Automatic retirement plans are proliferating as states and cities urge workers to build nest eggs

Philadelphia is poised to launch the nation’s first city-sponsored retirement plan for workers whose employers don’t offer it.

Voters approved the City Council’s PhillySaves program on Tuesday by passing an amendment to the city charter. The move will require employers without pension benefits to enroll their employees in the novel plan. Unless employees opt out, a miniature portion of their salary is diverted into an individual retirement plan (IRA).

“This is a big heck of a deal for the city of Philadelphia,” said Democratic Mayor Cherelle Parker an invoice signature Program approval event earlier this year.

Proponents said the program would assist improve affordability, improve financial literacy and assist families build wealth across generations. Supporters included AARP, the Greater Philadelphia Chamber of Commerce and The Pew Charitable Trusts.

Philadelphia will be the only city to have an automatic retirement program, but joins a growing number of states with such plans. More than 50 million Americans have no retirement plans through work.

The novel programs require most employers without retirement plans to set up payroll deductions for their employees, but do not require employer matching. Employees are automatically enrolled in an Individual Retirement Account (IRA), but can opt out of the programs. Studies show that making investing the default option – that is, giving people the option to opt out rather than asking them to opt in – results in much higher participation rates.

Proponents say these automatic programs make it easier for more people to start building a nest egg. The more people do it, States expect in order to achieve possible savings through lower social spending. Some business interests have opposed state mandates to participate in plans, saying they are burdensome and call into question their effectiveness.

According to the Georgetown University Center for Retirement Initiatives, more than 1.2 million workers in the 15 states with vigorous programs have saved a total of $3 billion for retirement through government-sponsored plans. At least two more states are expected to launch programs in the coming years, and others are considering doing so.

Since Oregon launched its first state plan in 2017, the total amount saved nationwide through state auto IRAs has accelerated: it took six years to amass the first $1 billion in 2023. But it took just 18 months after that to reach the $2 billion mark in 2024, the center noted.

“It’s exciting to see state programs helping move the needle,” said Angela Antonelli, executive director of the center.

The programs are generally overseen by state treasurers and appointed boards. Private contractors manage the investment funds, which fluctuate depending on the financial market.

While Philadelphia’s move underscores the growing interest in these programs, the cost of implementation makes it unclear how many other cities might follow suit. Smaller states, including Delaware, Rhode Island and Vermont, have sought retirement planning partnerships rather than go-it-alone solutions, Antonelli said.

“Philadelphia would be a test case for other cities,” she said.

Last month, President Donald Trump signed it an implementing regulation Providing another way for employees without employer-sponsored plans to save for retirement. It calls for the creation of a novel website, TrumpIRA.gov, where workers can research and register IRA accounts, with some low-income earners eligible for a matching contribution from the federal government.

Antonelli said the White House spotlight affirms government leadership on the issue.

“The fact that the President of the United States has brought attention to this only serves to increase the interest of more states to now begin implementing these programs,” she said.

By creating an auto-IRA program, states can assist more low- and middle-income workers qualify a federal game of up to $1,000 for individuals and $2,000 for married couples starting next year. This offset, created by Congress in 2022, will take the form of a federal tax credit that will be deposited directly into retirement accounts by the U.S. Treasury.

State debates

State lawmakers continued to debate creating or expanding auto-IRA programs this year.

This year, Minnesota started its Auto-IRA program, which aims to cover employees of all employers with five or more employees. Hawaii’s program is expected to hit the market this year, Antonelli said Washington State starts its plan next year.

So far, the states that have created Auto-IRA programs are overwhelmingly liberal. Some conservative states, including Missouri and Utah, have set up voluntary programs to assist miniature employers find retirement plans.

In politically divided Pennsylvania legislation The development of an Auto-IRA plan remains stalled after leaving the Democratic-controlled House of Representatives last year. It still has to be voted on in the Republican-controlled Senate.

“It’s a Band-Aid for a bleed,” said Greg Moreland, state director of the Pennsylvania chapter of the National Federation of Independent Business. “We can all agree that people aren’t saving enough for retirement. But when you look at the data, that’s not the answer.”

The NFIB chapter, which represents about 13,200 miniature businesses in Pennsylvania, opposed the law, arguing it would place too much of a burden on miniature businesses that must register their employees.

Moreland cited the number of workers who opted out of auto-IRAs as evidence that they are unwanted by workers. Georgetown’s Pursuit shows that approximately 35% of California participants have opted out of this state program, while more than 37% have opted out of the Illinois program.

Workers have withdrawn more than $1 billion from government auto-IRA programs since 2017, and Moreland argued that the accounts are too miniature to provide meaningful retirement income. Since the program launched in Colorado in 2023, workers there have accumulated an average account balance of nearly $2,000, while workers in Oregon have accumulated an average account balance of $3,229 since the program launched in that state in 2017.

“They’re not treating this like a true retirement account,” he said.

But advocates point out that many of the participants are among the lowest paid workers in the economy, and auto IRAs provide both emergency savings now and a supplement to Social Security income in the future.

“From my perspective, that’s 60 or 65% of the population that hasn’t saved before,” said Emerson Sprick, director of retirement and work policy at the nonprofit Bipartisan Policy Center.

“People know where their salary is going. They know what they can afford and what they can’t afford. And if they can’t afford to save right now, they choose to save.”

Sprick said research has shown that the creation of government plans has led to more employers offering their own retirement plans. Because auto IRAs target people without retirement savings plans, employers that offer pensions or 401(k)s are not required to comply with government regulations.

While anyone can invest in a personal IRA or other savings vehicle, employer-sponsored plans encourage savings by automatically deducting funds from paychecks, often in accordance with an employer match.

“There is a significant access gap,” he said. “This access gap is concentrated in the smallest employers and the sectors with the lowest average wages, creating real inequalities in financial outcomes in retirement.”

Will cities follow Philly?

On Tuesday, Philadelphia Voters agreed a ballot question authorizing the creation of a nine-member board to oversee the novel PhillySaves program.

New York City and Seattle both approved Auto IRA plans, but neither city implemented their plans as statewide programs launched first.

John Scott, director of the retirement savings project at The Pew Charitable Trusts, which helped Philadelphia develop the PhillySaves program, said other cities could follow his lead.

Pew estimates The city will spend about $1 million in upfront costs and about $500,000 in annual administration. Participation is mandatory for employers with at least one employee who has been with the company for at least two years and does not yet offer a pension plan.

“When you look at the arc of wealth accumulation, it starts to look like an exponential growth curve, and people are noticing that,” he said. “So it’s not surprising that we’re seeing greater interest and the introduction of more legislation across the country.”

Stateline reporter Robbie Sequeira contributed to this story. Stateline reporter Kevin Hardy can be reached at khardy@stateline.org.