As if managing the state’s $11 billion public pension fund were not enough, R.I. General Treasurer James A. Diossa will have one more money-managing responsibility on his plate, which he says will help fix a long-standing kink in the state’s private workforce economy.
According to AARP Rhode Island, 45% of the state’s private sector employees – amounting to more than 180,000 workers – are not offered employer-sponsored retirement plans. And research has shown employees are up to 20 times more likely to begin saving for retirement if enrollment is automatic.
Supporters hope the Rhode Island Secure Choice Retirement Savings Program, signed into law by Gov. Daniel J. McKee in September, will provide an avenue for employees without employer-sponsored retirement plans to start building a nest egg.
After its implementation, any private employer with five or more employees that doesn’t offer a retirement plan will be mandated to provide access to the Secure Choice program. Employees will be automatically enrolled but can opt out at any time. Enrollees will be able to decide their individual contribution amounts through automatic payroll deductions and can transfer their savings with them to future employers.
Diossa’s office has spent recent months vetting other programs across the country, releasing a request for information in August for other states interested in a partnership. He hopes to make a public announcement on that initiative by mid-November.
Often referred to as “auto-IRA,” programs with similar features have already been launched in 16 other states. Several others are in the process of creating one, too.
Diossa says that by 2032, Secure Choice could allow Rhode Island taxpayers to save more than $25 million. He estimates the initial startup cost to be $100,000, and the money that goes into the fund will be managed by a third-party firm overseen by the state investment committee.
Within 12 months of the program launch, eligible employers with more than 100 eligible employees will fall under the mandate, moving to employers with more than 50 eligible employees a year later; and all other businesses a year after that.
Employers will need to provide a list of enrolled employees and payroll information and monitor and update payroll contribution rates.
Skeptics of the legislation point out that traditional 401(k) plans have higher employee contribution limits and allow for employer matches, elements not included in Secure Choice. They also argue that enrollees may end up parking money in a fruitless account rather than using it for more-pressing liabilities, such as credit card debt, which in Rhode Island increased by $117.6 million from the first to the second quarter of 2024, with the average household owing $10,695.
But Diossa says Secure Choice is a wise investment by the state, which is projected to see a $456 million increase in safety net spending by 2040, a burden that could spell trouble for taxpayers.
According to research from Georgetown University’s Center for Retirement Initiatives, auto-IRA mandates increased the uptake of employer-sponsored retirement plans across the board. In Colorado, the share of businesses with at least five employees that offer a 401(k) plan increased from 25% in July 2022 to 38% in August 2023.
But there is other data that opponents say casts a cloud over these sunny projections.
The California Secure Choice feasibility study found that of the employees without access to an employer plan, about 70% acknowledged that they were already saving for retirement in some form. Of the remaining 29% who were not, only 3% said it was due to “lack of access.”
Whit Cornman, spokesperson for the American Council of Life Insurers, said the organization is concerned the program “leaves the false impression that the government-run retirement program is the only option for employers.
“The fact is employers may choose to sponsor a more robust retirement plan, like a 401(k) plan,” he said, which offers options “the government-run Roth IRA plans do not.”
Rhode Island has set a policy goal of achieving a 7% average annual rate of return. But since the inception of OregonSaves, the program’s capital preservation fund has achieved a return of 1.52%, a rate all but wiped out by inflation, according to the Cato Institute.
Marc Joffe, federalism and state policy analyst at Cato, chafes at the notion that a working-age adult anywhere in the country is unable to set up a retirement account.
“There is nothing that Rhode Island is doing that employees cannot do for themselves,” he said. “In a state where a lot of [retirement] plans are underwater, maybe the government should begin by putting its own house in order.”
But Diossa says the law is a way to put the state’s house in order. Or at least guard against future fiscal disasters by taking would-be liabilities off the ledger.
“Any person can absolutely go and open a Roth IRA. We hope this targets the populations that are too busy or don’t know any better,” he said. “Because we know the impact they would have on the state budget once they retire. They are going to lean on the state for support. The best part is that it’s mandatory. We are casting a wide net.”
