The United States faces a pressing challenge in preparing its workforce for retirement. According to AARP, nearly half of private-sector workers—approximately 57 million individuals—lack access to employer-sponsored retirement savings plans. This disparity leaves millions vulnerable to financial insecurity in their later years, highlighting a critical need for innovative solutions to bridge the savings gap.
State-sponsored auto IRAs have emerged as a promising answer. These programs, designed to provide accessible retirement savings options for workers without employer-sponsored plans, automatically enroll employees in individual retirement accounts. Since their introduction in 2017, auto IRAs have gained traction across the country. To date, 17 states have enacted legislation to implement these programs, with 10 already operational and several more scheduled to launch in the coming years.
The success of auto IRAs is becoming increasingly apparent. Data from the Georgetown Center for Retirement Initiatives reveals that, as of October, eight participating states have helped more than 900,000 workers amass over $1.7 billion in retirement savings. These programs are particularly impactful for low- and middle-income earners, a demographic historically underserved by traditional retirement savings mechanisms. A recent analysis by Gusto highlights that workers in states with auto IRA policies are 20% more likely to save for retirement. For lower-income earners, savings rates have increased by an impressive 55%, demonstrating the program’s potential to transform financial habits and outcomes.
The structure of auto IRAs makes them accessible and effective. Employers in states with these programs must either offer their own retirement plan, such as a 401(k), or enroll their employees in the state’s auto IRA system. Employees are automatically enrolled at a default savings rate—typically 5% of their pay—but retain the option to adjust their contributions or opt out. Contributions are directed into Roth IRAs, allowing savings to grow tax-free and enabling tax-free withdrawals during retirement. While employers are not obligated to make matching contributions, participants can benefit from federal programs like the saver’s tax credit and the forthcoming saver’s match initiative in 2027.
Auto IRAs are not only boosting individual savings but also influencing employer behavior. In states where these programs are operational, there has been a noticeable uptick in the establishment of private-sector retirement plans. For instance, the rollout of California’s auto IRA program in 2022 coincided with a significant increase in new plan formations among businesses. This trend may be attributed to various factors, including federal incentives introduced under the SECURE Act of 2019, which reduced the financial and administrative hurdles for small businesses to establish retirement plans. Additionally, state mandates requiring employers to choose between auto IRAs or their own plans have likely motivated many businesses to take proactive steps.
The broader implications of auto IRAs are profound. By providing a simple, accessible, and effective savings solution, these programs are addressing systemic inequities in retirement preparedness. Moreover, they are fostering a cultural shift toward greater financial responsibility, benefiting not only individual workers but also the broader economy. As more states adopt and refine these programs, the impact on America’s retirement landscape is poised to grow, offering hope for a more secure future for millions of workers.
