Among those not participating, the  majority worked for an employer that did not offer a program or they were  not eligible for the programs that were offered. In particular, lower income  workers and those employed by smaller firms were much less likely to  have access to programs, after controlling for other factors. However, the majority of these workers  participated when they had workplace access. Lack of Coverage Is Driven by Gaps in Access

Roughly half of private sector workers participate in a workplace  retirement savings program, according to 2012 data. Specifically, self- reported SIPP data indicate that 45 percent of all private sector workers  were participating in a program. The vast majority of workers who do not participate–84  percent—reported they did not have access to a workplace retirement  program. States and Other Countries Use Similar Key Strategies to Expand Retirement Coverage

		States and Countries We Reviewed Often Combine Workplace Access, Automatic Enrollment, and Financial Incentives

In the six states we studied, proposals were made and, in some, laws  enacted in an effort to expand coverage that would combine workplace  access to a retirement savings program with automatic enrollment and  financial incentives —an approach that has helped increase worker  participation in countries we studied. For example, the United Kingdom  (U.K.) implemented reforms that require private sector employers to  automatically enroll eligible workers in a workplace retirement savings  program, allowing workers to contribute to individual accounts and  receive financial incentives in the form of employer contributions and tax  preferences. In addition, New Zealand and Canada would  encourage or require certain employers to offer workplace access. Specifically, in  order to mitigate some of the challenges of setting up workplace  retirement savings programs, state officials seek to (1) limit the  responsibility and cost for employers, and (2) reduce complexity, cost,  and investment risk for workers. However,  state and national stakeholders said these efforts face potential  challenges because of legal uncertainties created by existing federal  law—ERISA—and various agency regulations, depending on the type of  program state efforts intend to create (see fig. Specifically, ERISA preempts, or invalidates, any and all state laws that  “relate to” any private-sector employee benefit plan. Based on our interviews with state and national stakeholders and  government officials, none of the state efforts we reviewed are immune  from legal uncertainty caused by ERISA preemption, but the type of  uncertainty differs depending on the details of the state efforts. For states that are attempting to  use an employee benefit plan, such as a 401(k) plan or SIMPLE IRA,  DOL officials told us that it is unclear whether a state could create a  program without being preempted by ERISA because it is unclear  what level of state effort would “relate to” employee benefit plans. Given the need  of many workers to increase their retirement savings, and limitations on  DOL’s ability to provide flexibility regarding ERISA preemption,  stakeholders have suggested a number of ways to address uncertainty  and facilitate state efforts to expand coverage in workplace retirement  savings programs:
Amend ERISA’s preemption provision. Conclusions

Millions of workers in the United States have little or no retirement  savings, an issue exacerbated by the lack of access to workplace  retirement savings programs for many of them. For example, the Secretary of Labor could direct the  Employee Benefits Security Administration’s (EBSA) Assistant Secretary  to revise Interpretive Bulletin 99-1 to clarify whether states can offer  payroll deduction Individual Retirement Accounts (IRAs) and, if so,  whether features in relevant enacted state legislation—such as automatic  enrollment and/or a requirement that employers offer a payroll  deduction—would cause these programs to be treated as employee  benefit plans. Treasury generally agreed with the findings, conclusions, and  recommendation of this report. Appendix I: Objectives, Scope, and Methodology

Our objectives for this study were to examine: (1) recent estimates of  workplace retirement savings program coverage, including eligibility and  participation, and characteristics of workers who lack coverage, (2)  strategies used by states and other countries to expand coverage among  private sector workers, and (3) potential challenges states could face  given existing federal law and regulations. Based on these criteria, we selected California, Illinois, Maryland,  Massachusetts, Washington, and West Virginia. Appendix IV: Description of State Efforts to Expand Workplace Retirement Savings Program Coverage Identified by GAO

