Closing the Retirement Savings Gap: Are State Automatic Enrollment IRAs the Answer?
64 Pages Posted: 18 Mar 2017
Date Written: December 2016
Drawing on insights from behavioral law and economics, automatic enrollment IRAs are intended to address the nation’s retirement savings gap by taking advantage of workers’ inertia. Although automatic enrollment IRAs were initially intended to apply at the federal level, they have gained little traction at the federal level, and states have begun to step into the breach. Between September 2012 and June 2016, five states enacted state automatic enrollment IRA programs.
Studies have uniformly shown that workers are more likely to participate in an automatic enrollment 401(k) plan than in a traditional opt-in 401(k) plan. Proponents of state automatic enrollment IRAs point to this experience to contend that state automatic enrollment IRAs are an answer, or at least a partial answer, to increasing retirement savings in this country. The efficacy of such programs, however, raises more complicated and nuanced questions. This article identifies the fundamental as well subsidiary and sometimes overlapping questions they raise. It then offers important insights on how to address the many issues these questions implicate.
Keywords: IRA, IRAs, Automatic Enrollment, State, Retirement, Retirement Savings, Automatic Enrollment IRAs, Federalism, Internal Revenue Code, Law, Economics, 401(K)
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