Five Ways to Improve Retirement Security in the U.S.

The Aspen Institute Financial Security Program lays out ways industry leaders and policymakers can improve Americans’ retirement outlook, including expanded access to plans and help with emergency savings.

Given the fact that nearly half of households headed by someone age 55 or older have no retirement savings and that one estimate puts the median retirement account balance across all savers at $40,000, the Aspen Institute Financial Security Program convened its third annual Leadership Forum on Retirement Savings.

More than 70 experts and industry leaders explored feasible solutions over the course of two days. By Forum’s end, participants had identified five ideas most ready for advancement.

The first idea is to expand the state-sponsored, mandated retirement plans. “This solution is a combination of both market and policy solutions,” Karen Biddle Andres, director of policy and market solutions and retirement work at the Aspen Institute, tells PLANSPONSOR. “From the policy side, it is the states that are leading the way and passing legislation. We are eagerly watching the development of these plans as well as the possibility of federally mandated retirement plans. There is a lot of interest in a federal plan, and there are bills on the Senate floor that would provide for this.

“On the industry side,” Biddle Andres continues, “there is a role for recordkeepers and payroll companies to get these small employers enrolled in a retirement plan, so it is a combination of both the private and the public enterprise to scale these programs.”

The second idea is to expand savings options for short-term emergencies. “Many American families are one bill away from serious money troubles, and the absence of any financial cushion makes long-term saving more difficult,” the Aspen Institute Financial Security Program says in its report summarizing the Forum, titled “The Time Is Now: Next Steps Toward a More Secure Retirement for All Americans.” “Pairing a short-term savings plan with a workplace retirement plan is currently showing promise in marketplace testing, but more regulatory guidance is called for.”

Biddle Andres says: “A lot of emergency savings products already exist in the banking sector, and there are a handful of recordkeepers, like Prudential, that are experimenting with solutions, but there is a lack of regulatory clarity. The current banking law doesn’t explicity allow employers to automatically enroll participants in an emergency savings program that combines short-term and long-term savings. The U.K. is piloting such a program, but here in the U.S., we are waiting on regulatory clarity.”

The third idea is to expand coverage by making it possible for more employers to offer a retirement plan. “The open multiple employer plans (MEPs) that the SECURE Act would allow is the jumping off point,” Biddle Andres says. “We want to explore other organizations or non-profits that could serve as a plan sponsor and fiduciary, such as an alumni association or another institution that people are tied to for life. This would require innovation on both the policy and market sides. Is there some institution that hasn’t been invented yet that could bear the fiduciary responsibility for a plan?”

The fourth initiative the Forum put forth is to offer retirement plan participants lifetime income options. “The SECURE Act would pave the way to allow plan sponsors to introduce annuities in 401(k) and 403(b) plans, but this is only one kind of lifetime income solution,” Biddle Andres says. But the problem with annuities is that people are hesitant to turn over the savings to a single institution and hope that it will continue to exist throughout their retirement, she says. As well, sponsors are “gun shy” about their fiduciary responsibilities when offering such a solution, she adds.

Rather, she suggests, what if target-date funds (TDFs) were designed to offer lifetime income?

Finally, the Forum notes that between 33% and 47% of retirement plan participants withdraw part or all of their retirement savings when they switch jobs, with the lost savings amounting to between $60 billion and $105 billion a year. Participants at the Forum suggest that could be circumvented if people had a lifetime retirement savings account that moved with them from job to job.

“Imagine a future where you have a portable account that follows you throughout your life,” Biddle Andres says. “Imagine a future where you have a personal account offered by the state or federal government that always follows you.”

The Forum’s report says that these measures are greatly needed, as 60% of Americans do not own a retirement account, and 40% lack even $400 in emergency savings. Self-employed, part-time, small business and gig economy workers are shut out of the employer-based system. Retirees are living longer and lack the necessary tools to make their savings last.

“As long as it remains optional for employers to offer workplace savings, too many Americans will lack long-term financial security,” the Forum says in its report. “While nearly nine of 10 companies with 500 or more employees offer a defined contribution plan, less than half of firms with fewer than 50 employees do the same. What’s more, just one in four workers in short-term or temporary jobs are eligible for a plan. Today’s system works for employees of large companies. What about the rest?”