Finance

Many economists believe that generative artificial intelligence (AI) is about to transform the global economy. A paper published last year by Ege Erdil and Tamay Besiroglu of Epoch, a research firm, argues that “explosive growth”, with gdp zooming upwards, is “plausible with ai capable of broadly substituting for human labour”. Erik Brynjolfsson of Stanford University has said that he expects ai “to power a productivity boom in the coming years”.For such an economic transformation to take place, companies need to spend big on new software, communications, factories and equipment, enabling AI to slot into their production processes. An investment boom was necessary to allow previous technological breakthroughs, such as the tractor or the personal computer, to spread across the economy. From 1992 to 1999 American nonresidential investment jumped by 3% of gdp, for instance, driven in large part by extra spending on computer technologies. Yet so far there is little sign of an ai splurge. Across the world, capital expenditure by businesses (or “capex”) is remarkably weak.image: The EconomistAfter sluggish growth in the years before the covid-19 pandemic, capex increased as lockdowns lifted (see chart). In early 2022 it was rising at an annualised rate of about 8% a year. A mood of techno-optimism had gripped some businesses, while others sought to firm up supply chains. Capex then slowed later the same year, owing to the effects of geopolitical uncertainty and higher interest rates. On the eve of the release of OpenAI’s GPT-4 in March 2023, global capex spending was growing at an annualised rate of about 3%.Today some companies are once again ramping up capex, to seize what they see as the enormous opportunity in ai. This year forecasters reckon that Microsoft’s spending (including on research and development) will probably rise by close to 20%. Nvidia’s is set to soar by upwards of 30%. “AI will be our biggest investment area in 2024, both in engineering and compute resources,” reported Mark Zuckerberg, Meta’s boss, at the end of last year.Elsewhere, though, plans are more modest. Exclude firms driving the AI revolution, such as Microsoft and Nvidia, and those in the S&P 500 are planning to lift capex by only around 2.5% in 2024—ie, by an amount in line with inflation. Across the economy as a whole, the situation is even bleaker. An American capex “tracker” produced by Goldman Sachs, a bank, offers a picture of businesses’ outlays, as well as hinting at future intentions. It is currently falling by 4%, year on year.Surely, with all the excitement about generative AI’s potential, spending on information technologies is at least soaring? Not quite. In the third quarter of 2023 American firms’ investment in “information-processing equipment and software” fell by 0.4% year on year.image: The EconomistSimilar trends are observable at a global level. According to national-accounts data for the oecd club of mostly rich countries, which go up to the third quarter of 2023, investment spending—including by governments—is growing more slowly than in the pre-pandemic years. A high-frequency measure of global capex from JPMorgan Chase, another bank, points to minimal growth. With weak capex, it is no surprise that there is little sign of productivity improvements, according to a real-time measure derived from surveys of purchasing managers (see chart).An official survey in Japan does point to sharply higher capex growth in the future, after years of sluggishness. Yet this probably reflects factors specific to that country, such as reforms to corporate governance. And in most places outside America the situation is rather less encouraging. A worsening outlook for the economy in Europe does not help. Investment intentions of services companies in the European Union are less than half as ambitious as they were in early 2022. British businesses plan to raise capex by a mere 3% over the next year, compared with 10% when asked in early 2022.These trends suggest one of two things. The first is that generative AI is a busted flush. Big tech firms love the technology, but are going to struggle to find customers for the products and services that they have spent tens of billions of dollars creating. It would not be the first time in recent history that technologists have overestimated demand for new innovations. Think of cryptocurrencies and the metaverse.The second interpretation is less gloomy, and more likely. The adoption of new general-purpose technologies tends to take time. Return to the example of the personal computer. Although Microsoft released a groundbreaking operating system in 1995, American firms only ramped up spending on software in the late 1990s. Analysis by Goldman Sachs suggests that while only 5% of chief executives expect AI to have a “significant impact” on their business within one to two years, 65% think it will have an impact in the next three to five. AI is still likely to change the economy, but with a whimper not a bang. ■ More

Coinbase told CNBC exclusively that it entered into an agreement to buy an unnamed holding company which holds a Mifid II license.
With a Mifid II license, Coinbase will be able to begin offering regulated derivatives, like futures, in the EU, in addition to spot trading in bitcoin and other cryptocurrencies which it already offers.
Derivatives could be a key battleground for Coinbase, accounting for roughly 75% of overall crypto trading volumes.

