Rhode Island joins the ranks of states with auto-IRAs for small employers

Rhode Island lawmakers passed a new state-based auto-IRA program this week, making it the 17^th state in the U.S. to administer an auto-IRA program for private sector employees. Now, every state in New England except New Hampshire has adopted a state retirement savings program.

The Rhode Island Secure Choice Retirement Savings Program is designed to follow the structure of other “Secure Choice” savings programs already implemented or approved in 16 states. “This bill creates a public option retirement savings program, like a public option IRA, for the 47% of the state that doesn’t have access to retirement programs through work,” Rhode Island State Senator Meghan Kallman posted on LinkedIn this week.

State-mandated retirement savings programs have continued to gain momentum and bridge the gap for many small businesses struggling to afford administrative burdens. Since 2012, every state except Alabama has either enacted or introduced legislation that would establish state-facilitated retirement savings programs.

The total number of state programs (most of them auto-IRAs) now stands at 20 with assets nearing $1 billion, according to the Georgetown University Center for Retirement Initiatives.

“For every one of these programs, the employer role is really limited. Employers register, add their employees, make the appropriate payroll contributions for active employees and have ongoing maintenance of adding new employees,” says Courtney Eccles, vice president for state and client relationship management at Vestwell.

The new Rhode Island law creates a state-facilitated IRA-based retirement program that will require employers with five or more employees to offer a retirement plan to their employees. It also creates a state-facilitated IRA-based retirement program designed to be exempt from the Employee Retirement Income Security Act.

About 378,000 employees work for some 11,000 companies in the state with five or more employees, according to the Rhode Island Department of Labor and Training. Participating employers would be able to comply without having to establish and manage their own plan and can offer any type of retirement plan, including a 401(k).

Employee participation is voluntary and contributions are made through payroll deductions. The plans are portable, so if an employee switches jobs, the plan will follow them.

Related: State-backed auto-IRAs are closing the retirement gap for employers without a 401(k)

Experts expect more states to implement auto-IRAs as employers and workers better understand the benefits.