OregonSaves is a state-run program that gives Oregonians more options for saving for retirement. After a brief pilot phase, it officially started rolling out to employers in November.
But what does this new law entail, and how does it affect Oregon employers and employees? To find some answers, I sat down with Dena Laws, Operations Manager at Xenium HR, who happens to be quite an expert on this new plan.
Brandon Laws: When this OregonSaves program came out, it was probably confusing for a lot of employers. Can you simplify it?
Dena Laws: It is a state-run program for retirement savings plans, and it’s specifically targeting small business owners that don’t typically offer retirement plans to their employees. It is trying to serve employees who don’t currently save for their retirement. In Oregon, there are a lot of people who aren’t saving or planning ahead. Some research found that if employees have the option to deduct savings from their payroll, they’re more likely to participate.
Brandon: That makes sense. So this is sort of equivalent to – let’s say a small- or medium-sized employer has a 401(k) plan with an auto-enroll feature for new employees. These employees would be automatically enrolled in the 401(k) unless they intentionally opted out.
Is OregonSaves the same thing, but for employers who don’t have retirement plans?
Dena: Yes, it is auto-enrollment. So once an employer decides they are going to participate and enroll, their employees have 30 days to opt out or make changes to their contributions, whether they want to increase it from the auto-amount of five percent, or they want to decrease it.
Brandon: What are the requirements for employers to opt into this program, or verify that they’re qualified? Is it mandatory?
Dena: Employers will receive an email notification with a registration deadline. So at that point, employers can either elect exemption from it because they offer their employees a different retirement plan internally, or they need to go ahead and register to participate.
Brandon: So if employers don’t want to participate, they either need to offer a savings plan already or they need to go get one, right?
Dena: Correct, that is correct.
Brandon: OK. And then what are the opt-out requirements?
Dena: You just click the link in the email and answer some questions about your company’s situation. It’s not just a 401(k) that allows exemption. A 401(a) or 403(b) plan would qualify an employer for exemption, too.
Brandon: So, for the employers that don’t opt out: what’s that process like? And what’s the experience like for employees, too, enrollment-wise?
Dena: The plan is actually an IRA, so that means it’s post-tax deductions. And one important thing to know is that employers cannot contribute. So also on that point, it’s not a very robust plan at the moment.
Employees do have options, from conservative to midrange to more aggressive savings plans, and that can be helpful depending on where you are with your retirement savings. So if you are younger, for example, and willing to take more risks, you can go into more aggressive investments with that plan.
Brandon: Is OregonSaves run through the State of Oregon, or is it through a plan administrator, like a select business they chose to run this?
Dena: Both. It was headed by the State of Oregon and the Oregon State Treasury. But they’ve also created the Oregon Retirement Savings Board to further develop this program.
Brandon: OK. And then they’re investing in stocks and bonds, like other financial services companies would be investing in.
Brandon: OK. Do you know of any other states that are doing something like this? Is this a rising trend?
Dena: Oregon is actually the first state to implement it successfully. They have been working on this for a few years now. Other states are trying to either nearly copy it or put in some regulations around retirement savings, requiring employers to provide something so people can plan ahead for their retirement.
Brandon: So that’s the bigger issue at play here: they’re bringing in a program like this because we have a savings issue in America right now. The data is showing that people aren’t necessarily saving for 401(k)s, or maybe employers aren’t offering them. Plus, Social Security may not be there when people need it. So this is sort of filling in the gap for those who just may not have another option, right?
Dena: Absolutely. There are a lot of studies that indicate that Social Security is really just not going to cover it for a lot of individuals. So this is adding some structure, giving people this opportunity, and getting employers involved streamlines it, right? Then you don’t have to go out and find your own IRA to set up your savings. It’s really making it an efficient process for people. Once you get the email, all you have to do is either say yes, with the options of keeping the standard contribution or changing it, or no.
Brandon: Wow. Have you heard much about the user experience from employees? Is it easy to get in, change your funds, and increase the amount you want to contribute?
Dena: Yeah, the website is very simple and user-friendly and intuitive, on both the employer and the employee sides. On top of that, if you don’t have access to the internet or a computer, you could even call in to change your contributions or opt out. They also have forms that can be mailed in. So they really add a lot of access points for employees to make those changes, and in terms of the employer experience, they tried to make it as administratively simple as possible to put in place.
Brandon: You mentioned earlier that this is post-tax. A traditional 401(k) would be pre-tax, with less impact on your bottom line because it’s reducing your gross income. But in this case, tax is taken out, and then the contribution comes out. Do you know the reasoning behind not having a pre-tax option?
Dena: Because it’s an IRA, not a 401(k), that’s not an option. The good news about that piece, though, is that it follows employees from employer to employer. So, if you transition to a different company, those funds are still there. If your new employer is participating in OregonSaves, you just pick right up, and your contributions continue to add to that same account.
You can also always make a call and access your contributions if you need to pull that money out for some reason. To your point, there could be a big impact to some people, to the point that they want to get that money out sooner than their retirement age.
Brandon: Do you know of any of our clients that are using OregonSaves?
Dena: We do have a couple, yes. We had some clients that didn’t already have retirement plans in place, so they went ahead with OregonSaves and have been using it for a few months now. We’ve definitely seen employees going in and making some changes, too.
Brandon: So they’re taking an active role in it.
Dena: They are, and some of the time, it’s opting out. Once you’re uploaded into OregonSaves by your employer, you’re automatically going to see five percent post-tax taken out unless you call, go online, or send in a form to have those deductions stopped.
Brandon: Yeah. That’s a good reason for employers to educate any new employees on this law.
Dena: Absolutely. I would encourage employers to make that a part of their orientation process. Start talking about it with new hires early, because they will see those deductions come out pretty soon after they start. There’s no eligibility period written in the rules. But the employer has 60 days to enroll the employee in OregonSaves, and then the employee has 30 days to opt out after that.
Brandon: I can imagine this being kind of muddy for some employees. Say someone works for a company that’s headquartered in Oregon, but they’re out of Florida, for example, working from home. Would they have to participate?
Dena: Actually, sometimes they might. It does not necessarily have to be an employee residing in Oregon. The state is identifying employers off the Oregon payroll tax forms. So if an employer has paid Oregon payroll taxes for an employee, they can be expecting an email.
Brandon: OK. But if I’m working out of my home in Florida, presumably paying Florida taxes, I would not be in OregonSaves, even if my employer is out of Oregon.
Dena: Right. It’s all going to depend on how your employer is classifying your work.
Brandon: That makes sense.
Dena: Even if you’re working from home, if maybe you occasionally go into Oregon for work, and they’re calling that Oregon work and Oregon wages, then that would count.
Brandon: What else should we know about OregonSaves?
Dena: It’s really important for people to get educated on this, whether you’re an employer or an employee. OregonSaves does a really good job of putting the information out there. If there’s any mystery about it, give them a call. Do some research on your own, too, and find out what will make this program work best for your workforce and for your company.