LONDON, ENGLAND – NOVEMBER 09: In this photo illustration, a flipped version of the Coinbase logo is reflected in a mobile phone screen on November 09, 2021 in London, England. The cryptocurrency exchange platform is to release its quarterly earnings today. (Photo illustration by Leon Neal/Getty Images)
Leon Neal | Getty Images News | Getty Images

Coinbase plans to offer crypto-linked derivatives in the European Union, and it’s planning to acquire a company with a license to do so.
The U.S. cryptocurrency exchange told CNBC exclusively that it entered into an agreement to buy an unnamed holding company which owns a MiFID II license.

MiFID II refers to the EU’s updated rules governing financial instruments. The EU updated the legislation in 2017 to address criticism that it was too focused on stocks and didn’t consider other asset classes, like fixed income, derivatives and currencies.
It’s part of a long-standing ambition by Coinbase to serve professional and institutional customers.
The company, which began 12 years ago, has been seeking to expand its offering to institutions such as hedge funds and high-frequency trading firms over the last several years, looking to benefit from the much higher sizes of transactions done by these kinds of traders.
If and when Coinbase completes the deal, the move would mark the first launch of derivatives trading by the company in the EU.
With a MiFID II license, Coinbase will be able to begin offering regulated derivatives, like futures and options, in the EU. The company already offers spot trading in bitcoin and other cryptocurrencies.

The deal is subject to regulatory approval and Coinbase expects it will close later in 2024.
“This license would help expand access to our derivatives products by allowing Coinbase to offer them to eligible European customers in select countries across the EU,” Coinbase said in a blog post, which was shared exclusively with CNBC on Friday.
“As the industry leader in trusted, compliant products and services, we aim for the highest standards for regulatory compliance, and before operationalizing any license or serving any users, this entity must achieve our Five-point Global Compliance Standard.”

Coinbase said it would look to adhere to rigorous compliance standards that are upheld in the EU, including requirements related to combating money laundering, customer transparency and sanctions.
The company said it is committed to ensuring a five-point global compliance standard, supported by a team of more than 400 professionals with experience at agencies including the FBI and Department of Justice.
“We have a long road ahead before finalizing the acquisition and operationalizing the EU MiFID licensed entity, but this is an exciting step forward in our efforts to expand access to our international derivatives offerings and bring a more global and open financial system to 1 billion people around the world,” Coinbase said in its blog post.

A key battleground

Derivatives could be a crucial battleground for Coinbase. According to the company, derivatives make up 75% of overall crypto trading volumes. Coinbase has a long way to go to compete with its larger rival Binance, which is a massive player in the market for crypto-linked derivatives, as well as firms like Bybit, OKX and Deribit.
According to data from CoinGecko, Binance saw trading volume of more than $56.6 billion in futures contracts in the past 24 hours. That’s seismically larger than the amount of volume done by Coinbase. Its international derivatives exchange did $300 million of futures trading volume in the last 24 hours.
Coinbase does not currently offer crypto derivatives products in the U.K., where they are prohibited. The Financial Conduct Authority banned crypto-linked derivatives in January 2020, saying at the time they are “ill-suited” for retail consumers due to the harm they pose.
Coinbase currently offers trading in bitcoin futures and ether futures in the U.S., and bitcoin futures, ether futures, “nano” ether futures and West Texas Intermediate crude oil futures in markets outside the U.S.
Derivatives are a type of financial instrument that derive their value from the performance of an underlying asset.
Futures are derivatives that allow investors to speculate on what an asset will be worth at a later point in time. They’re generally considered riskier than spot markets in digital assets given the notoriously volatile nature of cryptocurrencies like bitcoin, and the use of leverage, which can significantly amplify gains and losses.

