State Auto-IRA policies and firm behavior: Lessons from administrative tax data

Several states have recently attempted to boost retirement saving by adopting “auto-IRA” policies that require employers not currently offering an employer-sponsored retirement plan (ESRP) to either (1) establish an ESRP or (2) enroll employees in state-facilitated Individual Retirement Accounts (IRAs). We identify the effect of these state policies on firm decisions to offer ESRPs, exploiting the phased rollout of these policy treatments across states and employer size categories. Using U.S. tax microdata, we estimate that about 17% of treated firms have been induced to offer an ESRP by these policies, although there is substantial heterogeneity in these effects across firm and worker characteristics. This effect is large considering that, for employers, establishing and maintaining an ESRP is more costly than utilizing the state-facilitated IRAs. We explore both rational and behavioral explanations for why firms might choose the higher-cost option to comply with state auto-IRA policies.