At the same time, some 30 state legislatures have considered creating a state-sponsored retirement plan, and 8 states have passed legislation to enact one. For example, Connecticut, Illinois and California will all require employers to offer a state or other qualified workplace retirement savings plans to employees. Each of these states is rolling out its own product.
Despite mandating employers to offer workers the state plan or alternative, only Illinois will auto-enroll employees (at 5% of their pay), and none will allow for employer contributions.
Like the federal MEP initiative, the state-sponsored plans are an attempt to close the coverage gap in workplace retirement savings plans.
It’s true that people do not need an employee-sponsored plan in order to save. A worker who’s employer doesn’t offer a retirement savings plan can make a fully deductible contribution of $5,500 a year to his or her own IRA. But recent surveys have shown that IRA availability does not replace access to a 401(k). In fact, a Wells Fargo retirement study in 2017 showed that employees ages 50 and older with access to a 401(k) plan have saved six times more for retirement than those without access to such a plan.
Whether the federal or state initiatives will eventually help close the coverage gap remains to be seen. But at least it’s clear that government officials recognize the importance of addressing the problem.