The company made its first move into derivatives in May, with the launch of an international derivatives exchange in Bermuda. And the company debuted crypto derivatives in the U.S. in November after receiving regulatory approval from the National Futures Association.
Coinbase had reportedly considered acquiring FTX Europe, the European entity of the now-collapsed crypto venue, but subsequently shelved the idea, according to reporting from Fortune. CNBC has not been able to independently verify Fortune’s reporting.

Expanding beyond U.S.

The move into derivatives continues Coinbase’s expansion drive in markets outside of the U.S.
Coinbase has been aggressively chasing international expansion in the past year as it faces a tougher time at home. The company is the target of a U.S. Securities and Exchange Commission lawsuit alleging it violated securities laws.
In October, the firm picked Ireland as its primary regulatory base in the EU ahead of an incoming package of crypto laws known as Markets in Crypto-Assets (MiCA), and submitted an application for a single MiCA license, which it hopes to obtain by December. 2024 when the rules are slated to be fully applied.
Coinbase also recently obtained a virtual asset service provider license from France, which gives it permission to offer custody and trading in crypto assets in the country. More

Omar Marques | Lightrocket | Getty Images

Crypto investors are eagerly awaiting an imminent ruling from the U.S. Securities and Exchange Commission that will likely approve the trading of a spot bitcoin exchange-traded fund, more than a decade after initial attempts were rejected. 
13 companies have filed for a spot bitcoin ETF: 

Grayscale Bitcoin Trust
Ark/21Shares Bitcoin Trust
Bitwise Bitcoin ETF Trust
BlackRock Bitcoin ETF Trust
VanEck Bitcoin Trust
WisdomTree Bitcoin Trust
Valkyrie Bitcoin Fund
Invesco Galaxy Bitcoin ETF
Fidelity Wise Origin Bitcoin Trust
Global X Bitcoin Trust
Hashdex Bitcoin ETF
Franklin Templeton Digital Holdings Trust
Pando Asset Spot Bitcoin Trust

How the SEC will proceed

There are two components to the applications:
1) A 19b-4 filing, which is a form used by exchanges to inform the SEC of a proposed rule change. In this case, a rule change is required under the Securities Exchange Act of 1934 because a spot bitcoin ETF is a new product, and the exchanges — NYSE, Nasdaq and Cboe — must provide rules to explain how the product will trade. The SEC must approve the rule changes before the product can trade.  This is the filing that is facing a deadline of Jan. 10 for the Ark/21Shares Bitcoin Trust. 
2) Approval of S-1. This is a filing to register a new security with the SEC, in a document that provides information about the specific security. In this case, each company filing for the spot bitcoin ETF has differences in the way the product might be structured. In the case of the Grayscale Bitcoin Trust, an S-3 filing must be approved, which is a simplified security registration form for businesses that have met other reporting requirements. 
It’s widely anticipated that once the 19b-4 filings are approved, the SEC will separately approve the S-1 applications of all the ETF applicants at once. However, because the applications are different, that is not a slam dunk. The SEC may decide to approve some, but not all, of the S-1s. 
Wide spread in fee 
With 13 companies filing for a bitcoin ETF, all of which are similar products, there is substantial interest in what the fee structure will look like. 

