This newspiece is generously supported by Newton Investment Management

Let's get more for less: A fresh look at CITs.

Angela C. Montez,

I've been in retirement and financial services since I graduated law school back in ‘94. I joined Eversheds Sutherland in October as a Special Counsel in their Investment Services group. And before that I spent a little over 20 years in house at ICMA-RC, and I was an Associate with Groom Law Group before that. Throughout my career I’ve focused on retirement and investment policy issues -- in particular matters under ERISA and related federal tax and securities laws. I'm a native Washingtonian (DC). I've lived here all my life except for college (Go Penn!). I brought my now-husband back with me after college.

Recent studies by BrightScope, Cerulli, and Morningstar show that the use of CITs is beginning to outpace other types of funds -- particularly in the jumbo defined contribution plan space. They are dominant among these plans' target date investments. CITs have also accelerated both their asset gathering and the number of CIT-based investment options available in 401(k) and other DC plans in general. So, they're becoming the investment option of choice among defined contribution retirement plans.

Well, allowing CITs to be used in these state-based programs would provide programs with access to a wider range of investment options and asset categories … (Important stuff HERE!🔥Click and bookmark or read.)

PS, we talked CITs with Morningstar’s Aron Shapiro last year – extra perspective.

Want more? You can connect directly with Angela Montez by email here. You can follow Angela’s work at Eversheds Sutherland here. You can also connect with Angela on LinkedIn.

Breaking it down for you! We now have a full set for 12/31/2021 data. What you’ll see:

The consolidated programs closed the year with over 46,000 employers registered to facilitate, and many more coming through the “employer pipeline” as employers continue to register, upload census data, and initiate first contributions for participating savers. For employers, this is an increase of more than 60% over the course of 2021, and more than 2.4x since the start of 2020.

We now have nearly 430,000 funded accounts, up 63% from where we were at the start of 2021, and almost 4 times greater than the start of 2020. These savers have accumulated about $408 million in combined assets, for an average account balance of almost $950.

What’s interesting? Take a look at the trend over the last two years for these key stats. We think it’s a thingga beauty.

California (workforce 17.9 million) –The CalSavers Board met on January 24, 2021. The agenda included the approval to issue an RFP for the program’s ESG investment option (managed using environmental, social, and governance factors). Following other business there was a presentation of 2021 year-end highlights. In the report, Executive Director Katie Selenski highlighted many of the statistics summarizing participant and program activity, despite ongoing labor market and economic challenges. 

During the course of the year, saver assets grew five-fold to more than $173 million; the number of Californians actively saving more than doubled to 218,000; registered employers tripled to more than 23,000. Portability appears to be an essential element with 35% of savers showing contributions via more than one employer. Note that while by the end of 2021 CalSavers had passed two of its three employer deadlines, more than 70% of employers are included in Wave 3 in 2022. Selenski also highlighted CalSavers’ partnership with the Franchise Tax Board on enforcement and penalty imposition and collection services. The penalty program is set to begin in January 2022. The results from the report were summarized in stories by Pensions & Investments and Plan Sponsor.

Colorado (workforce 3.2 million) – The Colorado Secure Savings Program Board met January 25, 2022. The agenda included an update on the program, design, and discussions around the investment policy statement, contract amendments as it relates to the New Mexico Work & $ave partnership, and the impending Program Administration RFP. The program has retained two outreach specialists, coming aboard shortly. Draft rules are in development. The Memorandum of Cooperation with New Mexico expires on March 31, with the intent that it be replaced by a more permanent shared working agreement. On the design front, the Board agreed with a 30-day capital preservation “window” for first contributions to the program where no other election has been made; after 30 days existing and future contributions will be invested in a saver’s Target Date Fund.

Connecticut (workforce 1.6 million) – The Connecticut Retirement Security Authority met on January 21, 2022. The meeting agenda is available here. Natalie Braswell, sworn in as the new Comptroller, will be completing the term of former colleague Kevin Lembo. Connecticut continues its program rollout with pilot employers; BNY Mellon provided general updates of the pilot. Development of wave timing will follow resolution of the data pathways for the program that enable it to identify and engage with employers directly. This is generally accomplished through inter-agency agreement; work under way.

New Mexico (workforce 1 million) – The New Mexico Work & $ave Board met on January 18, 2022. The agenda included two presentations on the AARP-Sponsored 3-Part Research Project commissioned by the Board. The University of New Mexico’s Bureau of Business & Economic Research (BBER) provided projections for enrollment in employer-sponsored retirement plans for private-sector and self-employed workers (of 590,000 employed, about 357,000 uncovered workers, and another 90,000 independent contractors). BBER also analyzed the fiscal impact to the state of under-saving for retirement (about $2 billion over 15 years).

