Program assets and participation by employees and employers continue to rise
Oregon’s three-year-old state retirement savings program for private sector workers has continued to grow during the pandemic while providing a financial cushion for participants facing significant economic shocks, according to an analysis of state administrative data.
OregonSaves and similar programs in six other states are designed to help the millions of workers in jobs that do not provide retirement benefits easily accumulate savings via payroll contributions. These programs are quickly coming to scale. The Oregon program, which automatically enrolls workers in an IRA if their employer does not offer a savings plan, was among the first launched. But as these state auto-IRA programs are rolling out, participants and covered employers are facing the unprecedented economic and public health effects of the novel coronavirus pandemic.
Although unemployment claims in Oregon rose sharply during the early stages of the pandemic as businesses shuttered and furloughed workers, the analysis of OregonSaves data through April 2020 shows that the state program continued to function as planned, allowing workers to save but also to dip into those savings if needed.
As of April 30, 277,789 accounts at 10,870 employers had been created through the OregonSaves program since its rollout in July 2017. Of those, 5,370 businesses were online and regularly facilitating payroll contributions for more than 44,000 funded accounts.
Compared with defined contribution plans in the private sector, OregonSaves is already one of the largest retirement savings arrangements as measured by participants. The program has amassed more than $50 million in new savings, a substantial amount for those who would otherwise not have had access to an employer-based plan.
In most programs, these accounts are structured as Roth IRAs, with contributions made after taxes. That allows savers to withdraw their principal tax-free (earnings also grow tax-free but are taxed if withdrawn prior to age 59 1/2, except in special circumstances). Such a setup means participants can tap into savings if they experience a financial shock. Data from the OregonSaves program during the first few months of the pandemic reflects this capability to a degree.
Program withdrawals increased in March. Oregon was reporting fewer than 100 new COVID-19 cases a day for all of March, but new case numbers were climbing in the latter half of the month when Governor Kate Brown on March 23 issued the state’s orders for people to stay at home and nonessential businesses to close. From Jan. 4 through March 14, the average weekly number of unemployment claims had been 4,673, but claims jumped to 76,500 for the week ending March 21.
As a percentage of program assets, withdrawals from OregonSaves for most of 2019 and the first two months of 2020 hovered between 2% and 2.5%. In March, however, this percentage increased to nearly 4%. The median amount withdrawn that month was $577, while the mean was $897. In April, however, withdrawals fell to 1.4%. It is not clear why withdrawals increased in March but dropped in April.
Because of the pandemic, the program has slowed the onboarding of new employers and employees. These lower enrollment numbers, beginning in April, may help explain the decline in withdrawals, at least in part. As OregonSaves has come to scale, it has seen a baseline level of withdrawals associated with those who decide not to continue with the program after their first few contributions. Fewer people and companies joining may be lowering this baseline.
Additionally, the federal coronavirus relief bill, which provided a range of financial assistance to employers and individuals, was enacted on March 27, and the number of new unemployment claims in Oregon began declining by mid-April. The spike in withdrawals in March may have come from newly unemployed workers filling gaps in their finances until they received benefits or could go back to work.
Although this trend does not prove a causal relationship between the pandemic and these withdrawals, people in certain industries seemed to react to the novel coronavirus by making withdrawals in larger numbers than others. The standard deviation is a statistical measure that can help identify what is “normal.” Most data points will fall within one standard deviation of the average, and the vast majority within two. In March, OregonSaves participants in certain sectors—manufacturing, professional and business services, and accommodation and food services—had a total number of withdrawals greater than two standard deviations above the average number going back to September 2018. Additionally, the following sectors saw withdrawal activity greater than one standard deviation above the average number of withdrawals: natural resources and mining; transportation and warehousing; educational services; and arts, entertainment, and recreation.
Although it is not surprising that the low- to moderate-income workers who make up the bulk of program participants may draw down their funds when facing financial shocks, total assets and account balances provide a fuller picture of the program’s sustainability.
The data shows that savings continued to grow through April, with the mean account holding approximately $750. Because the program has rolled out in waves since its launch, some savers have been participating longer and have larger balances that pull up the average. The median has risen more slowly and hovered just above $300 at the end of April.
During the last quarter of 2019, account balances grew about 3% each month at the median and 4% at the average. From March to April, the median balance grew about 6% and the average by 8%, reflecting a broader increase in the financial markets overall.
Additionally, although COVID-19 slowed the onboarding of new employers and workers in the program, participation continued to grow. In April, OregonSaves added more than 2,500 employees and 88 newly registered, nonexempt employers. However, those numbers are down from an average of about 12,000 workers across more than 800 employers a month in the latter half of 2019.
Some of this difference may be related to the program implementation schedule because OregonSaves has rolled out in waves by employer size and many employers tend to enroll toward the beginning or end of their wave. The previous wave ended in November 2019, with the current and final wave ending in January 2021.
Interestingly, the program did not see an increase in the number of workers opting out through April. Although the percent change in effective opt-outs—those deciding not to take part before or after enrolling, as well as those who set a 0% default contribution rate—averaged a 1% increase month to month for the latter half of 2019, these opt-outs increased only 0.8% from February to March and were essentially unchanged from March to April, rising less than 0.1% month to month.
This remains an economically uncertain time, and these trends may change as the pandemic continues to unfold. But the financial stability of OregonSaves in the face of so much disruption bodes well for state efforts to expand basic financial tools to millions of workers. Retirement programs such as OregonSaves may offer savers experiencing financial difficulties some short-term security. Withdrawals are available for those who need access to their savings, but many participants appear to be staying the course and continuing to take advantage of wealth-generating opportunities they would not have had otherwise.
John Scott is the director and Andrew Blevins is a principal associate with The Pew Charitable Trusts’ retirement savings project.