Fidelity’s Wise Origin Bitcoin Fund has announced it will charge 39 basis points, or 0.39%. Invesco’s Galaxy Bitcoin ETF has set its expense ratio at 59 basis points, which are waived for the initial six months and the first $5 billion in assets. Ark/21Shares and Valkyrie will charge 80 basis points. 
Grayscale Bitcoin Trust currently charges 2% but has said it’s committed to lowering the fee once its application to convert to a bitcoin ETF is approved. 
Other applicants have not yet announced their fee structure. 
It is unclear who the main regulator of the crypto industry is
All this happens against the backdrop of SEC Chair Gary Gensler’s long-running fight with the crypto industry. 
Gensler has fought several court battles against major crypto players, including a losing battle against Grayscale Bitcoin Trust, which won a case against the SEC last summer. In that case, the U.S. Court of Appeals for the D.C. Circuit ruled that the SEC had already approved a futures-based bitcoin product and that it failed to explain why it had refused to approve a spot-bitcoin product. The court said, in essence, the futures and the spot market are “like” products. If the SEC approved one, it logically had to approve the other. 
Bitcoin has been ruled to be a commodity, but with the exception of ether, there are no such rulings on other cryptocurrencies. In the absence of clear federal rules, the SEC has taken to regulation by enforcement to demonstrate that many cryptocurrencies are securities, and it therefore has regulatory authority over much of the crypto industry. 
There is an outstanding case against Coinbase, the largest U.S. crypto exchange, where the SEC alleges that the company violated rules requiring it to register as an exchange. In that case, the SEC has alleged that some of the crypto assets traded on Coinbase are securities and fall under the SEC’s purview. 
The SEC sued Binance and its founder Changpeng Zhao last June, alleging that Binance and Zhao “engaged in an extensive web of deception, conflicts of interest, lack of disclosure, and calculated evasion of the law,” according to Gensler.
The case is ongoing, but in November, the U.S. Department of Justice settled different charges against Binance and Zhao, wherein Zhao pleaded guilty to money laundering violations and agreed to pay a $50 million fine and step down from his role as the company’s chief executive. Binance also accepted the appointment of a government monitor to oversee the business. 
ARK Invest’s Cathie Wood will be our guest on “Halftime Report” at 12:35 p.m. Monday, and on “ETF Edge” on Monday at 1:10 p.m.-1:30 p.m. ET on ETFEdge.cnbc.com. More

Coinbase, Crypto.com and Gemini are among cryptocurrency exchanges that are asking U.K. users to fill out risk assessments and questionnaires related to their financial knowledge.
The measures are a response to new rules in the U.K. which require crypto companies to make clear to users the risks involved in trading cryptocurrencies and advertise their services responsibly.
If a customer fails to successfully complete the tasks, they will be prevented from trading with their crypto account.

CEO of cryptocurrency platform Coinbase Brian Armstrong attends a reception at Buckingham Palace, in central London, on November 27, 2023 to mark the conclusion of the Global Investment Summit (GIS). (Photo by Daniel LEAL / POOL / AFP) (Photo by DANIEL LEAL/POOL/AFP via Getty Images)
Daniel Leal | Afp | Getty Images

Coinbase, Crypto.com, Gemini and other cryptocurrency exchanges are warning users in the U.K. that they’ll need to start filling out risk assessments and investment questionnaires aimed at testing their financial knowledge.
It comes ahead of tough new rules on the advertising of digital asset products in the country.

The firms have told users in Britain that, starting Monday, they will be required to complete a declaration about what type of investor they are, and respond to a questionnaire on a range of aspects of financial services and regulation to continue using their respective platforms.
In the customer declaration section, users are asked to select their investor profile: either a high net worth individual earning above £100,000 (roughly $126,700) annually or with a net worth of more than £250,000, or a “restricted investor” who won’t invest more than 10% of their assets. Otherwise, they cannot trade crypto.
The financial questionnaires, which vary from exchange to exchange, require users to respond to numerous queries about what range of products the firms offer, the volatile nature of crypto asset prices and the treatment of crypto as a product by financial regulators.
If a customer fails to complete the tasks successfully, they will be prevented from trading with their crypto account.
Since the passing of the Financial Services and Markets Act, a major package of financial services reforms in the U.K., firms that offer crypto and a certain type of digital currency called stablecoins are now covered by the law and must adhere to the same rules as those that govern traditional financial services.

Since Oct. 8, firms seeking to promote cryptoassets in the U.K. to retail customers must be authorized or registered with the country’s Financial Conduct Authority, or have their marketing approved by an FCA-authorized firm.
Coinbase said the changes were made “to ensure we are meeting UK investor protection standards, which require our users to have the necessary knowledge to make informed investment decisions.”
“This process is also part of Coinbase’s commitment to working collaboratively with local regulators so that we can best serve our users now and in the future,” a Coinbase spokesperson told CNBC via email.
A Crypto.com spokesperson gave similar reasoning for the move, saying its changes were made “primarily to ensure customers understand the risks of investing in cryptocurrency, which is a key component of the important consumer protections being put in place by the FCA.”
“We do not expect this to impact user activity in the UK and as always our customer service team is on hand to help with any queries,” George Tucker, U.K. general manager of Crypto.com, told CNBC via email.
“As an authorised Electronic Money Institution and registered cryptoasset business in the U.K., Crypto.com supports and complies with the FCA’s rules and will continue to work with the regulator as we expand our product offering here,” Tucker added.

