Data & Research January 26, 2022

OregonSaves State-Run IRA Program Shows Some Successes

Early evidence suggests that the mandate for employers that don’t offer a retirement plan has boosted retirement savings.

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The OregonSaves state-run automatic-enrollment individual retirement account (IRA) program has generated savings for a substantial number of participants and meaningfully increased employee retirement savings, according to a research paper from the University of Michigan’s Retirement and Disability Research Center.

The research, titled “Auto-Enrollment Retirement Plans in OregonSaves,” examines the state-sponsored IRA program by analyzing participation rates, account balances and inflow/outflow data using administrative records between August 2018 and April 2020. The paper was written by John Chalmers, with the University of Oregon; Olivia S. Mitchell, of the University of Pennsylvania; Jonathan Reuter, with Boston College; and Mingli Zhong, at the Urban Institute.

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“OregonSaves is generating savings for a substantial number of employees: In fact, more than 67,700 employees accumulated over $51 million through April 2020 (and $79.1 million through November 2020),” the paper states. “We find that the program serves employees across a range of industries, but primarily those with low wages and high turnover.”

Researchers peg OregonSaves participation rates—based on those with a positive account balance—in a range between 62.4% on the higher end and 34.3% on the lower end. The range is used because of high turnover among enrolled employees.   

“Consistent with these job traits, OregonSaves participation rates under automatic enrollment are significantly lower than in other settings,” the paper states. “[It’s] likely reflecting our finding that employers targeted by OregonSaves are disproportionately in industries paying lower and more volatile wages and having higher levels of job turnover.”

State-run IRA programs aim to increase retirement savings for workers who lack access to an employer-sponsored retirement plan and self-employed individuals, which accounts for about half of the U.S. private workforce, according to the paper. Several states, including Oregon, have mandated that private-sector firms offer retirement saving accounts to their employees.

“OregonSaves’ explicit goal is to boost workers’ personal retirement savings, thereby decreasing dependency on Social Security and means-tested social transfers,” the paper states.

The average participating employee in the sample studied earns $2,365 per month, has a within-person standard deviation of monthly earnings of $945, and an annual job turnover rate of 38.2%.

“Overall, we conclude that OregonSaves has meaningfully increased employee savings,” the paper states. 

Although the state-run OregonSaves program has achieved some successes, researchers explain that such auto-enrollment programs can have finite limits.

“We have also identified limits to what automatic enrollment savings plans can achieve when expanded to workers in industries and firms with low wages, volatile wages and high turnover rates,” the paper states.  

Previous research on state-run IRA programs analyzed the California program, CalSavers. The CalSavers’ Retirement Savings Board’s “2021 Year in Review Report” indicates that the state-run retirement program in California is seeing a steady 70% participation rate among eligible employees and that 95% of savers accepted an automatic contribution increase.

Compliance January 25, 2022

EBSA Nominee Gomez Likely to Advance in Full Senate

While President Joe Biden’s nominee for assistant secretary of labor for the Employee Benefits Security Administration is likely to be confirmed, her regulatory approach is less clear, according to sources.

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The nominee to be the new assistant secretary of the Department of Labor (DOL)’s Employee Benefits Security Administration (EBSA), Lisa Gomez, is likely to be confirmed to the position by the U.S. Senate, according to retirement industry sources.

“Her nomination has not yet been put on the Senate calendar, but we do expect that it will be at some point,” says Jason Berkowitz, chief legal and regulatory affairs officer at the Insured Retirement Institute (IRI). “We do expect to see her nomination acted upon and approved and ultimately for her to assume the role as head of EBSA.”

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What’s less clear is the regulatory approach Gomez is likely to take that will impact defined contribution (DC) retirement plan sponsors, and the resulting policies she will prioritize. 

The Senate confirmation calendar is controlled by Majority Leader Chuck Schumer, D-New York. President Joe Biden nominated Gomez to the position and the United States Senate Committee on Health, Education, Labor and Pensions (HELP) advanced her nomination earlier this month.

The HELP committee voted 12 to nine, along party lines, to advance her nomination. Gomez now must be confirmed to the position by a full Senate vote.   

“Her nomination should be confirmed,” explains Mark Iwry, former senior adviser to the secretary of the Treasury in the Obama administration and currently nonresident senior fellow at the Brookings Institution and visiting scholar at the Wharton School. 

Policy

Gomez’s background has mostly focused away from DC plans, and therefore it’s less clear to sources what will be her areas of policy focus that will impact DC plan sponsors. She is a partner in the law firm Cohen, Weiss and Simon LLP and the chair of the firm’s management committee.

However, Gomez is expected to put to good use in the EBSA position her extensive knowledge and experience practicing employee benefits law, Iwry says.

“In addition to retirement and other employee benefits, EBSA of course is a player in the health policy area, as employer sponsored health plans are within their jurisdiction,” Iwry said. “How to move the Affordable Care Act (ACA) forward, how to continue implementing it and other health legislation through regulation and administrative actions, and how to improve ACA legislatively continue to be important issues for EBSA.”

Gomez’s background as an attorney has focused on unions, labor, multi-employer pension and welfare benefit plans, and other employee benefit issues, Iwry adds.

“Given Lisa’s background, and under the leadership of [Department of Labor] Secretary Walsh, we can expect the Department’s employee benefits policy to be particularly strong in support of American workers and organized labor,” he said.

Berkowitz says IRI wants Gomez to complete pending rulemakings for lifetime income illustrations mandated by the 2019 Setting Every Community Up for Retirement Enhancement (SECURE) Act.  

“There are some open questions that the department has to address, and we very much hope to see her shepherd that through and over the finish line so that consumers can start benefiting from having access to those estimates of what their nest egg could produce in terms of monthly lifetime income,” he says.

IRI also would like Gomez to finalize the pending DOL proposal on rules for environmental, social and governance (ESG) investments in DC plans.  

“Incoming assistant secretaries tend to be of two different types: some have a track record that is fairly well known on the most important specific issues currently facing their organization, while others have less of a record on those particular issues and their specific views therefore are not as well known,” Iwry said.

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