The Center for Retirement Research at Boston College (CRR) evaluated the financial feasibility of the New Mexico Work and $ave programs as currently authorized (a Retirement Plan Marketplace alongside an Employer Voluntary Payroll Deduction IRA), and with the potential for an employer requirement. Under the fully voluntary approach neither program was forecast to break even over a twenty-year period, meaning the state should prepare to fund these programs in perpetuity. With the addition of an employer requirement and automatic enrollment, the IRA program breakeven period was forecast to be about six years.

At the meeting, the Board approved proposed changes to the program’s statutory language, to be effected legislatively if possible. Executive Director Claudia Armijo concluded that the 2022 legislation is designed to align with the ability to form the auto-IRA partnership with Colorado. Status: Sent to Committees Committee. 

On January 19, Senator Bill Tallman introduced Senate Bill 94. Key elements include: adding an employer requirement (those who have five or more workers and have been in business for 24 months); creating a $300 annual income tax credit as an incentive; and some clarifications (for the first five years of the program, fees and expenses will be capped at 1% of the total value of the program’s assets, declining to 75 basis points).

Virginia (workforce 4.3 million) – We're spotting some legislation introduced to support VirginiaSaves in its next steps. This month Delegate Barry D. Knight introduced HB 30, the state budget bill, which includes a provision that would provide $20 million to cover the start-up expenses of the program. 

Hawaii (workforce 655,000) - The Hawaii Retirement Savings Task Force delivered its final report to State Legislation last month, which included the recommendation to adopt an auto-IRA program for the state’s uncovered workers (estimated at 215,000). The report noted the fast rate of growth of the elderly population in Hawaii, one of the highest in the nation, and the expectation of related fiscal stress on the state (see The Pew Charitable Trusts Article here, also reprinted in the Hawaii Free Press here).

On Jan. 24, Representative Scott Saiki introduced a measure that would establish the Hawaii Retirement Savings Program. House Bill 2046 would create a state-facilitated auto-IRA program for employees of private-sector employers that do not offer a retirement plan. Enrollment of employees would begin in July 2024. Employers that fail to comply with the requirements of the act would be penalized. Also, the bill would create the Hawaii Retirement Savings Board to run the program. The Board would be required, among other things, to provide recommendations relating to the feasibility of expanding the program’s eligibility to self-employed workers.

Mississippi (workforce 1.3 million) - On January 4, Representative Orlando Paden introduced a measure that would establish the Mississippi Secure Choice Savings Program. House Bill 152 would create a state-facilitated auto-IRA program for employees of private-sector employers that do not offer a retirement plan. Enrollment of employees would begin in 2024, with all employees to be enrolled by 2026. Employers that fail to comply with the requirements of the act would be penalized. Also, the bill would create the Mississippi Secure Choice Savings Board to run the program. The bill has been referred to the House Appropriations Committee. 

Missouri (workforce 3.0 million) - On January 6, Representative Michael O’Donnell introduced a measure that would establish the Missouri Workplace Retirement Savings Plan. House Bill 1732 would create a voluntary, state-run open multiple-employer plan (MEP) for small employers (those with no more than 50 workers). Members would be able to begin contributing under the plan no later than September 2024. Also, the bill would create the Missouri Workplace Retirement Savings Board to run the program. The bill has been referred to the Rules - Administrative Oversight Committee.

Pennsylvania (workforce 6.3 million) - Don’t miss a great article by our friend John Scott of the Pew Charitable Trusts’ Retirement Savings Project on the introduction of the Keystone Saves Retirement Program. Also in local news, Representative Gary Day, chairman of the Aging Committee said “This is a program that will actually help people prepare for their own retirement”. The AARP calls it "crucial legislation." The Greater Lehigh Valley Chamber of Commerce agrees. Here’s a great place to stay informed. 

Rhode Island (workforce 540,000) - On January 6, SB 2014, the Rhode Island Secure Choice Retirement Savings Program Act, was introduced in the Rhode Island Senate. The measure would create a state-facilitated Auto IRA program for employees of private-sector employers that do not offer a retirement plan. The measure calls for investment options to be designed reflecting different risk profiles, and that prioritize the securities of companies that demonstrate “good governance, efficient use of environmental resources and thoughtful management of social impact”. Status: referred to Senate Finance Committee. 

Retirement-linked emergency savings – does it work?