Crypto firms in a tight spot

Coinbase CEO Brian Armstrong has been an advocate of the U.K.’s role as a crypto hub, particularly as the exchange faces a tougher time at home with the U.S. Securities and Exchange Commission suing the firm over alleged securities law violations.
In April last year, he told CNBC’s Arjun Kharpal that Coinbase was “looking at other markets” to invest in beyond the U.S. and was “probably going to invest more” in the U.K., given in its push to position itself as a crypto hub.
But the new financial advertising regulations have put some crypto firms in a tight spot.
Some crypto companies have suspended their services in the U.K. in response to the new rules. ByBit, an unregistered crypto firm, stopped services to U.K. customers, while Luno said it is halting some U.K. clients from making crypto investments. PayPal, meanwhile, said it is suspending some cryptocurrency services until it brings its crypto arm into compliance with the new rules.
Binance, which was slapped by U.S. authorities with a $4.3 billion settlement over money laundering charges last year, tried in October to get its marketing authorized in the U.K. with a third-party firm. But it was blocked by the FCA, which at the time said it was doing so to protect consumers. More

Black Americans, the group with the highest jobless percentage in the country, saw their unemployment rate dip to 5.2% last month from 5.8% in November.
Still, that’s higher than the overall unemployment rate, which held at 3.7%.

A networking and hiring event for professionals of color in Minneapolis, MN. 
Michael Siluk | Getty Images

The unemployment rate for Black Americans fell significantly in December, closing out 2023 on a positive note, according to data released Friday by the Department of Labor.
Black Americans, the group with the highest jobless percentage in the country, saw their unemployment rate dip to 5.2% last month from 5.8% in November. Still, that’s higher than the overall unemployment rate, which held at 3.7% last month, as well as the 3.5% jobless rate for white Americans.

When accounting for gender, the unemployment rate for Black men aged 20 and older fell to 4.6%, a big decline from the 6.3% rate in November. Black women’s jobless rate remained unchanged at 4.8% in December.
Experts said that while the December number is a good sign, the monthly data could be too volatile to form a trend yet.
“We would caution against reading too much into large swings in monthly data, but in general, demographic groups, including Black Americans, that had traditionally been slower to experience the benefits of a tight labor market have realized stronger employment and wage gains in the current cycle,” Andrew Patterson, senior international economist at Vanguard, told CNBC. 
The Current Population Survey is “very noisy,” especially when looking at smaller populations, according to Julia Pollak, ZipRecruiter’s chief economist. She noted that the unemployment rate for Black Americans in 2023 ranged between 4.7% in April and 6.0% in June. 

Among Black workers, the labor force participation rate inched lower to 63.4% from 63.7% in the previous month.

Black Americans were hit particularly hard by the business shutdowns in the depths of the Covid-19 pandemic, with the unemployment rate for Black workers peaking at 16.8% in 2020. The overall unemployment rate hit a high of 14.7% in April 2020.
More progress needs to be made for Black workers as they still lag every other demographic group in the U.S.
“The unemployment rate among Black Americans staged a significant drop in December, but remains above the lower level seen last year,” Bankrate senior economic analyst Mark Hamrick said. “Still, it remains at historically low levels and still higher than the jobless rate overall and for Whites, Asians and Hispanics.”
For Hispanic Americans, the unemployment rate rose to 5% in December from 4.6% in November.
Don’t miss these stories from CNBC PRO: More

While Tesla’s Model Y was the best-selling purely battery-powered car in China for the six months ending in November, BYD accounted for four of the top 10.
That’s according to China Passenger Car Association data cited by consumer information site Autohome.
Here are the five best-selling BYD new energy vehicles in China, according to the data.