We developed the following list of 29 states with recent efforts to expand  retirement savings program coverage for private sector workers— including the introduction, action on or enactment of legislation, an  executive action, or a study—by (1) reviewing information posted online  by industry stakeholders, including the National Council of State  Legislatures, the Pension Rights Center, and other industry publications;  (2) conducting targeted searches of enacted and proposed state  legislation using LexisNexis and WestLaw, in consultation with a law  librarian; and (3) interviewing federal officials and knowledgeable  industry representatives, including stakeholders at the Pension Rights  Center, the American Society of Pension Professionals and Actuaries,  and AARP. Once they  have been automatically enrolled, workers have 1 month to opt out. For our analyses, we used publicly available data from the Survey of  Income and Program Participation (SIPP) from 2012, as shown in tables  9 – 12 of this appendix. For example:  1.
Why GAO Did This Study

Millions of U.S. workers have little or no savings for retirement, potentially adding to future strains on state and national safety net programs. In addition to federal efforts, a growing number of states have proposed efforts to expand coverage in private sector workplace retirement savings programs. Other countries have also implemented similar efforts. GAO was asked to study these state and international efforts.
GAO examined: (1) recent estimates of coverage, including access and participation, as well as characteristics of workers who lack coverage; (2) strategies used by states and other countries to expand coverage; and (3) challenges states could face given existing federal law and regulations. GAO primarily used SIPP data from 2012 (the most recent available). GAO also interviewed federal officials, national industry stakeholders, and officials and stakeholders in six states (California, Illinois, Maryland, Massachusetts, Washington, and West Virginia) and three countries (Canada, New Zealand, and the United Kingdom) selected based on the range of strategies used in efforts to increase coverage and recommendations from knowledgeable stakeholders.

What GAO Found

About half of private sector workers in the United States—especially those who are low-income or employed by small firms—lack coverage from a workplace retirement savings program primarily because they do not have access. According to GAO's analysis of 2012 Survey of Income and Program Participation (SIPP) data, about 45 percent of private sector U.S. workers participated in a workplace retirement savings program—an estimate that is consistent with prior GAO work and other research. Using tax data to correct for under-reporting raised the share of workers participating to 54 percent, but still indicates many workers lack coverage. Among those not participating, the vast majority—84 percent—lacked access because they either worked for employers that did not offer programs or were not eligible for the programs that were offered, for example, because they were new employees or in specific jobs that were excluded from the program. In particular, lower-income workers and those employed by smaller firms were much less likely to have access to programs. However, among those who had access, the majority of these workers participated.
Key strategies to expand private sector coverage identified in the states and countries GAO reviewed include encouraging or requiring workplace access, automatic enrollment, financial incentives, and program simplification. For example, pending implementation, programs in two of the states GAO studied—California and Illinois—would require certain employers to automatically enroll workers in a state-run program, though workers could choose to opt-out. In the countries GAO studied, combining workplace access with automatic enrollment and financial incentives—tax preferences or employer contributions—has helped increase participation. Moreover, states and countries have tried to simplify program designs to (1) limit the responsibility and cost for employers and (2) reduce complexity, cost, and risk for workers. For example, some states intend to not only reduce burdens for employers by selecting and monitoring providers, but also reduce complexity for workers by limiting the number of investment options.
State and national stakeholders reported potential challenges with uncertainty created by the Employee Retirement Income Security Act of 1974 (ERISA) and agency regulations that could delay or deter state efforts to expand coverage. Generally, ERISA preempts, or invalidates, any state law relating to “employee benefit plans” for private sector workers, but different areas of uncertainty arise based on the details of each state effort. For example, four of the six states GAO reviewed intend to create payroll deduction individual retirement account (IRA) programs that would not be considered employee benefit plans. However, due to uncertainty created by ERISA, it is unclear whether a state can offer such programs or whether some of the program features would lead a court to find that they are, or relate to, employee benefit plans. Stakeholders also noted uncertainty caused by regulations from the Departments of Labor (DOL) and the Treasury meant to assist workers and employers. For example, DOL's regulation on payroll deduction IRAs was written before these state efforts were proposed and omits detail that, if included, could help reduce uncertainty. Given these uncertainties, states may face litigation and stakeholders noted that state programs could lose tax preferences if they were ruled preempted by ERISA.

What GAO Recommends

GAO suggests that Congress consider providing states limited flexibility regarding ERISA preemption to expand private sector coverage. Agency actions should also be taken to address uncertainty created by existing regulations. Agencies generally agreed with GAO's recommendation. DOL plans to issue a proposed rule on state programs by the end of 2015.