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The average worker can expect to hold 13 different jobs during their career. Job changes expose a weakness in the current 401(k) system, because they increase the risk of cash-outs or lost accounts, reducing savers’ retirement readiness. Between 33 and 47% of retirement plan participants cash out all or part of their retirement savings after a job change, leading to an estimated $60–$105 billion in lost savings each year. Furthermore, about 4.5% of issued retirement checks each year go uncashed, indicating that the recipients have probably lost track of their accounts.

Although estimates vary, up to half of working adults do not have access to a workplace retirement plan at a given time, which makes saving for retirement more challenging. Research has shown that numerous concerns inhibit workers from saving for retirement and that easing these barriers can help individuals increase their long-term savings. In recent years, many states have passed legislation and initiated retirement savings programs to help close the coverage gap. State-facilitated automatic enrollment Individual Retirement Account (Auto IRA) programs provide workers with an opportunity to save for retirement through payroll deduction, which is a common and straightforward way to periodically put money aside for long-term financial security. However, new evidence shows that these state policies also induce employers to establish their own retirement plans.

The public sector is associated with one thing when it comes to retirement: the defined benefit (DB) plan. However, over the past two decades, state and local governments have been quietly grappling with an evolution in the fundamental forms of their retirement benefit systems.

What is the best public policy for getting workers to save for retirement? Why is it important that they save? What works best: legal requirements that workers contribute to defined benefit (DB) pensions or defined contribution (DC) savings plans, or simple freedom of choice in a retirement system based on “every one for themself”?

A look back at the policy landscape that led to state-run retirement plans, and a look ahead to the opportunities as these programs continue to gain steam.

Most of today’s state-facilitated auto-IRA retirement savings programs require employers who do not offer their workers a qualified retirement plan to automatically enroll their workers into an individual retirement account (auto-IRA). Like employer-sponsored defined contribution (DC) plans, auto-IRA programs — first enacted beginning in 2015 — are guided by fiduciary objectives of helping employees build retirement security by encouraging participation and contributions, while facilitating asset diversification and the accumulation of savings. State-facilitated auto-IRA programs have the potential to play a significant role in addressing the gaps and inequities in retirement plan coverage and the accumulation of retirement savings in the U.S.

Once a key employee benefit, corporate defined benefit (DB) plans have been on the decline over the past several decades. The U.S. has seen a dramatic transition from DB to defined contribution (DC) plans.

Conventional wisdom on retirement is misguided. The approaching exhaustion of the Social Security and Medicare trust funds has stoked anxiety over the disappearance of these programs’ support, while dire statistics about Americans’ lack of retirement assets have propelled a belief of chronic under-saving. In the aggregate, neither view is quite right — and this mischaracterization has unearthed calls by some to dismantle the entire system. While the current system has serious flaws, however, it is still worth saving. To do so, policymakers need both an accurate assessment of the system’s shortfalls and a menu of plausible options to improve them.

People are worried about retirement—and understandably so. We’re facing a period of uncertainty marked by higher volatility, inflation, recessionary fears, and an aging population increasingly concerned with outliving their savings. In fact, according to BlackRock’s 2023 Read on RetirementTM Survey, 93% of workplace savers are now worried about market volatility negatively impacting retirement savings and 86% feel worried about inflation eroding their nest egg. Perhaps most startling, only 21% of savers feel very confident that they’ll have enough money to last through retirement.

Employer-sponsored retirement plans (ESRPs) are the largest source of private retirement savings in the U.S., although many workers lack access to such plans. While workers can establish Individual Retirement Accounts (IRAs), many do not. To increase retirement savings, states like California, Oregon, and Illinois are implementing automatic enrollment IRA (auto-IRA) programs. In these states, employers without ESRPs must either (1) adopt their own retirement plans or (2) facilitate payroll deductions that are deposited into IRAs established for workers by the state. Workers can opt out of the auto-IRA program at any time. Our recent research examines how these auto-IRA programs influence employers’ decisions to offer, and worker access to and participation in, ESRPs.

While there has undoubtedly been movement toward greater diversity in the investment industry, is enough being done to achieve meaningful progress and improve investment results? Greater diversity leads to better investment outcomes and makes teams more representative of the people on whose behalf they are making decisions. At WTW, we have examined several dimensions of Diversity, Equity, and Inclusion (DEI) to better understand the pace of change, identify key industry trends, and further highlight its benefits.

The U.S. retirement system relies on each individual employer to separately offer a retirement saving plan to their employees. However, employees do not typically stay with the same employer for their entire working lives; indeed, the median tenure with one employer is only five years. During a 40-year working career, participants could easily accumulate eight or more retirement accounts with different providers.

Relatively few retirement income planning strategies are more highly regarded among retirement researchers than delayed claiming of Social Security retirement benefits. Not only are Social Security retirement benefits explicitly linked to inflation — something no other lifetime income annuity offers today, but Social Security retirement benefits are also tax-advantaged and can provide attractive spousal survivor benefits. Couple these traits with a benefit formula that is based on outdated mortality assumptions and the benefits associated with delayed claiming seem pretty obvious (almost a free lunch!).

