1. Anek Belbase and Geoffrey Sanzenbacher Center for Retirement Research at Boston College December 2015 Presentation to the Oregon Retirement Security Board: Lessons Learned From Connecticut

2. 1 Background In June 2014, Connecticut passed legislation seeking to provide a retirement savings plan to uncovered workers. This legislation required a feasibility study by December 2015. As part of this study, the Advisory Board contracted with CRR to conduct a market analysis and provide consulting services.

3. 2 Connecticut and Oregon legislation are similar. Employers must participate and automatically enroll their employees, with opt-out allowed. Employers must not be subject to ERISA and must not be required to make contributions. o These requirements led Connecticut towards an IRA. A feasibility study must be performed. o Connecticut specifically required investigating the feasibility of investment guarantees and annuities.

4. 3 The feasibility study consists of market, financial, and legal analyses. Program Design IRA vs. MEP Roth vs. Traditional Default cont. rate Auto-escalation Frequent changes in cont. Investment options Drawdown options Guarantee Governance Program Design IRA vs. MEP Roth vs. Traditional Default cont. rate Auto-escalation Frequent changes in cont. Investment options Drawdown options Guarantee Governance Market Analysis What will opt-out rate be under various designs? Do high default contribution rates affect participation? Will employers support employee participation? Market Analysis What will opt-out rate be under various designs? Do high default contribution rates affect participation? Will employers support employee participation? Financial Analysis What are the program start-up costs? What are the ongoing and administrative costs? Will account balances cover these costs? Financial Analysis What are the program start-up costs? What are the ongoing and administrative costs? Will account balances cover these costs? Legal analysis Will employers be covered by ERISA? What entity will be responsible for compliance? Will the state incur debt or liability? Legal analysis Will employers be covered by ERISA? What entity will be responsible for compliance? Will the state incur debt or liability? CRR Mercer/Oliver Wyman or Groom Law

5. 4 Connecticut’s study shows their program to be feasible. The market analysis shows that low opt-out rates can be maintained at relatively high contribution rates. The financial analysis suggests account balances will be self- sustaining (collected fees cover ongoing costs) within two years and start-up costs repaid in three to five years. The legal analysis confirmed the viability of an automatic-IRA not subject to ERISA.

6. 5 A deeper dive into CRR’s market analysis can offer useful insights. To assess participation, CRR determined opt-out rates under a “base case” chosen by Connecticut and several “test cases.” CRR also conducted an employer focus group and a survey to understand employers’ reactions to the program.

7. 6 CRR’s experiment to determine opt-out rates was simple. Workers were asked whether they wanted to opt out after reading the program description. o This decision is not exactly like auto-enrollment because the worker is immediately given the option to opt out. Instead of asking each worker to choose among different options, the study presented each worker one program with certain features.

8. 7 In the enrollment experiment, some workers see the “base case” program design.

9. 8 Other workers see a program with a 3- percent default contribution rate.

10. 9 While other workers see a program with a deferred annuity, or some other design.

11. 10 CRR findings suggest a plan can achieve high participation and contribution rates. Under the base case,18 percent opted out, only slightly higher than studies of covered auto-enrolled workers. Opt-out rates did not differ significantly between scenarios with 3-percent and 6-percent default contribution rates.

12. 11 But pushing the contribution rate too high can lead to higher opt-out. Opt-out Rates Under Various Contribution Rate Options Note: Solid red bar significantly different from base case at 5-percent level. Source: Authors’ calculations from survey of uncovered workers (conducted by Knowledge Networks).

13. 12 Most other program features have a limited impact on opt-out rates. Opt-out Rates Under Various Plan Design Options Note: Solid red bar significantly different from base case at 5-percent level; dotted red bar significant at 10-percent level. Source: Authors’ calculation from survey of uncovered workers (conducted by Knowledge Networks).

14. 13 The employer phone survey was designed to study two groups of firms. 199 firms without retirement plans, to find out: o level and drivers of employer opposition to program and ultimate employer message to employees; and o any practical concerns for small employers involving payroll management. 201 firms with retirement plans, to find out: o desire to enroll non-eligible workers in program; and o likelihood to switch to the program.

15. 14 Overall support for program mixed – about 50 percent of non-plan firms oppose. Support for Program from Non-Plan Firms Note: Excludes six respondents who answered “don’t know” or “refuse.” Source: Nielsen Phone Survey of Connecticut Employers.

16. 15 Among those supporting, opinion driven by limited role of employer in program. Single Largest Reason Program Supported by Non-Plan Firms Note: “Other” verbatim responses: “low cost/easy access for employers, “voluntary aspect of program,” and “like as option for employees.” Source: Nielsen Phone Survey of Connecticut Employers.

17. 16 Opposition was driven by mandate and mistrust of any state-run program. Almost half opposed “Making retirement savings a requirement.” Focus groups and verbatim responses indicated two other broad themes: o State should not mandate employer participation; or o Any state-run program will be a failure.

18. 17 Fortunately, opposition to program does not translate to employers encouraging opt-out. Share of Non-Plan Firms Discouraging/Encouraging Opt-Out Note: Excludes nine respondents who answered “don’t know” or “refuse.” Source: Nielsen Phone Survey of Connecticut Employers.

19. 18 Even after the feasibility study, important implementation issues remain. Market Analysis What will opt-out rate be under various designs? Do high default contribution rates affect participation? Will employers support employee participation? Market Analysis What will opt-out rate be under various designs? Do high default contribution rates affect participation? Will employers support employee participation? Financial Analysis What are the program start-up costs? What are the ongoing and administrative costs? Will account balances cover these costs? Financial Analysis What are the program start-up costs? What are the ongoing and administrative costs? Will account balances cover these costs? Legal analysis Will employers be covered by ERISA? What entity will be responsible for compliance? Will the state incur debt or liability? Legal analysis Will employers be covered by ERISA? What entity will be responsible for compliance? Will the state incur debt or liability? Implementation Issues How to enroll new workers without asking employers to enter data or employees to provide a signature? How to minimize program and employer startup and ongoing costs through program design and vendor selection. How to govern the program and enforce rules without incurring liability or cost to the State? Implementation Issues How to enroll new workers without asking employers to enter data or employees to provide a signature? How to minimize program and employer startup and ongoing costs through program design and vendor selection. How to govern the program and enforce rules without incurring liability or cost to the State?

20. 19 How can the Connecticut studies help Oregon? Most of the market analysis can be applied to Oregon. o The employee survey is nationally representative, and can be reweighted to represent Oregon workers. o The employer survey was only fielded in Connecticut; however, Pew is fielding a similar survey nationwide. The financial analysis is largely mechanical. Legal issues are similar, especially with respect to ERISA.