State Auto-IRA Mandates Boost 401(k) Adoption, With Largest Gains Among Lower-Income Workers

Luke PardueEconomist, Gusto

This post was co-authored by Steve Abbott, Head of Public Policy and Government Affairs at Gusto, and Luke Pardue, Economist at Gusto.

Key Findings

  • State auto-IRA mandates are driving 401(k) adoption amongst the smallest employers: In Colorado, the share of small and midsize businesses (SMBs) that have  at least five employees and offer a 401(k) increased from 25% in July 2022 to 38% in August 2023, as the state enacted a requirement that such firms offer a retirement plan to employees. In neighboring states that did not enact an auto-IRA mandate, the share remained nearly unchanged. Oregon enacted a similar mandate starting January 2023, for firms with 1–4 employees. The share of firms with 1–4 employees offering plans has risen from 7% to 11% as the mandate took effect, while the share of firms in neighboring Washington remained at 8-9%.
  • The increases in firm 401(k) adoption is translating into higher employee enrollment rates, with the greatest boost among the lowest-earning employees: in Colorado, rates of 401(k) enrollment have nearly doubled across workers making less than $25k per year. Before the mandate, just 10% of employees making $15,000– $25,000 per year participated in a retirement plan, and that share is 19% today.
  • The smallest businesses have seen the largest boost in retirement coverage: In Colorado, the largest increases in plan adoption were among 5–9 employee firms, where the portion of firms offering these plans rose by 52%. Before the mandate, 19% of firms with 5–9 employees offered a 401(k), and today 28% of firms offer retirement benefits.
  • The requirement that firms offer a retirement plan is not just increasing firm participation, but is likely improving employee financial security as well: In Colorado, the portion of employees enrolled in 401(k)s at firms subject to the mandate increased from 24% to 32%, with a current average 401(k) deduction of $383 per month. 401(k) plans have higher contribution limits, often come with employer matching contributions, and a wider selection of investment options, which in many cases have lower fees than the options in the state plans.


One of the broadest pushes of state legislation over the past several years has been the effort to increase employer offerings of, and employee participation in, retirement savings plans through state-administered Individual Retirement Accounts (IRAs), known as state auto-IRAs.

Since Oregon Saves first started operating in 2017, state-facilitated retirement savings have approximately $1 billion in total assets. Currently, there are seven state auto-IRA programs operating, with eight more states in various stages of implementation, bringing the total to 15 State auto-IRA programs

In these plans, the state typically requires an employer that does not offer a retirement plan either to enroll their employees in the state-sponsored program, with a default contribution rate, or to offer an employer-sponsored retirement plan, such as a 401(k). This requirement applies to employers of a certain size depending on the state. For example, Oregon requires employers with only one employee to comply, while the threshold in Virginia starts at 25 employees. These state plans charge no fee to the employer and employees are free to opt out of contributing at any time.

Gusto’s Government Affairs and Economic Research teams collaborated on this analysis to understand the impact of state auto-IRAs on small businesses and their employees. Last year, we observed that the California Savers 5+ employee deadline for compliance caused a substantial increase in employers offering 401(k)s. Oregon’s recent 1+ employee deadline and Colorado’s 5+ employee deadline have provided another opportunity to study the impact of State auto-IRA mandates on private retirement plan formation.

We find that auto-IRA compliance deadlines are a significant driver of 401(k) adoption, and the beneficiaries are generally lower-earning employees of small firms. The compliance deadlines are acting as a decision point for employers without retirement plans, and the data show that a higher percentage are choosing to offer a 401(k) in auto-IRA states post-deadline. Increased employer-sponsored plan coverage coupled with the accessibility of the state auto-IRAs is clearly closing the retirement savings coverage gap that has persisted for years across the country. 
Seemingly every legislative cycle additional states enact an auto-IRA law, and with recent federal law changes designed to incentivize more employers to offer plans, the trend of increased 401(k) offerings by small businesses will likely continue.

Colorado’s mandate increased 401(k) adoption by 45%

To explore the effects of these state auto-IRA requirements, we first look at trends in the share of firms subject to these mandates over time, in comparison to neighboring states. In Colorado, lawmakers enacted a requirement that companies with five or more employees participate in a public or private retirement plan starting no later than June 30, 2023. 

As shown in Table 1, from one year before that mandate went into effect through August 2023, the share of 5+ companies in Colorado that offer a 401(k) plan increased 45% (or 13 percentage points), from 25.3% to 38.0%. In neighboring states that do not have such a requirement (Arizona, Utah, Nevada, Kansas, and Nebraska), the share remained nearly flat, moving up from 20.4% to 21.2%. New Mexico offers voluntary state-administered IRA, but over this time period has also seen rates of employee participation nearly the same as states without a mandate.