The Georgetown University Center for Retirement Initiatives (CRI) has previously written about the startling rise of student debt among older Americans. A new borrower survey from the student loan technology startup Savi and the Student Debt Crisis Center (SDCC), a student debt advocacy nonprofit, presents an in-depth look at how student debt affects the overall financial health of older adults. The survey, conducted in October 2022, included responses from 6,802 student loan borrowers age 56+ and 4,209 borrowers age 18 to 35, and covered a range of topics related to the impact of student debt on those populations. The results were striking — particularly when compared to younger borrowers.

At this year’s Center for Retirement Initiatives (CRI) Policy Innovation Forum, industry and legal experts gathered to consider how the threat of litigation affects innovation in DC plan design. How does such litigation shape the actions of plan providers, sponsors, and those who advise them, and where is the balance between protecting plan participants and allowing sponsors to innovate and improve outcomes?

The Georgetown University Center for Retirement Initiatives (CRI) annual Policy Innovation Forum is a hotbed of ideas centered on workplace savings plan coverage, plan design, investment strategies, asset allocation, emerging technologies, and more. Blending policy-makers, financial practitioners, academics, and lawyers, and held a short walk from the U.S. Capitol, it hones in on the means by which public policy defines the shape of the world’s largest retirement savings system.

The Pew Charitable Trusts recently published two issue briefs relating to the effect of investment fees on retirement savings, one looking at mutual fund fees and the other examining fees charged by Securities and Exchange Commission- (SEC-) registered investment advisers. Fees can significantly affect retirement funds: For example, an investment with a fee of just 1% more than another investment can reduce a retiree’s assets by tens of thousands of dollars. However, few retirees consider low fees to be a significant factor when deciding how to invest. 

Over the last 18 months, I have been exploring the origins and evolution of the employer-based retirement system through my podcast, The Accidental Plan Sponsor, where I seek out and listen to the stories of individuals who have shaped and influenced the system. The focus of my second season was to gain a better understanding of how other countries across the globe have tackled the challenges of building a retirement system, looking specifically at Chile, Australia, United Kingdom, and Singapore.

The 50% of Americans lacking a workplace savings or retirement plan are disproportionately non-white, ethnic minorities, and/or women. The ERISA Advisory Council’s (Council) 2021 Report to Department of Labor (DOL) Secretary Marty Walsh sought to identify the causes of and possible solutions to closing this coverage gap. (The Council is a bipartisan group of experts established under ERISA to advise the DOL about retirement and welfare plans.) The report offered some practical advice, but missed some low-hanging fruit that could make a significant difference in closing the gap and reducing systemic disparities.

Because defined contribution (DC) retirement plans have increasingly become an integral, if not the main, part of most countries’ overall pension systems, the Organization for Economic Co-operation and Development (OECD) recently issued several recommendations for the implementation and management of these plans. The recommendations are intended to build trust in the design of DC plans by ensuring that the best interest of plan participants is considered, as well as to improve the robustness of retirement systems.

Interest in including private investments in defined contribution (DC) plans continues to grow as plan sponsors look for ways to improve participant outcomes by offering alternative diversifiers. On November 10, 2021, four leading industry associations — the Defined Contribution Real Estate Council (DCREC), Defined Contribution Alternatives Association (DCALTA), Defined Contribution Institutional Investment Association (DCIIA), and Pension Real Estate Association (PREA) — collaborated on a webinar that brought together several industry experts to discuss their experience with adding alternative options to DC plans.

The future of retirement security may depend on whether we understand our demographic future. We need to pay attention because we are approaching the “Super Age” and failing to adapt today’s system to be able to meet the needs of tomorrow.

Expanding access to retirement savings options would give low- and moderate-income workers the opportunity to generate meaningful savings by the end of their careers. By beginning to save and starting sooner, private sector workers can take advantage of compounding interest investment returns. That, especially if supplemented by other incentives such as a refundable Saver’s Tax Credit, would result in significantly improved retirement income outcomes compared to workers who begin saving later in their careers.

Plan sponsors and fiduciaries have traditionally relied on advisers — from attorneys to accountants to investment consultants — to help guide decisions for their retirement plans. For decades, a cornerstone of this assistance has been making recommendations about retirement plan investment portfolios. With the rise of cyberattacks on financial institutions, a number of plan sponsors and their advisers have started to focus more time and resources on the security of their plan data, including the participant information held by service providers.

Today, more than 57 million private sector workers in the United States lack access to an employer-sponsored retirement savings plan. If left unaddressed, this gap will ensure that entire generations of young workers —Millennials and now Gen Z — are unprepared for retirement. Even worse, it will contribute to exacerbating the financial racial and gender disparities that leave historically disadvantaged communities worse off.

To date, 2021 has proven a banner year for environmental, social, and governance (ESG) considerations in investing. ESG is an umbrella term meant to capture the multitude of data points that give investors information about a company or asset that traditional financial reporting does not capture.

