Employer-Facilitated Retirement Savings

Americans are 15 times more likely to save when they can do so at work. However, only about half of U.S. workers have access to an employer-sponsored retirement plan. Even fewer workers from groups that are discriminated against have such access. Retirement savings vehicles that are facilitated by employers can help fill this gap. They allow employees to make contributions to their own retirement savings accounts using payroll deductions. Employers act simply as a conduit for these funds. As a result, these vehicles can substantially increase participation and savings rates without burdening employers. Different options are described below.

Automatic individual retirement accounts (Auto IRAs): In states, Auto IRA programs require most private employers who do not sponsor their own retirement savings plans to offer access to a state-facilitated individual retirement account or their own workplace retirement savings plan. These programs are voluntary for employees. If employees choose to participate, they decide how much to contribute and how to invest the funds. Employers are not permitted to make contributions to employees’ accounts. At the federal level, there is no Auto IRA program. However, bills to create such a program have been introduced.

Voluntary IRAs: Voluntary IRAs have many of the same components as Auto IRAs. The main difference is that employers can voluntarily choose to offer these programs to their employees. However, they are not required to do so.

Multiple employer plans (MEPs): MEPs are essentially group 401(k) plans with simplified regulatory requirements for employers. They allow employers in the same industry or geographic region to voluntarily join together to offer a plan at a significantly lower cost than if each employer had its own 401(k). Employees can make contributions from their wages, and employers can make contributions too, if they choose to do so. Assets are pooled to cover benefits and costs.

Pooled employer plans (PEPs): PEPs are also 401(k)-type retirement savings plans that allow employers to pool resources in order to reduce costs associated with plan administration and investment fees. Unlike MEPs, PEPs allow employers across different industries to participate in the same pooled plan.