BYD’s new luxury brand Yangwang is selling its first model, the U8, for more than 1 million yuan (US$160,000).
CNBC | Evelyn Cheng

BEIJING — BYD has overtaken Tesla again by the sheer number of new energy vehicles produced in 2023, thanks in part to the Chinese automaker’s hybrids and wide range of offerings in a lower price range.
While Tesla’s Model Y was the best-selling purely battery-powered car in China for the six months ending in November, BYD vehicles accounted for four of the top 10 such cars sold during that time. When including hybrids, seven BYD cars made the top 10 list.

That’s according to China Passenger Car Association data cited by consumer information site Autohome.
Here are the five best-selling BYD new energy vehicles in China, according to the data:

1. Qin Plus

SHENYANG, CHINA – APRIL 01: A BYD Qin Plus DM-i sedan is on display during the Shenyang Auto Show at Shenyang International Exhibition Center on April 1, 2023 in Shenyang, Liaoning Province of China. (Photo by VCG/VCG via Getty Images)
Vcg | Visual China Group | Getty Images

The Qin Plus, BYD’s bestseller — the top-ranked across all new energy vehicles in China — sold nearly 400 more units than Tesla’s Model Y in the six months ending in November.
The compact car comes in hybrid and battery-only versions. It’s part of BYD’s legacy series of cars named after Chinese dynasties. Qin Shihuang was the first leader of a unified China and known for his terracotta warrior burial site.
Price: 99,800 yuan to 176,800 yuan ($13,942 to $24,700)

Range: 420 km to 610 km (261 miles to 379 miles)
For comparison, the Model Y has a driving range of 532 km to 688 km and currently sells for between 266,400 yuan to 363,900 yuan ($37,217 to $50,838) in China.

2. Seagull

SHANGHAI, CHINA – APRIL 18: A BYD Seagull small electric car is on display during the 20th Shanghai International Automobile Industry Exhibition at the National Exhibition and Convention Center (Shanghai) on April 18, 2023 in Shanghai, China. (Photo by VCG/VCG via Getty Images)
Vcg | Visual China Group | Getty Images

The Seagull is a budget-priced boxy hatchback that BYD launched less than a year ago in spring 2023. The battery-only car comes in neon yellow-green, peach, black and white.
Price: 73,800 yuan to 89,800 yuan ($10,310 to $12,545)
Range: 305 km to 405 km (189 miles to 251 miles)

3. Song Plus NEV

SHANGHAI, CHINA – APRIL 18: A BYD Song PLUS DM-i SUV is on display during the 20th Shanghai International Automobile Industry Exhibition at the National Exhibition and Convention Center (Shanghai) on April 18, 2023 in Shanghai, China. (Photo by VCG/VCG via Getty Images)
Vcg | Visual China Group | Getty Images

In third place among BYD bestsellers is the Song Plus, a compact SUV that comes in hybrid and battery-only versions.
Price: 159,800 yuan to 209,800 yuan ($22,325 to $29,310)
Range: 520 km to 605 km (323 miles to 375 miles)

4. Yuan Plus

SHANGHAI, CHINA – APRIL 18: A BYD Yuan PLUS electric SUV is on display during the 20th Shanghai International Automobile Industry Exhibition at the National Exhibition and Convention Center (Shanghai) on April 18, 2023 in Shanghai, China. (Photo by VCG/VCG via Getty Images)
Vcg | Visual China Group | Getty Images

BYD’s Yuan Plus is a compact, battery-only SUV. During the six-month period ended in November, it sold nearly 17,000 more units than the Aion Y, a best-selling electric car from state-owned GAC Motor’s spinoff brand.
Price: 135,800 yuan to 163,800 yuan ($18,972 to $22,883)
Range: 430 km to 510 km (267 miles to 316 miles)

5. Dolphin

A BYD Co. Dolphin compact electric vehicle during a test drive in Yokohama, Japan, on Thursday, Aug. 8, 2023. BYD, the Warren Buffett-backed clean car giant, has sold 1.5 million fully-electric and hybrid passenger vehicles this year through July, half way to its annual target. Photographer: Kentaro Takahashi/Bloomberg via Getty Images
Bloomberg | Bloomberg | Getty Images