The pandemic exposed dangerous gaps in America’s social safety net, from disparate access to health care to the precariousness of work, but one gap in particular has gotten too little attention in the media and in Washington: the lack of access to a financially secure retirement.

Having a way to save for retirement should not depend on where you live and whom you work for, yet 46% of private sector workers — 57.3 million people — lack access to this critical tool for accumulating savings and generating income when they retire.

The Saver’s Tax Credit (“Saver’s Credit”) is a program that aims to incentivize and support retirement savings for individuals with low and medium incomes. In its current form, eligible individuals who have made a contribution to a retirement account during the tax year can receive a tax credit that reduces their tax liability for that year.

The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 requires that 401(k) and other DC plan participants receive a yearly estimate of the amount of lifetime income they could expect by annuitizing their plan accounts at retirement. The goal is to encourage folks to save more and, at retirement, consider buying an annuity to generate a stream of monthly income with at least a portion of their nest egg. The reality is likely to be different.

The Commonwealth of Massachusetts Defined Contribution CORE Plan (CORE Plan) is a 401(k) multiple employer plan (MEP) overseen by the Office of the Massachusetts State Treasurer and the first of its kind in the country. The CORE Plan was signed into law in 2012 and covers eligible nonprofit organizations with 20 or fewer employees. Since its launch on October 27, 2017, the CORE Plan has helped Massachusetts nonprofit employees save and invest for a financially secure retirement. As Treasurer, I have continued to promote expansion of the program legislatively to ensure that all workers in the nonprofit sector have access to quality employer-based retirement benefits.

As the definition of retirement evolves, the systems and plans that support it also must change. Future policy decisions will determine whether we end up looking back at a sustainable transformation of the retirement system or a rolling series of crises. Traditional defined benefit (DB) pensions used to provide workers with a steady stream of income after retirement. However, such pensions are now an endangered species, leaving younger generations of workers holding the bag to manage risks, such as longevity risk, which requires making important decisions to avoid outliving their savings.

The quest for retirement security faces significant challenges in virtually every country around the globe. Traditional defined benefit (DB) pensions are challenged by increasing life expectancies, a lower ratio of workers to retirees, and historically low interest rates — all of which have served to dramatically increase the cost of financing retirement. This cost involves a number of assumptions, and each assumption involves a level of uncertainty. Thus, the act of promising a specific level of retirement benefits to workers is an expensive and risky endeavor.

Volatile markets can be unsettling. As we manage through these unprecedented times, many defined contribution (DC) plan participants are understandably concerned about their investments, and may be wondering whether they should be making significant changes to their retirement accounts. Taking these actions can have significant long-term implications on retirement savings. History has shown that participants who stayed invested and kept savings fared better over time than participants who made significant changes to their DC accounts during market downturns.

The COVID-19 pandemic and its related economic downturn are negatively affecting retirement savings, retirement systems, plan sponsors, plan providers, and regulators. The long-term consequences may result in significant market disruptions and lower retirement incomes in the future.

As we begin to think about picking up the pieces from the coronavirus pandemic and its related impact on how Americans save, we again will come face to face with the pre-existing problems facing retirement savings in our country. The two main savings obstacles for workers today are access and participation. Let’s focus on the access part of the equation, because you can’t effectively begin to improve participation if there is no access.

COVID-19 is not only challenging the way we live on a daily basis; it is also posing significant short- and long-term economic threats that could have a lasting effect on personal financial well-being. I lead a group at PwC that coaches individuals on a wide range of financial concerns, so we see employees’ struggles during this time firsthand.

As the COVID-19 pandemic strains our healthcare system and brings the economy to its knees, the financial fragility of millions of Americans has been laid bare. The stark reality of how ill-prepared many are to weather any kind of short-term economic shock has become readily apparent.

Individuals have more choices today than ever before for how to save and prepare for retirement, but the complexity and array of options can cause confusion that leads to inaction. As the United States has moved from a retirement system based on pension-style defined benefit (DB) plans to one that relies on defined contribution (DC) programs, workers have assumed the responsibility for making their own savings and investments decisions.

At least 40 percent of Colorado’s 2.4 million private sector workers do not have access to an employer-sponsored retirement savings plan, and another 20 percent are either ineligible to participate in their employer’s plan or are self-employed or independent contractors without a plan. This group of more than 1 million uncovered workers is more likely to earn less, experience more job transitions, work fewer hours, and earn less than workers covered by a workplace retirement plan, meaning that they are more likely to be financially vulnerable, not only throughout their working years but also into old age.

Each year, approximately 5 million Americans with small retirement accounts (defined as having balances of less than $5,000) change jobs and are forced by their former employers to take distributions from their retirement savings accounts. This sets off a complicated process that often leaves the individual with less savings set aside for retirement.

In December 2019, the Congress passed and the President signed, the Setting Every Community Up for Retirement Enhancement (“SECURE”) Act. This new law can help achieve important goals, such as encouraging lifetime income solutions and allowing the creation of groups of small businesses that can offer 401(k)s together. But this legislation fails to address a simple aspect of fairness, which Congress or the Department of Labor should also address.