CNN
—

According to some estimates, nearly half of private-sector workers in the U.S.—nearly 57 million people, according to AARP—don’t have access to a workplace retirement plan. That’s either because their company doesn’t offer one or because they don’t qualify to participate in an employer’s existing plan.

That’s just one reason policy experts see a retirement savings crisis looming for so many Americans in the coming decades.

But the advent of state-sponsored auto IRAs — individual retirement account programs where workers can be automatically enrolled if their companies don’t have their own workplace plan in place — is helping to close that coverage gap.

IRA car they are relatively new. The first began in 2017, and now a total of 17 states have enacted their own, though only 10 are currently in effect, with several more slated to go into effect next year, according to AARP.

But based on data from eight states’ programs alone, more than 900,000 workers had already amassed more than $1.7 billion in savings through October, according to the Georgetown Center for Retirement Initiatives.

And two new auto IRA reviews released this week – by Pew Retirement Savings Project and through Joya provider of payroll and human resources software for small and medium-sized businesses — has found comprehensive benefits, especially for those with low or middle incomes, who are typically least likely to have access to plans at work.

The 17 states that have adopted auto IRAs to date are California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maine, Maryland, Minnesota, Nevada, New Jersey, New York, Oregon, Rhode Island, Vermont, Virginia and Washington.

While each has its own rules, they typically require employers to make a choice: either provide their workforce with access to auto IRAs or establish their own employer-sponsored plan, such as a 401(k).

Employers that choose to use the state’s auto IRA automatically enroll employees and withhold a predetermined savings rate — typically 5 percent — from a worker’s pay each pay period, according to John Scott, director of Pew’s Retirement Savings Project. Workers have the option to change the amount of the payroll contribution or opt out of the plan altogether.

Auto IRAs are structured like Roth IRAs, according to Georgetown CRI — so contributions to savings are made with after-tax dollars, and savings can grow and be withdrawn tax-free in retirement.

Employers aren’t allowed to make matching contributions to auto IRAs, but some participating workers can take advantage of the federal savers tax credit or a new federal savings match that will take effect in 2027, Scott noted.

Noting that less than a third of workers in the bottom half of the income distribution have a retirement account, Gusto found that “workers in states with auto-enrollment IRA policies are 20 percent more likely to save for retirement.”

It also found that auto-enrollment IRAs actually boosted the savings rate of low- to middle-income earners by 55 percent.

“The average worker making the median income or less increased their retirement savings rate from 2.2 percent to 3.4 percent following the implementation of an auto-IRA program. This results in an increase in retirement income of $150 per month,” the researchers wrote to Gusto.

Early data also suggests that the introduction of auto IRAs could correlate with more employers offering their own plans.

Pew found that some states with auto IRAs have introduced multiple private sector plans. “Typically, there is an increase in the formation of new plans when state programs begin or at major implementation deadlines, as was the case in California in 2022,” the researchers wrote.

It’s not entirely clear why, as smaller businesses often cite cost and administrative burden as reasons they don’t sponsor a retirement plan.

But, Pew noted in its report, “The post-pandemic improvement in the economy could be helpful, as well as new incentives for employers since the 2019 passage of the SECURE 1.0 legislation, which made it easier for small business owners to establish and less expensive. retirement plans for their employees.”

When pressured by their state to offer auto IRAs or make their own plan, some companies may have been spurred into action if they had already considered offering a 401(k) option or a other employer-sponsored option. no, suggested Scott.

And that’s good for both the employer and the employees. A solid workplace savings plan can help attract and retain workers. And employer plans give workers tax breaks and direct contributions that can help them grow their nest eggs faster than they otherwise could.