Data & Research April 14, 2023

Fears of State IRA Plans Overtaking Private Not Realized, Data Shows      

States that have implemented retirement savings programs for employees have not crowded out private plans, new research from the Pew Charitable Trusts shows.

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Building state-facilitated retirement savings plan for private sector workers without workplace plans may have a positive effect on the creation and retention of private plans, according to a Pew research article that cites Department of Labor data. 

Businesses in California, Illinois and Oregon—three of the first states to launch programs to help private sector workers save for retirement—continued to create new plans in 2021 at rates similar to or surpassing those in states without programs, the research finds.

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“Evidence from California, Oregon, and Illinois continues to indicate that automated savings programs complement the private sector market for retirement plans such as employer-sponsored 401(k)s,” states the Pew article with research findings. “Several years of data now suggest that states with automated savings programs can help fill the gap for employers who may not be ready or able to provide their own plans—without hindering the private market in those states.”

Programs in California, Illinois and Oregon have been taking contributions to the accounts for at least four years. Oregon first enrolled workers in its program in 2017, followed by Illinois in 2018 and California in 2019.

The three state programs are automatic-IRA programs. Employers covered by an automatic savings program can choose to either enroll their workers in the government-built initiative or exempt themselves by adopting their own retirement plans.

State Programs Are Complementary

Pew examined the effects that building these state programs have private market plans and whether eligible businesses would ditch their own defined contribution plans or terminate existing plans as a result.   

The shifts in the share of new plans pre- and post-implementation of the state programs aligns with national trends and in some cases proves larger than the national change, the Pew article finds.

The share of new plans in the U.S.—excluding California—increased from an average of 6.4% before 2019 to 7.3% from 2019 to 2021, Pew data shows.

In the three states examined the rate of introduction of new plans, as a share of existing plans, remained higher than prior to each launched its savings program.

  • In California, the share of new plans increased from an average of 8.1% between 2013 and 2018 to an average of 9.4% from 2019 through 2021, when the CalSavers program was enrolling workers.
  • In Illinois, the average share of new plans increased from 5.3% between 2013 and 2017 to 6.2% after Illinois Secure Choice started enrolling savers in 2018 through 2021.
  • In Oregon, the average share of new plans increased from 6.7% on average between 2013 and 2016 to 8.5% on average in the years after OregonSaves started operations in 2017.

Termination Rates in States

Pew also examined whether states that are building state programs would encourage employers with existing private plans to drop them to enroll works in the state programs   

Each of the three states had plan termination rates below the rate for the nation in 2021 and the changes in states with automated savings programs appear to be like the overall national trend, states the Pew article.  

Nationally, the rate of plan terminations increased by .23 percentage points between 2020 and 2021 after decreasing the previous year, data shows. Termination rates increased in both Illinois, by .27 percentage points and Oregon by .41 percentage points. and the rate of plan terminations in California remained flat, falling just .03 percentage points in 2021, Pew finds.

The three state auto IRA programs are the largest state programs by assets. CalSavers comprises $435.9 million total, OregonSaves comprises 180.9 million and Illinois Secure Choice $106.8, according to data compiled by the Center for Retirement Initiatives at Georgetown University’s McCourt School of Public Policy.

States Step In

Nearly half (48%) of American private sector workers ages 18 to 64 almost 57 million people, work for an employer that does not offer a retirement savings plan, AARP research shows. Across the U.S., 18 non-federal government entities have enacted retirement savings programs: 16 states and two cities, Georgetown data shows.

Angela Antonelli, research professor and executive director at Georgetown, stated to CNBC she expects shortly, state program assets to exceed $1billion, following publication of a December Pew report that found significant growth of new 401(k) plans in states that have adopted auto-IRAs.

North Carolina lawmakers introduced House Bill 496 to the state’s general assembly to help more workers save for retirement, last month.

Data sources for the Pew report are Form 5500 annual reports filed to the DOL. Pew sourced data from Form 5500s and Form 5500-Short Forms, from 2013 through 2021.

The report was authored by Pew  staff including Theron Guzoto, principal associate, retirement savings research, Mark Hines, principal associate retirement savings research and Alison Shelton, senior officer, retirement savings research.  

Compliance April 14, 2023

Commenters Urge SEC to Implement Market Proposals Sequentially

The growing chorus of caution now includes the Department of Justice.

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The Department of Justice’s Antitrust Division wrote a comment letter on Tuesday to the Securities and Exchange Commission warning of possible negative interactions between the four market structure rules proposed in December.

The comment period for the SEC’s market structure reforms officially ended on March 31.

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The four market structure proposals would require broker/dealers to disclose order execution quality (Rule 605), require wholesalers to conduct auctions for certain retail orders (order competition rule), take over enforcement of Regulation Best Execution from FINRA and reduce tick-sizes for national market exchanges.

The DOJ praised the efforts of the SEC to promote competition, which all four proposals seek to do. The letter noted that competitive auctions would promote transparency and competition for retail orders and that tick-size reductions would help slower traders at exchanges.

The Antitrust Division also cautioned the SEC against implementing all of these changes at once, since they could interfere with one another. This is a common criticism of these proposals, but the DOJ’s letter included examples of hypothetical interactions.

The DOJ said tick-size reductions for exchanges could move order volume from wholesalers to exchanges, which would then reduce the number of orders that are subject to auctions, since that rule only applies to wholesalers. Additionally, the SEC’s Reg BE proposal requires broker/dealers to consider the competition present in a market when executing an order, a process which would be influenced by the auctions now required of wholesalers.

In short, the DOJ encouraged the SEC to be sure that, when taken together rather than in isolation, these proposals promote competition.

Many other actors have recommended that the SEC implement these rules sequentially, if at all, including JP Morgan and Vanguard.

Vanguard expressed strong support for the Rule 605 proposal, perhaps the least controversial of the four, and said it should be prioritized. This change would empower investors to find the best execution for their trades, since brokers would have to disclose their order execution quality publicly.

JP Morgan concurred and said Rule 605 and tick-size changes should be implemented first, with Reg BE implemented later when the impacts of the first two are more established. JP Morgan urged the SEC to abandon the auction proposal because, “It will negatively impact security prices for our clients” by slowing down the trading process long enough for others to notice an increase in demand and increase the price in response. In not accounting for this, the SEC overestimates the benefits to retail traders from the order competition rule, the firm commented.

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