“It’s a crisis.” Why more workers need access to retirement savings

Most American workers dream of a comfortable retirement.

Yet many find that their money falls short of this goal when they reach their golden years.

Much of the problem is related to the evolution of the pension system. Retirement plans that guaranteed a post-career income stream from employers have given way to 401(k) plans and other retirement accounts that place the responsibility of saving on workers themselves.

On Thursday, leaders from private and public industry gathered in Washington, D.C., at an event hosted by the Employee Benefits Research Institute to identify ways to better help workers avoid a shortage. to win.

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US Labor Secretary Marty Walsh recalled how his father, a construction worker, retired with a pension and annuity that allowed his mother to remain financially stable when he died.

“There are too many Americans who don’t have that future stability,” Walsh said. Having a retirement plan is an “essential part” of a good job, he added.

Still, many Americans have no savings or retirement plans, and many of these workers are nearing the end of their careers, Walsh said.

For people of color, the situation is even worse, he noted. Only 36% of black households between the ages of 55 and 64 have retirement savings, and that number drops to 30% for Hispanic households. Those with savings often have very little on hand, according to Walsh.

“This is a crisis that we have to deal with in the United States of America,” Walsh said.

Many people don’t save for retirement because they don’t have the opportunity.

As many as 57 million Americans do not have access to a workplace retirement savings plan, said Ed Murphy, president and CEO of Empower, a retirement services provider.

“We know that if people aren’t covered by workplace savings, they don’t save,” Murphy said. “If they don’t have access to it through payroll deduction, they just aren’t saving.”

Employers that don’t offer retirement plans include small businesses like child care centers, hair salons, auto shops and restaurants that are “just trying to make it work,” Walsh noted.

The lack of pension plan coverage presents an opportunity for the financial industry and government to work together to find solutions, Walsh said.

“For too long, the message to workers has been that you’re not saving enough,” Walsh said. “And that may be true, but that’s certainly not the whole story.”

California is one of the few states that has introduced automatic Individual Retirement Accounts to help bridge this gap for workers who don’t have access to retirement plans through their employers.

The program, called CalSavers, was opened in 2019 to employers with five or more employees. Those who opt out are required to begin offering their own retirement plan, under California rules.

CalSavers is seeing positive results, according to Katie Selenski, the program’s executive director.

Approximately 65% ​​of employees who are automatically enrolled in the program remain.

“We’re incredibly proud of them, especially considering that they really don’t receive any financial incentives,” such as correspondence through their employer or the state, Selenski said.

About half of the 230,000 California employers who have been subject to the mandate so far have opted into the program, while the other half have signed up for an exemption because they chose to offer a private plan.

With other states offering similar programs, including Oregon and Illinois, there are 600,000 participants in state retirement accounts, she said. The mandates also encourage employers to consider offering their own pension plans.

“We know we have an effect on the formation of new plans, and that’s exciting because, by any objective measure, 401(k)s are better than Roth IRAs,” Selenski said.

This is because 401(k) plans have higher annual contribution limits, and they don’t restrict participation based on income, allowing savers to put more money aside. However, savers may want to carefully consider the benefits of saving before tax versus saving after tax when making their contributions.

To really fix the program for a lack of access to pension plans, there needs to be a federal mandate for the formation of workplace plans with incentives, Murphy said.

“Unfortunately, I don’t think Congress will go that far because there’s no level of support, especially on the Republican side,” Murphy said. “But I think that’s what it takes.”

The senses. Rob Portman, R-Ohio, and Ben Cardin, D-Md., said they plan to push for changes to the retirement system during the lame session of Congress.

Among the changes proposed by lawmakers are an extension of savings credit to help low-income workers increase their retirement savings; expand support for small businesses to provide retirement plans through tax credits; adding catch-up contributions for older workers who may have fallen behind on their retirement savings; and increasing the age of required minimum distributions.

Lawmakers hope to advance the changes with Secure 2.0, a package aimed at advancing retirement legislation passed in 2019. For Portman, who is retiring from the Senate, the legislation could be a final step forward.

“It’s the last two weeks of the session, and the question is, can we fit this into a package that’s otherwise on the move, or if not if it’s popular enough, we can take it on its own,” Portman said. about the lame duck session.

It all depends on whether the changes will be a priority before the end of the year, Cardin acknowledged.

“I don’t think there’s a lot of controversy about the substance of what we’ve done,” Cardin said. “The question is whether it will be a priority that we can accomplish it in the days that remain.”