BYD’s small Dolphin electric car is another one of the company’s mass market vehicles that comes with the internally developed blade battery.
Price: 116,800 yuan to 139,800 yuan ($16,317 to $19,530)
Range: 401 km to 420 km (249 miles to 260 miles)

Read more about electric vehicles, batteries and chips from CNBC Pro

The blade battery helped spur BYD’s first flagship electric car, the Han sedan, to popularity.
The Han is more expensive than most of BYD’s other cars with a starting price of 209,800 yuan ($29,310) for the battery-only version.
While most of the company’s vehicles cost less, BYD last year also ventured into the high-end of the market with its Yangwang U8, with a starting price of more than 1 million yuan ($140,090).
Chinese electric car startups Nio and Xpeng have both said they are planning to launch mass market brands later this year. Tesla has not yet made such announcements. More

Seven states — California, Colorado, Connecticut, Illinois, Maryland, Oregon and Virginia — had created “auto-IRA” programs by the end of 2023. Others are slated to come on line.
These programs require companies to offer a workplace retirement plan like a 401(k) or facilitate worker contributions into a state-sponsored IRA.
More than 800,000 workers currently participate.

Moyo Studio | E+ | Getty Images

Roughly half of Americans don’t have access to a workplace retirement plan — but states are increasingly stepping in to fill that gap, both for residents’ wellbeing and their own.
About 57 million people — 48% — don’t have access to a pension or 401(k)-type plan at work, according to the University of Pennsylvania’s Pension Research Council. Yet, Americans are 15 times more likely to save for retirement when they have a workplace plan, AARP Research found, and are 20 times more likely to do so if they’re automatically enrolled.

By the end of 2023, seven states — California, Colorado, Connecticut, Illinois, Maryland, Oregon and Virginia — had launched so-called “auto-IRA” programs to try filling the 401(k) access gap, according to Georgetown University’s Center for Retirement Initiatives. Oregon was the first state to do so, in 2017.
More from Personal Finance:More retirement savers are borrowing from their 401(k) planWhy employers can force out small 401(k) accounts once a worker leaves a jobJob data shows two kinds of workers: The ‘haves and have nots’

What is an auto-IRA?

Auto-IRA is shorthand for an automatic-enrollment individual retirement account. These programs require companies of a certain size to offer a workplace retirement plan of their own or facilitate payroll deduction into a state-sponsored IRA, at no cost to the employer.
If the latter, part of workers’ paychecks would be automatically contributed — generally 3% to 5% of earnings — to the state plan. Workers can opt out.
More than 800,000 workers participate in auto-IRAs, which hold more than $1 billion in total savings, according to The Pew Charitable Trusts.

They save about $165 a month, on average, said John Scott, director of Pew’s retirement savings project.

“This is a significant amount of money each month for these workers, many of whom, I’d say, have never saved for retirement in their lives,” Scott said.
About 195,000 employers are facilitating payroll deduction into a state auto-IRA, Pew said. It’s unclear how many other companies instead opted to sponsor their own 401(k) plan or other workplace plan.
More states are poised to bring programs online in the next few years: Delaware, Hawaii, Maine, Minnesota, Nevada, New Jersey, New York and Vermont, according to the Center for Retirement Initiatives.
Other states — such as Massachusetts, Missouri, New Mexico and Washington — have created different programs, in which employer participation is voluntary. Hawaii’s forthcoming program is also slightly different since it doesn’t automatically enroll workers, meaning they must opt in.

Why states are stepping in

There’s a common thread here: A realization that people aren’t saving enough for retirement, Scott said.
Companies have shifted away from pensions in favor of 401(k)-type plans, pushing the savings responsibility more onto workers. The typical saver age 55 to 64 has just $71,000 of 401(k) savings, according to Vanguard data.  
All except the highest-income baby boomers are projected to fall short of a sustainable retirement income, even after accounting for Social Security, according to a separate Vanguard analysis. (High-income boomers are those in the 95th percentile by income. Their median annual income is $178,000.)

This is a significant amount of money each month for these workers, many of whom, I’d say, have never saved for retirement in their lives.

