State-run retirement plans take flight: an early look inside OregonSaves
For many businesses, offering employees a retirement plan may not feel like an easy or affordable proposition. That’s a real problem because employees who are offered a plan are much more likely to feel confident heading into their golden years. Our recent research found that only 32% of workers who aren’t offered a plan are either somewhat or very confident they’ll be able to retire comfortably. When an employee is offered a retirement plan 54% feel confident about their ability to retire (and 82% participate).
We started Guideline to help solve this problem, but we realize that making 401(k) plans more accessible to employers is only part of the solution. There are going to be times when offering a retirement plan is something an employer is unwilling or unable to do, and that’s why we’re excited to see the emergence of state-sponsored retirement plans that encourage employees to save.
The state of Oregon is an eager beaver in this regard. Its innovative OregonSaves program is setting an example for the rest of the country by automatically enrolling eligible employees in Roth IRAs. To understand more about what they’re up to, we talked to Joel Metlen, the Operations Director of the Oregon Savings Network, about how they’ve set up their program, how it’s impacting Oregonians, and where they think things are headed.
Guideline: First things first, what is OregonSaves?
Joel Metlen: OregonSaves is a new, simple way for Oregonians to save for retirement at work. Employees contribute part of their paycheck into their own personal Roth IRAs that stay with them throughout their careers. The program is overseen by the Oregon Retirement Savings Board and administered by a program service provider.
Guideline: What led the State of Oregon to develop OregonSaves?
Joel Metlen: As Oregonians, we are not saving enough. The average savings for those nearing retirement age is just $12,000, which isn’t enough to get through a single year of retirement, let alone 20 or 30. Research shows that people are 15 times more likely to save if they have a savings option through work, but more than a million workers — more than half of the working population in Oregon — do not have a savings option at work. Our legislature created OregonSaves to improve people’s access and outcomes for retirement savings. The program is designed to lower barriers wherever possible, such as using automatic enrollment and savings through payroll deductions, to make it easier for people to save. And eligible employees can always opt out if they don’t want to participate or want to save another way.
Guideline: How does OregonSaves serve the needs of small businesses and their employees?
Joel Metlen: It can be challenging for small business to offer a qualified retirement plan, and many don’t. Employers tell us this program lets them provide retirement savings to their employees in a manageable way. OregonSaves helps small businesses attract and retain good employees—with zero employer fees. Employers simply pass information along to employees and handle payroll deductions. Through OregonSaves, employers can help their employees take responsibility for their own financial futures.
Guideline: Where does the program stand today?
Joel Metlen: The program began with a pilot in July 2017 with employers who expressed interest in participating. After the pilot, it began rolling out, starting in October 2017 with larger businesses, then moving to smaller businesses over time. Employers are welcome to join early by contacting OregonSaves. As of May 23, 2018, 1,040 employers have registered for OregonSaves. The enrollment rate is 74%, and the 36,979 enrolled employees have saved $5.7 million.
Guideline: You mentioned there’s no fee for employers, but what does it cost employees?
Joel Metlen: There is an ongoing fee which is paid as a percent of each employee’s assets under management. This fee is approximately 1% of assets per year ($1 for every $100 saved), and it pays for the administration of the program, the fees of the IRA trustee, and the operating expenses charged by the investment funds in which the program’s portfolios are invested. The fee is computed and netted from the program’s investment portfolios daily. Investment returns are credited to saver accounts ‘net of’ this cost.
Guideline: Is OregonSaves right for everyone?
Joel Metlen: OregonSaves is a completely voluntary retirement program, and it’s designed to make it easy for people to start saving. Roth IRAs are not exclusive to OregonSaves, though, and Oregonians are welcome to set up their own IRA and make contributions outside of the payroll deduction. As with choosing any investment, the standard set of disclaimers applies, too: Saving through a Roth IRA will not be appropriate for all individuals. Employer facilitation of OregonSaves should not be considered an endorsement or recommendation by your employer of OregonSaves, Roth IRAs, or these investments. Contributing to an OregonSaves Roth IRA through payroll deduction offers some tax benefits and consequences. You should consult your tax or financial advisor if you have questions related to taxes or investments.
Guideline: How should business owners evaluate existing retirement plans against OregonSaves?
Joel Metlen: OregonSaves is not meant to replace or compete with 401(k) or other qualified retirement plans, which can offer features like higher annual contribution levels and employer matching. OregonSaves is meant to help employers who don't have the time, money, or resources to offer a 401(k) plan.
Thanks to Joel and the OregonSaves team for doing so much to help give over a million Oregonians a path to a brighter retirement. We think it’s a big step forward for Oregon businesses and their employees. Learn more about OregonSaves, or dive into exclusive stats about American workers’ retirement outlook to figure out the best way to take care of your team.
And if you're interested in learning more about state-run retirement programs, you can also check out our peek inside the new CalSavers program from California.