July 2022August 2023
Neighboring states
(Arizona, Utah, Nevada,
Kansas, Nebraska)
New Mexico21.5%21.1%

Figure 1 presents trends in company plan adoption across Colorado and neighboring states. While the trend across neighboring states remains flat over time, companies in Colorado started adopting 401(k) plans at increased rates ahead of the deadline in early 2023, when the state started reaching out to companies to notify them of this new requirement. This change in Colorado as the mandate went into effect, coupled with the flat trend in similar states, is strong evidence that these state auto-IRA mandates meaningful increase firm participation in employee retirement plans.

Oregon’s 1-4  employee deadline also boosted firm 401(k) participation

We also examine the effects of a second, similar law recently enacted in Oregon, which requires firms with 1–4 employees to participate in an auto-IRA program starting after January 2023. Firms with five or more employees in Oregon were already subject to such a mandate, so here we look only at 1–4 employee firms in Oregon and in neighboring Washington. In Oregon, the share of firms with 1–4 employees offering a 401(k) plan has risen from 7% to 11% from January 2023 to August 2023, while the share of firms in neighboring Washington ticked up much more slowly, from 7.7% to 8.6%.

% of 1-4 Employee Firms
with a 401(k) offering:
January 2022
% of 1-4 Employee Firms
with a 401(k) offering:
August 2023

The smallest firms have seen the largest boost in 401(k) adoption rates

Looking at how the rates of employer participation changed across firm size, companies of all sizes saw increases, but these mandates increased participation the most among firms with the fewest employees. In Colorado, firms with 1–4 employees saw virtually no increase (with shares moving from 8.0% to 8.3%), which was expected as those firms were not subject to the mandates. Firms with 5-9 employees, on the other hand, saw a 52% spike in 401(k) adoption rates (with shares rising from 18.6% to 28.2%). Firms with 10–24 employees and 25 or more employees saw a 37% and 43% increase in adoption rates, respectively.

Firm Size% of Colorado firms
with a 401(k) offering:
July 2022
% of Colorado firms
with a 401(k) offering:
July 2023
1-4 employees8.0%8.3%
5-9 employees18.8%28.2%
10-24 employees30.0%41.0%
25+ employees40.9%58.4%

Firm adoption is boosting employee 401(k) participation among low-earning workers

Finally, we examine whether employees are meaningfully participating in these state auto-IRA plans after these mandates take effect. These plans are designed to raise the likelihood that employees take part in and contribute to these accounts, with auto-enrollment into the plans and default contribution rates of 3%–5% across states. 
Looking again at the mandate in Colorado, there are strong signs that employees are taking part in these plans at increased rates. From July 2022 to August 2023, the share of Colorado employees at firms subject to this mandate who are enrolled in a retirement plan has increased from 24.2% to 32.2%, while the share at similar firms in neighboring states has ticked down slightly from 20.5% to 18.9%. Furthermore, the current average 401(k) deduction among employees at these Colorado firms is $383 per month.

Importantly, the largest effects of these mandates are seen among low-income workers. In Colorado, rates of 401(k) enrollment have nearly doubled across low-income workers at firms subject to the mandate. Among workers making less than $15,000 per year, the share with a 401(k) rose from 8.7% to 16.4%; among workers making $15,000–$25,000 per year, the share rose from 9.8% to 18.7%. On the other hand, rates of participation among higher earners rose at a slower pace: the share of workers making $150,000 or more increased from 60.8% to 69.0%.

Portion of Employees in CO 5 EE+ Companies with a 401(k), by Salary Bucket

Annual Earnings% of workers at 5+
employee firms
enrolled in a 401(k):
July 2022
% of workers at 5+
employee firms
enrolled in a 401(k):
July 2023
Less than $15k8.7%16.4%
$150k +60.8%69.0%

The takeaway: Auto-IRAs present an opportunity for small businesses

Over the past several years, states have made a concerted effort to improve worker’s long-term financial security by mandating that employers in the state enroll employees in either an auto-IRA or a private 401(k). Comparing firms in Colorado and Oregon to neighboring states, we see significant increases in 401(k) plan formation among small businesses. Employee participation in these plans is also rising—and this rise is driven by the lowest-earning workers, who historically have been the least likely to contribute to retirement plans. 

Previous Gusto research also finds there are advantages to business owners who offer such retirement plans: firms that offer employees a 401(k) can reduce employee attrition by 40% on average over one year. Thus, as the recognition of the importance of financial benefits continues to grow, firms still have an opportunity to differentiate themselves in the competitive job market by helping employees participate in these no-cost or low-cost retirement programs.


In this post, we analyze trends of 401k offerings and participation from payroll data of Gusto’s 300,000+ small and midsized businesses around the time that state auto-IRA mandates were enacted. Company-level 401k offering and employee-level participation data are identified at the monthly frequency through firm payroll filings and aggregated to the state-business size level. Data presented for individual states or groups of neighboring states represents a sample size large enough to make statistically meaningful comparisons.

Luke Pardue Luke Pardue was an Economist at Gusto, researching how public policies help small businesses and their workers thrive. He received his Ph.D. from the University of Maryland, where he studied the effects of government programs on disadvantaged populations’ housing and labor market outcomes.
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