERISA. One federal court after another disagreed and upheld the program on grounds that it is not governed or pre-empted by ERISA. The Supreme Court's action was a denial of a writ of certiorari, meaning it agrees with the current law.

With the final legal challenge now swept aside, state-run programs to help private-sector workers save for retirement are positioned to thrive and grow. They are already off to an impressive start. Auto-IRA programs have made good on their promise in the five years since Oregon rolled out the first program in 2017, followed by California and Illinois. And the “big three” initiatives are just the tip of the iceberg.

The three active state-run auto-IRA programs have already helped workers sock away $400 million in 430,000 accounts, according to the Georgetown University Center for Retirement Initiatives, which tracks the state-led programs. And there's more to come. A total of 46 states have either implemented or considered legislation to create retirement savings initiatives for private-sector workers who don't have access to a retirement plan at work.

During 2022, Maryland and Colorado are expected to launch their own programs. Connecticut is moving out of the pilot phase and into a launch. Maine, New Mexico, and Virginia, are starting to build their programs. And Massachusetts, Vermont and Washington have implemented retirement programs that follow a different model than the auto-IRA, but pursue the same goal of helping to enhance the retirement security of American workers.

In California, the threshold for which employees must register with CalSavers if they don't offer a retirement plan is slated to drop to five employees on June 30, 2022, from 50 employees at present. Employers that offer no retirement benefits can be fined if they fail to facilitate their workers' access to CalSavers.

The advantages of saving for retirement via payroll deduction are indisputable. Individuals are 15 times more likely to save if they can do so through a workplace plan, according to AARP, the advocacy group for older Americans.

Automatic signups, which are a feature of auto-IRA plans, improve the odds further. The total average savings rate is 56% higher among 401(k) plans with auto enrollment, according to research from Vanguard.

Employees  across  California are participating  at  high levels,  with  a  steady  70%  participation  rate  among all employees  offered  the  chance  to  join.  These workers have an estimated median  income  of  less  than  $30,000 per  year. Given this and  the absence  of  financial incentives, “this  is  an  incredible  demonstration  of workers ' willingness  to  save  when  given  an  easy,  automatic, portable  solution  implemented  via  their paycheck,” said Katie Selenski, executive director of the CalSavers Retirement Savings Board, in the program's annual report.

You might also be interested in: Auto-IRAs & New Fintech Options Are Changing The Face of Private Sector Retirement Savings; Illinois Secure Choice Update; California 9th Circuit Rejects Howard Jarvis Taxpayers Association Petition To Strike Down CalSAVERS.
 
 

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