What is Delaware EARNS, and how will it fight the wealth gap?

Like many things in the 2020s, state-sponsored retirement plan Delaware EARNS came about after social inequities were exposed during the height of the COVID-19 pandemic.

In this case, it was that a lot of frontline workers — especially those who made the lowest wages — had no access to a 401(k) or other retirement plan through their employers.

“We found that somewhere between 150,000 to 200,000 Delaware workers were not offered a retirement plan through their employer,” Delaware State Treasurer Colleen Davis told Technical.ly. “The vast majority of those individuals were in the low- to low-moderate-income household bracket. Even further digging in analysis, we found that Black and brown homes were impacted at even greater rates than white homes.”

Why focus on retirement plans when people are struggling day to day? It comes down to the wealth gap. Financial struggle is about more than the amount of a paycheck — it’s also about generational wealth and a lack of resources. That includes a retirement plan, and the earlier you start saving, the more money you’ll have when retirement age comes around.

“If you don’t have something at work that you’re automatically contributing to for retirement, like a 401(k), you’re never going to actually get around to saving anything for your retirement,” said Ted Griffith, program director for Delaware EARNS. “That’s a big problem for the individual, but it’s also a big problem for society.”

With that in mind, Treasurer Davis and her team began advocating for Delaware EARNS, proposed as House Bill 205, introduced in May 2021. The program gives Delaware workers access to a state-facilitated, IRA-based retirement plan that costs nothing for employers (including no employer matching, so if you do have access to a 401(k) at your job, it may still be the best option.)

There was some pushback at first, mainly from legislators with concerns that the program would take business from the private industry. Still, in the end, it sailed through the House and Senate and was signed into law by Gov. John Carney in 2022.

The program is currently in development and will go into effect on Jan. 1, 2025.

Delaware was inspired by other states with government-sponsored retirement plans (eight so far), Griffin said. As with other similar plans, Delaware workers will be auto-enrolled into the plan, which will deduct a yet-to-be-determined percentage of each paycheck to deposit into the employee’s IRA. Workers may opt out, but the goal is to have as many employees who don’t have 401(k) access stay in the program so they can see their accounts grow over time with regular small deposits.

“This is a potential population of individuals that are truly going to feel [the paycheck deduction],” said Davis. “So if you don’t opt out, we’re generally keeping that rate relatively low. And we know from research that from a financial impact perspective, most people actually don’t realize that there’s much adjustment in their take-home pay until they hit about 10%. If we keep the threshold much lower than that, that’s all people need to get that kickstart.”

Outreach and education, including a financial literacy platform and financial coaching for state employees, are important parts of the program at this stage.

“What I really want to see is a tangible way to close the wealth gap and essentially develop generational wealth for everyone,” Davis said. “This is one way that is tangible and practical. And we can do it. So I’m really excited about it.”