Delaware Lawmakers Approve Auto-Enrollment for State 457(b) Plan

Delaware lawmakers approved legislation that will require automatic enrollment for new state hires into the state’s 457(b) deferred compensation plan, moving the measure one step closer to becoming law. The bill passed the Delaware House of Representatives on June 11 with a 32-to-8 vote and cleared the Delaware Senate unanimously on June 30. Governor Matt Meyer, a Democrat, is expected to sign the measure, which would establish the default contribution rate for new employees at 3% of their compensation.

Default Contribution and Flexibility

Under the bill, the Delaware Defer program would automatically deduct 3% of an employee’s salary. The Delaware Plans Management Board has the discretion to increase this default contribution rate by either 1% or 2% of compensation annually, with a cap of 15% of compensation. The text of the bill notes that contributions will begin within 90 days of an employee starting their job with the state. Employees retain the right to adjust these contributions and can also choose to opt out of the plan within 120 days of hiring, with the option to have those contributions refunded.

State employees covered by a collective bargaining agreement would have the choice to participate in the program. The Delaware Public Employees Retirement System, which manages $16 billion in assets and oversees nine different pension plans for public workers, administers the state’s retirement benefits. While nearly all public employees in Delaware are covered by this system, the state also offers Delaware Earns, a separate program designed to help private sector workers without access to employer plans save for retirement.

Broader Context and Support

“Bridging the retirement gap has been a top priority for my office,” Delaware Treasurer Colleen Davis said in a statement. “Automatic enrollment means that saving becomes the default rather than the exception, and that’s the kind of common-sense change that makes a meaningful difference in people’s lives.” Delaware State Senator Trey Paradee, the sponsor of the state senate version of the bill, echoed this sentiment, noting that “Too many people put off saving for retirement because it takes an extra step they never get around to.”

Automatic enrollment is now a standard feature in the private sector 401(k) market, but public sector 457 plans generally require specific state authorization. Delaware’s action follows a national trend accelerated by the SECURE 2.0 legislation and growing concern regarding retirement preparedness. The National Association of Government Defined Contribution Administrators reports that 15 states now allow for some form of auto enrollment for public sector employees, with 12 offering full auto-enrollment and 23 prohibiting it entirely. According to the association, 94% of public employees who are automatically enrolled in state plans remain enrolled.

This policy shift places Delaware among a growing number of jurisdictions prioritizing ease of access to retirement savings. Unlike the rigid structures of the past, which often treated participation as an opt-in exercise requiring active decision-making, the new law effectively removes the initial friction of enrollment. By making saving the default option, the state reduces the psychological barrier that often prevents individuals from starting their retirement journey, a strategy that has proven effective in various financial contexts where inertia is the primary obstacle to action.

State Treasurer Colleen Davis emphasized that the legislation addresses the reality of human behavior regarding financial planning. The mechanism creates a safety net for workers who might otherwise neglect long-term planning due to lack of time or knowledge. Removing the burden of decision-making shifts the focus toward actual saving, ensuring that resources are directed toward future security without requiring additional effort from the individual.

Legislators highlighted that the measure aligns with broader efforts to modernize public sector benefits. The approach mirrors private industry standards, where automatic enrollment has become the norm for retirement plans. This alignment helps ensure that state employees are not disadvantaged compared to their private sector counterparts in terms of retirement security.

Alabama Governor Kay Ivey vetoed a similar auto-enrollment bill passed by the legislature, marking a contrast in how different states are addressing the same retirement savings challenge. This divergence highlights the ongoing national debate over the best methods to encourage retirement savings among public workers.

Alaska’s similar measure was also vetoed, while Philadelphia has passed its own auto-enrollment legislation. These developments illustrate the varied approaches states are taking to tackle retirement preparedness.