OregonSaves, the country’s first state-mandated Secure Choice retirement plan, celebrated its sixth birthday in 2023. No need for a gift — it already has $200 million! This money is, of course, invested on behalf of the approximately 118,000 workers in the state who use the plan to save toward their retirement.
These figures are proof that the new mandates — currently active or in the works in close to half of all U.S. states — are helpful in getting Americans to save for their retirement. But is there a plan that’s even more helpful?
What’s Good About OregonSaves
When OregonSaves was first implemented, about two-thirds of all employees in the state had no retirement program at their workplace. Because the average Oregonian who was close to retirement age had an average of $12,000 saved for financing their golden years, state lawmakers felt that creating a way for more Oregonians to save was practically an emergency.
A common criticism of Secure Choice programs is that they merely offer workers a Roth IRA — a savings vehicle they can easily get on their own, regardless of employment. But studies showed that only 3.5% did, versus 70% of those offered the option through their employer. When you ask why, the obvious answer is that it’s easier to enroll at work than to go out and get a Roth IRA on your own. But there are other reasons as well. Opening an IRA without help can be intimidating, especially to younger people and those who are not well-versed in retirement accounts and how they work. Although many people know it’s important to have a retirement plan in place that you contribute to regularly, they put it off.
Additionally, Secure Choice plans provide an easy way to contribute — the money comes directly out of workers’ paychecks. They don’t have to log onto an account to make a contribution, and they don’t have to think about whether they will talk themselves out of contributing this pay period, convinced they need the money for something else.
Right now, OregonSaves has an almost 77% participation rate. The law says that workers must be automatically enrolled in the program, but are given the option to opt out. Inertia works in everyone’s favor here, as a lot of workers don’t take the time or trouble to remove themselves from the plan.
While many retirement plans start workers out with a 3% contribution, OregonSaves starts at 5%, and it increases 1% every year workers stay in the plan until it gets to 10%.
Another advantage to workers participating in OregonSaves is that their accounts are portable, and they can take them with them from job to job (as long as the job is in Oregon).
The advantages of the plan for employers are numerous. Employers have almost no responsibilities with a Secure Choice plan. They have to offer it, but there are no choices or employer contributions to make, and expenses are minimal.
Too Good to Be True?
Oregon wants everyone to know about its progress in getting workers to save for retirement, but the program has some negatives to temper its positives.
Automatic enrollment feels like theft to some Oregon workers. Employees whose opt-out instructions came via email from a source they didn’t recognize sometimes didn’t open the email, and had not been sufficiently informed by their employers of the impending deduction. Once they noticed the money missing, they tried to opt out, but this can be easier said than done, with workers complaining it takes months to get themselves removed from the program, or that the opt-out button they needed to click resulted in a 404 error. This can result in true lost wages, as when they ask for their money to be returned to them, they can be hit with a fee for withdrawing retirement funds early.
Some employers complained that payroll deductions and contributions to the plan are only automatically made if you use certain pre-approved payroll companies. Otherwise, the bookkeeping falls to the employer. And even if OregonSaves works with your payroll company, each transaction means an added fee for the employer, which sometimes amounts to more than the contribution itself.
Customer service has been notoriously bad, with callers reporting surly agents, wait times of over an hour, hangups and repeated requests to divulge their Social Security number or EIN. Results take days or weeks longer than callers are initially told, and indignation over this is partly due to the state outsourcing the management of this program to a private company to which employers are legally required to provide employees’ private information such as Social Security numbers.
Those who stay in the program report paying high fees for management of their retirement income — fees they would not have to pay if they opened their own IRA independent of OregonSaves.
Additionally, a Roth IRA is funded with after-tax dollars, offering employees no benefit of a tax deduction like they would get with a traditional IRA.
The 401GO Difference
While it’s probably true that some Secure Choice programs are better run than others, the bottom line is that you will likely rarely get the quality service you expect with a private company from a government-run plan.
A 401(k) retirement plan through 401GO is superior to OregonSaves in every way.
- Contribution maximums are higher — employees can save more than three times as much of their own money with a 401(k), and can benefit from tens of thousands in employer contributions as well.
- Fees for participants are lower, so they get more out of their investments.
- Plan management is easy and customer service is top-notch.
- Employees place a much higher value on a private 401(k) plan than OregonSaves, meaning you can attract better talent if you opt to sponsor your own retirement savings plan.
- Choices are much greater, so participants are not stuck with funds they don’t want and a performance they believe is lackluster.
The new starter-k plan type is a great alternative to OregonSaves too. These plans have similar plan limits and designs, but for just $25/month (in 2024) small businesses can get a much higher quality plan with better support and no government involvement.
These are the major benefits, but there are so many more. For instance, if you have a trusted financial advisor, we will work directly with them to create the plan you want. Our fees are low — much lower than behemoth investment banks — and our results are no less robust. Setup is fast, easy and cheap. Plus, you can get tax breaks on setup and employer contributions. Are you ready? Start today.