John Scott
director of retirement savings at The Pew Charitable Trusts

Meanwhile, the U.S. population is aging.
In the 1980s, there were 3.9 working-age households for every elderly one, according to the Center for Retirement Initiatives. That ratio has since declined to about 2.5 to 1.
Absent a policy tweak, these trends are expected to put financial stress on states. A growing pool of older adults with too little money to fund their lifestyles may mean states need to spend more on public assistance programs, for example, experts said. Working adults may also need to shoulder a greater tax burden.
Pew estimates that state spending will rise by $334 billion from 2021 to 2040 due to insufficient retirement savings.

Lack of 401(k) access has disproportionate impact

Some lawmakers have tried but failed in recent years to create a national auto-IRA or similar program.
Lack of 401(k) access disproportionately hurts certain groups, like those who work for small businesses, according to the Center for Retirement Initiatives. Access gaps are also larger among lower-income workers, younger workers, minorities and women.
As such, participants in auto-IRAs skew female, younger and unmarried, Pew found. A greater share are people of color and have only a high school education.

Automatic enrollment into such plans is meant as a behavioral nudge to overcome procrastination, a typical roadblock to enrolling in a 401(k) plan. About 30% of people opt out, Scott said.
Since the accounts are Roth IRAs, they can also serve as emergency funds, Scott said. Such accounts allow investors to withdraw their contributions (but not necessarily earnings) at any time and any age without penalty, since they’ve already paid income tax on that money.

Auto-IRA drawbacks: ‘These are not perfect programs’

There are some drawbacks to auto-IRAs, experts said.
For one, IRAs have lower annual worker contribution limits than 401(k) plans: $7,000 versus $23,000 in 2024, respectively. (Just 15% of savers maxed out their 401(k) contributions in 2022, according to Vanguard data.)

Additionally, there isn’t an employer match — the “free” money workers get from companies that sponsor a 401(k) plan. About 80% of 401(k) plans offer a match, according to the Plan Sponsor Council of America.
Auto-IRAs also don’t cover all state workers. Gig workers, for example, don’t have access. The smallest companies may not be required to participate, depending on state rules.
“These are not perfect programs,” Scott said. “But this works. People are saving for retirement.”
Don’t miss these stories from CNBC PRO: More

Billionaire investor Ken Griffin’s various hedge fund strategies at Citadel all posted double-digit returns for 2023, but they failed to beat the broader market.
Citadel’s multistrategy Wellington fund gained 15.3% last year, according to a person familiar with the returns.
Hedge funds on average gained just about 4.4% in 2023 through November, according to research firm HFR.

Ken Griffin, Citadel at CNBC’s Delivering Alpha, Sept. 28, 2022.
Scott Mlyn | CNBC

Billionaire investor Ken Griffin’s various hedge fund strategies at Citadel all posted double-digit returns for 2023, but they failed to beat the S&P 500.
Citadel’s multistrategy Wellington fund gained 15.3% last year, according to a person familiar with the returns. The flagship fund had enjoyed a stellar 2022 with a 38% gain, marking its best year on record.

The Miami-based firm’s tactical trading fund gained 14.8% in 2023, while its equities fund, which uses a long/short strategy, returned 11.6%, said the person who spoke anonymously because the performance numbers are private. Citadel’s global fixed income fund returned 10.9% last year, according to the person.
The stock market pulled off a surprisingly strong 2023 with the S&P 500 climbing 24% on the year. Risk assets enjoyed a big relief rally as the economy remained resilient and inflation cooled, while the Federal Reserve signaled an end to rate hikes and forecast rate cuts later this year. The market also endured a regional banking crisis as well as wars in Ukraine and the Middle East.
However, the volatility and the tricky macro environment made it difficult for certain hedge fund strategies to beat the market. Hedge funds on average gained just about 4.4% in 2023 through November, according to research firm HFR.
Citadel is returning all of 2023’s $7 billion in profits to investors and the firm has handed back about $25 billion to investors since 2018, the person said. The financial giant has about $58 billion in assets under management.
Citadel declined to comment.

Don’t miss these stories from CNBC PRO: More