New Retirement Plan Proposals Should Include Everyone

September 17, 2012 ( – Any new retirement income tier adopted by the U.S. government should not just target those without access to a retirement plan, a new paper asserts.

Researchers from the Center for Retirement Research at Boston College (CRR) point out that only 42% of private-sector workers are covered by any type of employer-provided retirement plan.This lack of coverage creates two types of problems. First, more than one-third of households are not covered at all during their whole work life and are entirely dependent on Social Security in retirement. Given the low level of Social Security replacement rates – particularly for those who claim benefits at 62 – this reliance is likely to produce inadequate retirement income, the paper says.    

Secondly, with a mobile work force, people are moving in and out of employer-based coverage, leading to modest accumulations in 401(k) plans.   

Clearly, more retirement saving is needed, but the researchers contend that designing simpler plans in the hope that they will appeal to small business has not worked in the past and is unlikely to work in the future.The researchers conclude that the President’s Automatic IRAs, Senator Harkin’s Promise Funds (see “The Retirement Security Crisis and a Plan to Solve It,) and state proposals to use public plan infrastructure to improve private sector coverage are all welcome initiatives, but “given the modest replacement rates from Social Security and the low level of 401(k) balances, the more comprehensive the additional tier the better.”  

The CRR Issue Brief can be downloaded here.