I’m generally not a big fan of government mandates. In the retirement plan business, however, it’s hard to argue with results when a mandate actually accomplishes what it was designed to do.
New research from Gusto shows just how much retirement plan coverage among small businesses has improved since 2019. The share of small businesses with active retirement plans has increased dramatically, with millions more workers now having access to retirement savings through work.
That’s a good thing.
SECURE and SECURE 2.0 deserve some credit. Congress increased tax incentives for small employers to establish retirement plans and tried to remove some of the obstacles that made offering a plan less attractive.
But I think state retirement plan mandates deserve a lot of credit too.
States essentially told employers that they needed to offer employees some type of retirement savings opportunity. Employers could use the state IRA program or establish their own retirement plan.
Guess what happened? A lot of employers established plans.
Gusto’s research found substantially greater growth among very small businesses in states with Auto-IRA mandates than in states without them. That’s important because small employers have historically been where the retirement coverage gap has been the greatest.
I’ve never believed that the state-run IRA programs themselves were necessarily the greatest retirement product ever invented. That’s almost beside the point.
Their greatest accomplishment may be forcing employers to finally make a decision.
For years, we talked about America’s retirement coverage gap while millions of employees had no workplace retirement savings opportunity. State mandates, combined with federal tax incentives, actually moved the needle.
There is still plenty of work to do. Access doesn’t guarantee that employees will save enough for retirement.
But you can’t save through a workplace retirement plan you don’t have.
More coverage means more people have an opportunity to save.
That’s progress, and that’s a good thing.