Americans have historically struggled to save money, for several reasons. According to a 2020 report by the Federal Reserve, 35% of Americans would be unable to pay an unexpected $400 bill out of their savings (others report up to 45%), and most would pay for it by going into credit card debt. Of those,12% would be unable to pay the expense by any means.

Even before Covid-19, many Americans were living check to check, because of the costs of housing and childcare, student debt payments, medical bills, and the rest. And while the pandemic has presented Americans of all income levels with financial challenges, these hardships have been exacerbated for low- and middle-income families. As experts suggest, it’s more clear now than ever before that “financial insecurity and racial inequity destabilize not only our households, but also our democracy and the economy”.

Are there ways to help our families weather financial hardships?

Yes, there are! Linking emergency savings and retirement savings is one of several ways to meet people’s emergency savings needs. Sometimes you’ll hear this described as “sidecar” accounts.

There are plenty innovative ideas out there. UPS and Prudential are helping workers build-up their emergency fund by offering programs that automatically deduct money from paychecks. Another great example is Maryland$aves, a state-facilitated automatic enrollment payroll savings program that is scheduled for launch this summer. Its default investment option will be a liquid emergency savings account combined with a professionally managed Roth IRA retirement account.

So far, evidence has been encouraging. One needs look no further than the cutting edge of workplace emergency savings: Nest Jars.

There might be plenty of debate about its effectiveness. But the evidence around the logic for why we think tools like sidecar models (done well), can have a positive impact, is already strong. Although there are still some gaps in our understanding on key design choices, it’s worth learning more from these examples. So, keep an eye out for Jar’s final program evaluation.

Watch this space! / Paulina

Paulina Diaz is a public finance optimist whose woven together a career of public service and philanthropy. Paulina believes in using data frameworks to drive further impact and restoring the idea of maximizing people’s opportunities through public policy, research, and innovation. 

Do not miss these! OK, this first one is just us. Do State and Local Fiscal Recovery Funds provide a funding opportunity for states who want to establish retirement savings programs to “respond to the far-reaching public health and negative economic impacts of the pandemic, by supporting … helping households, small businesses, impacted industries, nonprofits, and the public sector recover from economic impacts”? We think they do. Check with your attorney.

As we begin the year, Nasdaq posted a great summary of the 14 states with retirement program mandates to help individuals save for retirement. As for state program legislation, American Society of Pension Professionals & Actuaries (ASPPA) posted a run through of a few measures introduced so far this year.

“40 million workers in America do not have access to a workplace retirement savings program.” Check out the Aspen Institute Financial Security Program’s latest reports designed to accelerate the development of a truly inclusive savings system. 

When we are not watching TikTok (thank you Anna, you know who you are), we’ve made it to the midsection of Scott Miller’s The President and the Assassin. Watching to see how Miller will knit together the spread of US governance across the globe in the 1890’s (think: Cuba, Hawaii, Guam, and the Philippines, to name a few) with Anarchism in the Western hemisphere during the same period – ultimately leading to the demise of President Wm. McKinley – don’t spoil it, we haven’t read the end yet.

Tennis fan alert! Thought leader Angela Montez is an avid tennis player and fan. Here’s a shot of Angela and her husband, Perry, at the French Open - second of the major events that make up the annual Grand Slam of tennis. Very cool!

When she’s not rocking the court, Angela loves to cook, including Paella. She admits she has over 5 Paella pans -- the one that’s pictured here serves 20 people. We are just waiting for our invitation. Just waiting …

Finally, get ready for the “awwwwwwwe” - meet Chico, Angela’s trusty assistant when she is working from home. We love you ❤️Chico. Super handsome.

That’s it for this edition. ❤ Hug your people and change the world.

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Massena Associates provides process, policy, and implementation consulting on retirement savings programs and products.

If you’d like to explore working together, we welcome the conversation. Connect with us here, and at 339-236-0684.

Looking for a great retirement savings innovation resource? Led by Dr. Alicia Munnell, the Center for Retirement Research at Boston College develops and hosts terrific content and proprietary research related to states, financial security, social security, and more.

The Georgetown Center for Retirement Initiatives, Exec Angela Antonelli, provides excellent information on state-based and other retirement security innovation and policy.

Pew’s Retirement Savings Project studies the challenges and opportunities for increasing retirement savings and is another great resource - check out the work of John Scott and his terrific team.

If you want a great source of broad-based, consumer-focused retirement news, Jeffrey H. Snyder’s The Morning Pulse is your ticket. You can subscribe here.