Oregon Launches Nation’s First State-Run Retirement Plan
posted by Fisher 401(k) August 2, 2017
Although California was one of a handful of states blazing the trail for government-run retirement plans, Oregon became the first to officially launch their plan, OregonSaves, on July 1. Eleven businesses are taking part in the state’s auto-IRA kick-off, with a combined 156 employees eligible to sign-up—21 of whom have decided to opt out. A second wave of more than 40 businesses will join the next pilot group, set to roll out in October, before full implementation begins in January 2018. All businesses that don’t offer employees a retirement plan are tentatively scheduled for enrollment in OregonSaves by mid-2020.*
Ted Wheeler, Mayor of Portland and chair of the state’s Retirement Savings Board, estimates that 64,000 businesses—as many as 1 million workers—will be eligible to participate in the plan. Small and mid-size businesses without an employee retirement plan will make up the vast majority of businesses with access to OregonSaves. The lack of an employer-sponsored retirement savings option for many Oregonians, along with the growing national retirement savings gap, is a key reason why the state began moving forward with a solution two years ago.
“Created by the 2015 Oregon Legislature, OregonSaves is a game changer for workers and a state-based solution to the massive retirement savings crisis,” said State Treasurer Tobias Read in a statement. “The plan will be available to Oregonians who lack access to a retirement savings option such as a 401(k) plan at work. According to market research by Boston College’s Center for Retirement Research, more than half the Oregon private sector workforce is not being served by a work-based retirement savings option today.”
OregonSaves offers workers a menu of age-based funds to choose from, along with an S&P 500 index fund and a U.S. Government money market fund. The funds are managed by State Street Global Advisors, and have annual fees of 1.05%. There are no fees for making withdrawals, altering contributions, or changing investment allocations—but distributions are still subject to federal and state taxes. Employees are automatically enrolled in money market and target-date funds, but can opt out or alter their investments.*
The viability of Oregon’s plan—and all other government-run retirement plans—has been in question since President Donald Trump signed legislation in mid-May designed to invalidate savings arrangements established by states for non-governmental employees. That legislation voided a 2016 regulatory loophole created by the Obama administration meant to clarify rules for states pursuing retirement plans—however, Oregon began work on its bill prior to any regulatory changes, meaning they were already working on a solution within the means of the law.
In a letter to Vice President Mike Pence and the U.S. Senate, sent before the senate voted to bar state-run retirement plans, Read hinted that OregonSaves is not meant to be a permanent solution, but merely a springboard for small businesses to establish their own retirement plans.
“Because of our outreach and education efforts, two businesses that initially inquired about OregonSaves have decided to go a step further and create their own employer-directed plans,” Read said in the letter, dated May 2, 2017. “We are pleased they took that step. We hope more businesses, when they learn more about the critical need for retirement savings through OregonSaves, will decide to start their own plans. It won’t be the right approach for every business, but we want to see as much saved for retirement as possible. In those types of instances, OregonSaves will be a catalyst.”
Currently, only 14% of employers offer a 401(k)—and most of those that do are larger companies, according to U.S. Census Bureau data. For now, employers will be able to “compete to attract and retain good employees” by allowing access to a retirement savings account, according to the OregonSaves website.
To read more from our Who’s Helping America Save? series, choose a story:
California’s State-Run Retirement Plan to Proceed, Despite DOL Rule Repeal
Government-Sponsored Retirement Plans—Coming to a State Near You?