State Savings Initiatives: Lessons from California and Connecticut

At any given moment, about half of private sector workers are not covered by any employer-sponsored retirement plan. To close this coverage gap, 18 states are considering retirement savings initiatives. These efforts have been spurred by the lack of action at the federal level – which would be preferable to a patch­work of state plans – and the apparent inability of ex­isting employer-sponsored plans to solve the problem. But the state initiatives are still at an early stage. To date, just two states – California and Connecticut – have completed “feasibility studies” to determine whether their initiatives can generate sufficient ac­count balances and employer support to be success­ful. Both states propose a mandate on employers to either set up a retirement plan already available in the market or join a state program of individual retire­ment accounts with automatic enrollment (“auto-IRAs”). This brief focuses on lessons learned from these two states to inform other states considering similar efforts. The discussion proceeds as follows. The first section describes the California and Connecticut initiatives. The second section presents three lessons learned from their feasibility studies: 1) high rates of employee participation can be expected; 2) employers are split in their support, but they will not discourage participation by employees; and 3) program design and implementation are critical. The final section concludes that while the work done by California and Connecticut suggests a promising outlook for auto-IRAs, success will depend on how well the programs are implemented.