February 5, 2019
Oregon’s IRA Gets Workers to Save
Luke Huffstutter felt a great sense of relief when the employees of his Portland hair salon started putting money into a state retirement program designed to make saving easy.
This is much better than the “guilt” he felt over many years of desperate attempts – and not much luck – to convince his stylists and other employees to save on their own. He even brought in a financial adviser once to nudge them.
“I have a responsibility to provide them a path to retirement,” Huffstutter said.
Today, 39 of the Annastasia Salon’s 45 employees have joined some 22,000 others across the state of Oregon who’ve accumulated a total of $10 million for retirement through OregonSaves, a state government program being rolled out over time for residents who don’t have savings plans at work.
Oregon was the first state to introduce this type of program, and California, Connecticut, Illinois, and Maryland are following. New York may be next. Mayor Bill de Blasio is proposing a similar program, because more than half of working New Yorkers lack a retirement savings plan at work.
The absence of a retirement plan is a particular problem at small firms, which often lack the money or staff to set up the 401(k) plans common at major employers. OregonSaves, which is mandatory for employers, provides a very low-cost way to automatically enroll workers and send their payroll deductions to personal IRA accounts.
The main stumbling block appears to be that not everyone is as enthusiastic as Huffstutter. Some employers are taking a very long time – more than six months – to set up the payroll deductions, and others that enrolled are showing lower participation rates than the salon.
Oregon employers automatically enroll every employee in the IRA, but it’s voluntary for workers – anyone can opt out. The beauty of automatic enrollment is that people tend to stay put, and new data show that the vast majority of the participants in the state plan are deducting the program’s full default rate of 5 percent of pay, including many of Huffstutter’s salon employees.
The state charges workers a 1 percent fee to manage the program and the investments. The fee is expected to decline once more employers sign up and more revenue starts coming into the program. [Full disclosure: the Center for Retirement Research, which sponsors this blog, provided financial analysis to inform program design in Oregon, Connecticut, and Illinois.]
The salon workers have saved a total of $67,000 – impressive for a workplace where the average pay is just $50,000. “What I hear a lot from employees is, ‘I don’t really notice the money’s gone,’ ” Huffstutter said.
OregonSaves is easy for Huffstutter too. It took about an hour to load his workers’ information into the state website, and he pays $40 a month to his payroll-servicing firm to make the IRA payroll deductions for each salon employee.
Many of his workers come from low-income families, and saving “wasn’t a part of their everyday life,” he said. “OregonSaves has created a place that makes that easier.”
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