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Catching Up with OregonSaves

Back in March, I wrote about OregonSaves, the first state-run auto-IRA program in the nation, which at the time was scheduled to be rolled out in pilot form on July 1, 2017.

The pilot program was implemented right on schedule, and Jeff Snyder recently caught up with Lisa Massena, Executive Director of OregonSaves, to discuss the rollout.  OregonSaves has also been providing frequent updates via its Twitter account, as well as on LinkedIn, about what appears to have been a successful rollout, at least thus far. 

A state-run auto-IRA allows primarily smaller employers that do not sponsor their own retirement plans to provide a way for employees to save for retirement through payroll deduction.  Payroll deduction is a mechanism by which far more employees are likely to save, as opposed to opening an IRA on their own.  The state-run auto-IRA program is not meant to be a substitute for employer-sponsored retirement plans (for example, employer contributions are NOT permitted).  In fact, by offering an auto-IRA solution for smaller employers, the hope is that someday the employer will “graduate” from the arrangement and transition to a full-blown retirement plan offering.   In Oregon, the auto-IRA will be required for employers who do not sponsor a workplace retirement plan.  However, that requirement will be phased in over a period of years, depending on the employer size.

Since OregonSaves serves as a model for other states, I was interested in obtaining additional details on this groundbreaking program. Here are some of the particulars:

  • The program is a Roth IRA, which makes sense, since a pre-tax payroll deduction IRA would require participants to claim a deduction, and the goal of the program is simplicity.
  • Total program fees are 1% of assets, which I wish were lower, but also makes sense, given that it is a startup plan with zero assets.  OregonSaves has commented that it expects that fees will decrease as assets grow, and that the fee is likely to be less expensive than the typical small market 401(k)/403(b) plans that would be available as an alternative to these small employers.
  • The auto-enrollment deferral rate will be 5%, auto-escalating to 10% over time; this addresses a criticism of automatic enrollment claiming that the default deferral rate is insufficient to accumulate ample retirement savings.
  • The first $1,000 of a participant’s account balance is invested in a money market fund (which OregonSaves refers to as a “capital preservation cushion”), with all amounts in excess of $1,000 invested in a target date fund based on the participant’s age.  12 employers elected to participate in the initial pilot program, with 11 completing the implementation process which launched on July 1st.  Employer size ranges from 1 to 35 employees. There is a good cross-section of employers represented; seven of the entities are corporate, two are nonprofits, one is a preschool and one is a healthcare entity.
  • Some employers that were initially interested in the pilot program ended up establishing their own employer-sponsored retirement plans.  Since one of the goals of the program was to increase employer awareness of the value of a retirement plan, Lisa Massena indicated that OregonSaves put that in the “win” column as early evidence of the program’s success.
  • Out of 160 employees in the pilot, only 35 have opted out of auto-enrollment thus far.

It appears that this first-in-the-nation program is off to a flying start!

Note: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.

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