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Why Do Employers Establish Retirement Savings Plans? Evidence from State “Auto-IRA” Policies

Author

Listed:
  • Adam Bloomfield
  • Lucas Goodman
  • Manita Rao
  • Sita Slavov

Abstract

Several states have recently attempted to boost retirement saving by adopting “auto-IRA” policies that require employers not currently offering an employer-sponsored retirement plan (ESRP) to either (1) establish an ESRP or (2) enroll employees in state-facilitated Individual Retirement Accounts (IRAs). We identify the effect of these state retirement plan mandates on firm decisions to offer ESRPs, treating the gradual rollout of these policies across states and employer size categories as a series of “experiments.” Using U.S. tax microdata, we estimate that at least 30,000 firms have been induced to offer an ESRP by these policies, although there is substantial heterogeneity in these effects across firm and worker characteristics. This effect is large considering that, for employers, establishing and maintaining an ESRP is more costly than utilizing the state-facilitated IRAs. We explore both rational and behavioral explanations for why firms might choose the higher-cost approach to complying with auto-IRA policies.

Suggested Citation

  • Adam Bloomfield & Lucas Goodman & Manita Rao & Sita Slavov, 2024. "Why Do Employers Establish Retirement Savings Plans? Evidence from State “Auto-IRA” Policies," NBER Working Papers 32817, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:32817
    Note: AG LS PE
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    More about this item

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • H75 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Government: Health, Education, and Welfare
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions

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